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The ROI of Web services and SOA -- part 1

Long gone are the days when any technology project got an automatic OK from the corporate powers that be. Today, technology has to pay its way, and any project has to clearly show where the return on investment (ROI) will be -- and even how much of an ROI the technology can be expected to deliver.

That's as true for Web services and service-oriented architecture (SOA) projects as it is for anything else. But it can be tough to know where you can expect to get ROI, how much of an ROI you can expect and how to measure ROI after deployment. In this column, I'll tell you where you can expect to find your ROI, and in part two, I'll detail what kind of return you can expect on your investment, and how to measure it once you've deployed the project.


Which companies can expect larger ROIs
One of the first factors to consider when figuring where you might expect to find ROI is the type of business your company is in. Businesses in some types of industries can expect larger ROIs than other types of industries.

Banking, insurance, telecommunications, retail and the government sector are all industries that are likely to gain substantial ROI from Web services or SOA implementations, said Michael Liebow, vice president of Web services and SOA for IBM Global Services. The reason, he noted, is that all those industries are dealing with complex, distributed environments, and they need horizontal integration capabilities -- both of which Web services and

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SOA are primed to deliver. So similar companies and industries can also expect to gain substantial ROI as well.

Liebow also noted that you're likely to find savings in asset re-use and possibly in business labor savings. But you shouldn't expect to find any in IT labor savings. And while it's entirely possible that a Web services or SOA implementation will lead to an increase in revenue, he believes that it's not a good idea to count on that ahead of time, because it's too much of an "iffy" proposition.


Four types of ROI you can expect
Ron Schmelzer, senior analyst with ZapThink, said companies are increasingly being asked to figure out ROI for their implementations. He said his firm has found that there are four typical areas where companies gain ROI from Web services.

The simplest and most straightforward is short-term, tactical ROI, which is gained from the immediate reduction in the cost of integration. "This should save you money the day after you implement it," he said. "You should be able to get an immediate savings on integration." You'll be able to get rid of middleware, reduce the time in transformational mapping and get other similar benefits.

"It's easily quantifiable, because you can identify the business processes and systems that were replaced," he said.

The second kind of ROI, he said, is in the re-use of applications, and this will show up in the short to medium term. This is a bit tougher to get than integration costs, Schmelzer said. To achieve it, a company has to identify areas of commonality between applications, and build services for them. That way, the total amount of design, programming and development time can be reduced, because the service can be designed only once, instead of multiple times.

The third area, he said, is in business agility, and this ROI benefit can be gained in the medium to long term. This one is tougher to measure -- it allows companies and systems to make more spontaneous and quicker business decisions. So the ROI would be realized in a faster time to market, and in the ability to link directly to business partners. The benefit here is in extra revenue, something that IBM's Liebow warned that you can't count on. Schmelzer agreed that this is tough to figure on. He also warned that the technology itself is not enough to guarantee an ROI, because it requires that decision makers use the technology to make revenue-enhancing decisions.

The fourth area of ROI is one that Liebow identified as well, and both said it is very difficult, if not impossible, to calculate an actual ROI for it. Nonetheless, it is absolutely vital for many companies -- so much so that some companies deploy an SOA solely to solve this problem.

The problem, Schmelzer said, is in complying with governmental regulations such as the Health Insurance Portability and Accountability Act (HIPPA) and Sarbanes-Oxley Act. Sarbanes-Oxley requires that companies adhere to record-keeping rules, and that they properly disclose financial and accounting information. HIPPA governs how health records must be handled. Both acts can carry substantial fines if they are not adhered to, so the ROI benefits here are in the reduction of risk. A company won't gain any extra revenue or ongoing revenue, but it will be much less likely to be fined. And perhaps more importantly, it won't be subject to bad publicity, which can in turn significantly harm a company's financial performance.

With all this in mind, how can you get an estimate of what kind of ROI you can achieve --- and how can you actually do an ROI estimate once you've deployed? That's what I'll cover in my next column.

Continues in Part Two

About the Author

Preston Gralla is an expert on Web services and is the author of more than 20 books, including How the Internet Works. He can be reached at preston@gralla.com.




This was first published in April 2005

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