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From Resource,
January 2007
Copyright by LOMA
SOA:
Hype or Reality?
Resource
talks with TowerGroup’s Deborah Smallwood to uncover the truth behind the
recent SOA buzz.
By Tammy J. McInturff
There is a lot of buzz about
service-oriented architecture (SOA) today in the insurance industry, which may
leave some companies wondering if SOA is just the latest technology hype.
Industry research firm TowerGroup, in partnership with ACORD, set out to find
just how far along the industry is with its adoption of SOA, and the results
were surprising. Resource recently talked with
Deborah Smallwood, managing director of the TowerGroup Insurance practice, about
the findings of their recent SOA study.
There are many definitions out there for SOA and Web services. Wikipedia defines
the term service-oriented architecture as “a perspective of software
architecture that defines the use of loosely coupled software services to
support requirements of the business processes and software users. In an SOA
environment, resources on a network are made available as independent services
that can be accessed without knowledge of their underlying platform
implementation.” Smallwood said that TowerGroup does not have its own specific
definition but it has been collecting definitions from other companies like
Microsoft, IBM, Sun and BEA. “When we interviewed the first set of carriers,
one global CIO basically said ‘SOA is the culmination of common sense,’”
she said. “SOA is really a philosophy. It is the next evolution of
technologies available. It is a framework. Some companies call SOA a business
architecture; some call it an application architecture and some call it a
framework or a structure. It is a framework, a new paradigm of working with the
evolution of maturity of technologies.”
SOA is
obviously not a new thing, but it has become a hot topic and focus with
insurance companies lately. Smallwood said part of the motivation behind the
recent focus on SOA is reusability, the possibility of lowering the total cost
of ownership and scalability. “Because their total cost of ownership has gone
down with SOA, the initial cost may be high but because of the reusability and
the scalability it can drive down total cost of ownership,” she said.
Web
Services and SOA
A service-oriented architecture
is not tied to a specific technology and can be implemented using a broad range
of technologies, including RPC, DCOM, REST, ORB or Web Services.
There
is some confusion about the relationship between Web services and SOA. Resource
asked Smallwood to explain the distinction between Web services and SOA. Are Web
services simply one direction that SOA can take? Smallwood explained, “SOA is
a philosophy. Web services are a vehicle to implement that philosophy. So if SOA
is the philosophy, Web services are the backbone of SOA and then standards are
the DNA of all of it.”
Misconceptions and
Challenges
There are a number of
misconceptions about SOA. Smallwood discussed a few of the common
misunderstandings of SOA. She said one of the most common misconceptions is that
“it is a silver bullet. Another misconception is that it is a new generation
of technology. In reality it is the maturity and evolution of the technologies
that we have been using for years.”
Smallwood
also discussed the biggest technology challenges to implementing SOA. “There
are two common business challenges. The business has to start really thinking
about the business strategies and looking at their business processes from a
business component prospective. They need to start mapping out core business
functionality and core capabilities, so that is a different mindset. The other
challenge on the business side is when you start to implement services at an
enterprise level, budgeting and cost allocations have to be reexamined. Because
if you are building an enterprise service around predictive analytics the first
unit that is going to use it runs the risk of paying for an industrial strength
enterprise solution. So what we are seeing is new models of debts and credits
against lines of businesses. So it is a whole different mindset. On the
technology side the challenges have to do with the registration, reporting and
monitoring of services and managing the performances of them long term.”
Competitive Advantage
One of the things insurers
often ask when implementing a new technology is, ‘will it give the company a
competitive edge?’ Resource asked Smallwood if
the adoption of SOA would help insurance carriers gain competitive advantage.
“In the long run it will allow them I believe to just not gain, but to
sustain. I think that the key word is ‘sustain.’ Because what we are finding
in the industry is that insurance companies are investing in technology and they
move ahead and then everyone catches up but if service-oriented architecture is
done right, with Web services and standards, it should allow them to continue to
move forward and sustain.”
All Hype?
Companies who haven’t
considered a service-oriented architecture may think that all the buzz is just
the latest industry hype or technology bandwagon. According to TowerGroup’s
research, it isn’t just hype; the insurance industry is rapidly embracing SOA,
as well as related Web services and standards. “In our research we have found
that companies are actually implementing service-oriented architectures,” said
Smallwood. “They are starting simple but as all of us know for some of these
large companies that have multiple lines of business, multiple products and
multiple backend systems a name and address change for one policy holder could
result in 10, 20, 30 different data entries. Insurance companies, with the use
of SOA and Web services, are prototyping or implementing solutions just around
name and address where they key it in once so when there are changes they only
have to make changes in one place. So it is pretty powerful. Our research has
found that there are significant investments going on. It is just not hype. The
large companies have architects, engineers and people from outside the industry
coming into the industry as employees and they are building the architecture and
the framework to support this. It is real.”
In
fact Smallwood said that the most surprising finding TowerGroup had in its SOA
research was how far along the industry is with SOA implementation. “We were
sniffing around to understand the readiness and the understanding of SOA and to
discover if it was hype or a reality and it is a reality. The investments,
especially for the large companies are pretty significant. Another surprising
finding was that because large companies are so far ahead the gap between them
and the mid tier players is pretty significant.”
