Hagel on Web Services

From The McKinsey Quarterly: Edging into Web services:

The advent of Web services promises to let a company connect its applications to any number of trading partners relatively inexpensively and easily. Of course, Web services could also be used to link applications inside the company… The best use of Web services currently lies in edge applications, where connectivity problems are more complex, efficiency gains are greater in the near term, and alternative ways of connecting companies are limited.

These evolving technologies are essentially a number of Web-based standards and protocols that enable companies to connect applications and data directly to one another. The standards can be incorporated in a layer of software (an interface) that companies put atop an existing application, thereby allowing any other application with a similar interface to link up with it and communicate data. Writing this layer of middleware is far less expensive than customized codeabout $30,000 for a modest connection between two applications, according to one financial-services company, compared with $800,000 for the customized version. Moreover, code rooted in a feature of an application makes for a rigid connection: if the underlying application is changed, the customized connection must also be changed or even rewritten. Web services let companies tinker with the application while avoiding changes to the interface.

What this means for business is that a company like Nike, with many product iterations and a broad range of partners, will be able to connect its own technology to that of its suppliers more efficiently, reducing the need for employees to send, receive, and reenter transaction data manually. Such a company could expand the amount and kind of data it exchanges with trading partners, thus not only improving the way both sides interact and collaborate but also transforming the way they develop, make, and distribute products. By using Web services to enhance collaboration in business alliances, some companies could even expand the value of the goods and services they deliver to customers. In addition, Nike would enjoy greater flexibility, so that when fashions changed the company could add new suppliers and drop others quickly and inexpensively. Similarly, it would be able to connect more readily to the large and fragmented retailer network that sells its shoes.

There is also an article by Hagel in the October issue of the Harvard Business Review.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.