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Q&A: John Hagel on the business impact of Web services
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November 04, 2002 (Computerworld) -- Even though Web services are a fairly nascent set of technologies, there are already fundamental flaws with some of the "conventional wisdom" that has emerged from the practice. So says John Hagel III, an independent consultant and author whose latest book with John Seely Brown -- Out of the Box: Strategies for Achieving Profits Today & Growth Tomorrow Through Web Services (Harvard Business School Press) -- went on sale last week.
Hagel, 52, the former chief strategy officer at 12 Entrepreneuring Inc., a San Francisco-based operating company that nurtured IT innovation, was also formerly the leader of the e-commerce practice at New York-based McKinsey & Co. He spoke with Computerworld earlier today about some of the misconceptions surrounding Web services and how they can help companies achieve quick payback through minimal investments.
Q: What led you to write a book on this topic?
John Hagel III, an independent consultant and author
Q: What are some of the misconceptions that both IT and business executives have about Web services?
A: It's still in the early stages for Web services, but there's some conventional wisdom that I think is very wrong. For example, some people believe that early adopters should focus on using Web services to dynamically compose a set of applications from a series of subservices. In truth, much of what's being done today is connecting mundane legacy applications with each other. It's not that exciting; it's basic plumbing activity. But a lot of inefficiencies in business today have to do with lack of integration between systems, what I call "swivel-chair'" applications. The real business value in the near term is around connecting existing applications.
A second contrarian view to conventional wisdom is that the initial integration will occur within the firewall. But the early work being done is at the edge of the enterprise, such as connecting procurement and sales processes with other activities. So I think there's a fair amount of misconception about where the business value is and where the technology is going to be deployed soonest.
Q: Who are the early adopters?
A: I'm seeing two parallel paths of adoption. One is within the IT department, where there are early adoption efforts to see how it works and how it can help integrate systems. The other adoption path is coming from the business side, where business executives are faced with having to reduce capital budgets by 25% to 30% and they're looking at Web services as one way of doing that. To date, there's been more focus [on Web services by business unit executives] than from the IT departments.
Q: What is some of the potential impact of business-driven Web services on CIOs and IT managers?
A: In general, CIOs have become very risk-averse, in part because of a backlash that returns on technology investments weren't there over the past five to 10 years. Also, CIOs are facing shortening tenures; they tend to get fired with alarming frequency because [IT projects] tend to blow up. The best way to not have things blow up is to not put new things into the mix. There's a challenge for CIOs to avoid the backlash and move to being focused on how technology can help these major business initiatives.
Q: Is there a reluctance among CEOs and chief financial officers to invest in Web services?
A: There are a couple of ways of looking at it. Try painting an integration path under a multiyear process, and most executives don't have payback patience to look beyond six to 12 months.
But there's a second way of presenting Web services implementations, targeted at attacking business inefficiencies today. What's appealing about the Web services proposition at that level is a way to reduce operating costs or inventories in a very short period of time -- six to 12 months -- with a modest investment, since it's an overlay on existing technologies instead of ripping out existing systems. You can take a particular area within a function and find high inefficiencies in integration and achieve savings in a short period of time. There's a lot of interest in that, given the economic pressures today. It very much has to be positioned as a cost-savings proposition. Growth propositions have very limited appeal today.
Q: What size investments are we talking about?
A: It's hard to say, since it varies with the number of applications and business partners that are integrated together. Typically, the investment is an order of magnitude lower than with conventional technologies such as [electronic data interchange].
Q: Who are some Web services innovators that are cited in your book?
A: Early adoption isn't all that innovative, since again we're talking about mundane plumbing type of work to connect applications to work more efficiently together. Citibank has used Web services to expose its payment processing engine that it used to solely use internally. ... Now it's exposed to third parties such as Commerce One. What they've done is taken an internal capability and used Web services to change from a cost center into a revenue center. Eastman Chemical has used Web Services to help them connect their logistics operations into the applications of their customers to automate their connections. This has helped them to carve out a major business and revenue center that was embedded in Eastman Chemical.
Q: Any tips for IT or business executives who are considering Web services?
A: Early adoption is very opportunistic and random. Web services can be very useful to a business executive who has a particular problem and wants to use the technology to deliver benefits. But the challenge is that it's not a systematic approach and it doesn't consider whether it's the highest value area that should be approached. That's where IT and business executives should come together and prioritize them in terms of their potential business impact, typically over a six- to 12-month time frame. The business line executives have a better ability to prioritize along the business impact, but the CIO is critical to review the limitations and capabilities of the technologies today.
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