Edging into Web Services: Automating the Flow of Information among Companies Is Costly and Complex. Web Services Promise to Make It Cheap and Easy
John Hagel · The McKinsey Quarterly · 2002
Companies in every sector have streamlined their internal processes by integrating systems and eliminating the manual activities once needed to coordinate the flow of information across the enterprise. Streamlining processes that involve interactions between companies has been more difficult, however: the automated connections that they currently forge with one another can funnel only certain types of information and require negotiations over the value of these expensive connections. Web services--new technologies that spring from the Internet and are used mostly to automate linkages among applications--might at last make such connections not only possible but also easy and cheap. Today, connecting systems inside a company (a procurement system and a finance system, say) can require the IT staff to write customized code that glues them together. Making connections between companies and their applications exponentially increases the job's complexity and cost. But thanks to the emergence of Web services, programmers can now write a layer of software that sits on top of an application and connects it to any other Web services-friendly application quickly, cheaply, and flexibly. In the new book Out of the Box: Strategies for Achieving Profits Today and Growth Tomorrow through Web Services, McKinsey alumnus John Ha gel argues that companies will use these technologies first at the of the enterprise--where business activities involve communications and transactions with other organizations, such as trading partners and customers. Companies that had better and cheaper connections with one another could gain cost savings in the short term and look forward in the longer term to collaborating more innovatively to give customers more value. The editors In the decade ahead, companies will pursue strategic opportunities and performance improvements abetted by a new generation of technologies called Web services. Such companies will adopt this novel approach at the edge of their enterprises, where they bump up against customers, dealers, and suppliers, as well as in activities requiring frequent interaction with any number of people and organizations--activities like customer support, marketing, procurement, and sales. As a result, these companies will forge connections among existing systems and applications less expensively and more rapidly and flexibly than they can using today's conventional technologies. Automating the flow of information between a company and its business partners has always been difficult and expensive. Many interactions thus require human intervention--for instance, employees who key into corporate systems the data retrieved from business partners through faxes, telephone calls, or even lists printed out from the systems of other companies--a practice that leads to human error. Furthermore, many companies maintain larger stocks of inventory than they really need, because the flow of information among partners in the value chains of most sectors just isn't efficient enough. Since activities near the edge of businesses abound in inefficiency, the opportunities for creating near-term value from Web services are substantial there, which makes it likely that companies will apply them in this way before using them to knit together core internal systems. Until now, though, integrating the systems of one company with those of its partners has been less feasible than integrating internal systems. Web services promise to change that. Better connections among trading partners are going to mean that companies will be able not only to streamline their edge activities but also to collaborate on improving internal processes, such as product development. But the real long-term prize of business collaboration lies in mobilizing the assets of partners to deliver more value to their customers. When cooperation among different businesses resembles the activity of a network, they can increasingly focus on innovation in their core activities, and the network becomes more efficient and flexible in what it can offer. …