THE NEXT REVOLUTION IN PRODUCTIVITY

By: Merrifield, Ric, Calhoun, Jack, Stevens, Dennis,
Harvard Business Review, June 2008, Vol. 86, Issue 6

Service-Oriented Architecture

Over the past 25 years, rapid advances in IT and operations design and practices revolutionized the way organizations conducted business and yielded huge productivity gains. Capitalizing on information technology, reeingineering, and other process-redesign techniques helped organizations eliminate some tasks and integrate others that had been imprisoned in functional silos. The result was much more efficient, cross-functional processes for procuring supplies, taking and fulfilling orders, manufacturing products, providing services, delivering offerings to customers, and so on. Collectively, these innovations have helped companies reduce costs by hundreds of millions -- sometimes even billions -- of dollars, cut order-delivery times by 50% or more, and significantly boost quality.

For the most part, however, reengineering has involved recasting processes and the information systems that support them in a proprietary, rather than a standardized, form -- that is, customized for individual organizations. Such designs make it difficult and expensive for businesses to share, consolidate, and change processes. For example, you can't rip out FedEx's order-fulfillment process and the computer systems behind it (or any component of the process or the systems) and plug them into another company. That limitation has made it tough for FedEx to integrate the many logistics companies it has acquired.

The result: Virtually all large companies suffer from an enormous duplication of activities; they continue to create and perform hundreds of noncore tasks that would ideally be outsourced; and they are spending exorbitant amounts on IT projects in order to support redundant and nonstrategic operations and to update core processes.

One reason that reengineering focused on creating better proprietary processes is that 20 years ago, in the early days of the process-redesign revolution, the internet was not what it is today:

Also missing until this decade were methods of designing computer systems that permit capabilities to be shared over the internet as web services. That's the essence of SOA: It provides guidelines that allow software developers to design systems in stand-alone chunks of computer code, each specifying the critical outcomes, performance metrics, and interfaces between a discrete activity and other services.

SOA has a great potential to improve productivity. At this point in time,still many companies are still wary of SOA. Even companies that have adopted SOA, are not using SOA to create more productive and focused organizations or to slash costs by purging duplicative operations and technologies. They are not revisiting the fundamental design of their operations.