Ordinarily, a wrapper conceals whatever's inside. But with new XML-based Web services standards, it's the exact opposite. Placing Web services "wrappers" around legacy systems helps to make the contents clear and accessible. Once wrapped, systems become easier to understand, to locate and to use. That's a far cry from the situation at most IT organizations, where legacy systems can't talk to each other without extensive redevelopment efforts.
Web services are a set of reusable software components, or objects, that can reside and be accessed from any location on a network by means of technologies (e.g., XML, SOAP, TCP/IP) that facilitate program-to-program communications. Essentially, the Web services model is an updated version of the object-oriented programming model that's been around for some time.
Web services bodes well for those charged with maintaining decades worth of legacy code built up through years of acquisitions. "It's time to clean up the plumbing," said Dr. Bob Sutor, director of e-business standards and strategy at IBM. "You want to make facilities at one part of the company available to another part of the company."
It's also an opportunity to free up resources, both financially and in the IT department. "Legacy systems don't talk to one another and they're very expensive to maintain, which puts a real squeeze on budgets for a bank for new development," said Warren Lewis, global managing director for the banking industry at Microsoft. "Coupling that with the drive toward multichannel delivery means that integration is a driving objective for the banking industry."
Fortunately, Web services aren't difficult to deploy. "We spent a day working with a major payment switch about moving forward on a variety of ideas," said Lewis. "They developed Web services internally based on readily available information from our Web site, without on-site technical support at all."
Also, the industry doesn't have to wait for a Big Bang in order to capitalize on the technology. Even a simple bilateral agreement can create value and opportunity.
For example, Wachovia Securities, the Richmond, Va. brokerage affiliate of Wachovia Corp., wanted to provide its customers with market data and earnings consensus estimates from Thomson Financial, a New York-based software firm and data provider, via Wachovia's Equity Spotlight research portal.
But the Thomson hook-up required a dedicated line and an on-site hardware installation-a problem given the freeze on equipment spending imposed by the merged Wachovia and First Union.
So the two companies came up with another approach. Using application integration and hosting from San Francisco-based Grand Central Communications, Thomson provided Wachovia Securities with its third-party research analysis and market data in a standardized, XML-based format, allowing both parties to transmit data over the Internet.
For its part, Thomson doesn't have to support an on-site installation at Wachovia. "Thomson can provide products and services lots of different ways, and this is just another delivery method in their toolkit," said Anthony D'Agostino, chief operating officer of equity capital markets at Wachovia Securities.
The move to XML-based standards will eventually eliminate the need for custom-installed, proprietary hardware. "As industry schemas get more and more defined, that breaks down the bumps in the road even further," said D'Agostino. "Everybody's going to call the 52-week high or low or the earnings revision the same thing-it'll be a defined tag."
Data providers that continue to rely on fixed connections risk obsolescence. "We've already changed our mindset and how we think about bringing new data into our Web applications, and virtually all applications are Web applications," said D'Agostino.
A WEB OF CHOICES
The Wachovia example points up the need to decide how far to go with Web services. On one side are those who would take the concept of Web services to every corner of the business. "The purist strategy is to continue to reengineer your systems to the lowest common denominator," said Tom McKelvey, managing director and head of the banking segment at KPMG Consulting. "If you think of a simple business process like 'Open Account' as a common denominator across your products and lines of business, then you should attach to that common business process a Web services-based chunk of code that opens an account."
The benefit to the purist strategy is that a change to the account opening procedure, such as adding a better fraud detection procedure, only has to be made in one place. "Whenever your business process changes, that Account Open process changes," said McKelvey. "That's where everybody wants to go."
On the other side are those who advocate buffering legacy code with middleware in order to "futureproof" the entire architecture. Concentrating the Web services efforts in the middleware instead of at each individual process provides a core level of functionality and access that can be extended as the need arises. "That will allow for better plug-and-play opportunities as standards get released," said McKelvey.
For example, a mortgage company client of KPMG has been building a new loan origination system. "One of their key architectural considerations is the ability to plug-and-play along a set of standards," said McKelvey. "They don't want to be tied down to only one pricing engine, or only one decision engine."
In fact, Web services are already being built around existing middleware. "You cannot buy IBM MQSeries technology that does not invoke Web services support," said IBM's Sutor. "Web services is not going to be a very hard choice."
DECONSTRUCTING THE ENTERPRISE
Proponents of Web services technology see it as an opportunity to transform business units and organizations.
"Companies like First Data are creating more value than most credit card organizations," said Shanker Ramamurthy, a partner in PwC Consulting's financial services practice. "They have optimized certain components around manufacturing and operations, and they're able to use the Web to provide those services."
Another example is Phoenix, Ariz.-based Visualize, which has teamed up with IBM to create a Web services business that will offer current stock prices and meaningful ways of viewing financial data. Just as that type of startup may chip away at entrenched market data providers, others could pose a threat to banks.
The challenge calls for preemptive measures. "Virtually every large organization needs to step back, re-look at its business model and deconstruct it into its business building blocks...and then optimize each component," said Ramamurthy.
The deconstruction process may open up a host of opportunities, Ramamurthy said. "You might look at outsourcing, joint ventures, co-sourcing or offshoring. If you're best-in-class at a particular component, you might turn that into a revenue center."