Resource
asked Smallwood, in addition to IT, in what other ways will SOA affect the way
that companies conduct their business? “Well I think it goes back to the idea
of looking at your business as components and capabilities. It will force lines
of businesses to conjoin at the enterprise level to see where their capabilities
are common. And when businesses look for technology alternatives they need to
look differently in the path. Businesses often ask for traditional things like
‘I need a new claims system or I need a new policy admin’ when they really
need to look within their business operations and define their future state,
their ‘to be’ model, and talk in terms of that. They need to start to really
understand the capabilities of technology also from a component level.”
The Future of the Software
Industry
The increased interest in
implementing service-oriented architecture will most likely have an impact on
the software industry. Smallwood discussed how SOA is going to shape the future
of the software industry. “One of the reasons why we are conducting this SOA
research is that there is a perception gap between the carriers and the
vendors,” she said. “The carriers are becoming very sophisticated in their
architectures—their application architecture, their data architecture and
their technology architecture. Carriers have high demands in terms of the
capabilities of the vendors as it relates to SOA, Web services and standards.
The carrier community has raised the bar in terms of what they are expecting
from vendors so it is going to be interesting to see if the vendors respond. If
the vendors don’t respond, the carriers are going to do it without them. So I
would predict that the industry is really at a crossroad. Significant dollars
are being spent on this architecture so it is a great opportunity for the
vendors but they may miss the opportunity.”
Benefits of SOA
Insurers are finding that there
are a number of benefits to implementing service-oriented architecture. “It is
reducing the total cost of ownership, having an enterprise view, forcing IT
investments at an enterprise level, shifting some of the drives coming from the
business. It is repeatable, reuseable and scalable,” said Smallwood.
One of
the aims of SOA is to tighten links between the IT department and the rest of
the business. Resource asked Smallwood if insurance
companies that have an SOA are seeing this happen. “Yes and no,” she said.
“There are some companies that it has tightened because of the reliance on the
business really determining that. But in some cases it is actually widening the
gap because there are new terms and new technology that the business doesn’t
understand yet. So they don’t understand services or the term Web services.
They don’t even know what SOA is. So there is a potential risk that the gap
may widen but there is a great opportunity to get the business involved.”
Smallwood
said that some insurance companies that have a SOA are starting to see small
successes in terms of performance enhancement and availability.
Standards
Smallwood said that standards
are the DNA of SOA. “The role of standards is to form its own data and its own
messaging,” she said. “At the heart of the SOA architecture is the data
model and the data standards because what applications are doing is passing
data. So the data standards within an insurance company, how they talk to
agents, partners, third-party administrators and all their third-party vendors
is going to be really key. Messaging is also important. The messaging would be
for internal use so messaging between two services and messaging outside the
walls of insurance companies is also key.”
TowerGroup’s Research
In partnership with ACORD,
TowerGroup interviewed senior leadership executives at over 12 carriers and
conducted over 150 hours of data gathering and analysis across the insurance
industry. Their research found that the industry is moving forward rapidly with
the adoption of SOA, Web services and standards. The research also shows that
while industry leaders are being quiet about their progress in this area, they
are quickly advancing along a path that leverages SOA concepts, technology
tools, and techniques—linking technology plans and architectures to core
business strategies. These carriers have a single goal in mind: to harness the
use of technology and automation, to transform their business and gain / sustain
competitive advantage.
One of
the most compelling findings, according to Smallwood, “is a gap between the
insurance carrier’s requirements and what is perceived to be available in the
market place. Whether this perceived gap is accurate or not, carriers are moving
forward.”
Smallwood
also discussed the focus of TowerGroups next phase of SOA related research.
“We
now understand that the industry is moving forward with SOA. There is a need for
the vendors to support the carriers and what we heard from the carriers is that
there is a perceived gap. I use the word perceived because what we are going to
do is validate their gap. The carriers are saying we need standards, Web
services, requirements and criteria at this level and that the vendors are all
talk and not delivering. So we are going to determine what that criteria is by
the carriers and then interview 30 to 50 vendors to see how much truth there is
validate that perceived gap. Because the carriers say that a lot of the vendors
aren’t stepping up and if they don’t they are just going to do it without
them.”
Advice
Smallwood offered some advice
for insurance companies that are looking at SOA. “This is a reality,” she
said. “Insurance companies need to realize that this is clearly the next
evolution of mature technology. At some level most companies, if not every
company should at least be aware and as they make technology decisions they need
to be positioning those technology decisions in a way that eventually they can
be in a position to leverage the benefits of SOA. So for example, if you are
going to implement a policy admin system, implement it as a service. At a
minimum you can implement a whole application as a service so you are not
building 25 interfaces in and out that everything is going through a service
hub.”
About TowerGroup
TowerGroup is an advisory
research and consulting firm focused on the global financial services industry.
A respected source for trusted information and advice, TowerGroup brings many of
the world’s leading financial institutions, technology companies, and
professional services firms a deeper understanding of the business and
technology issues impacting their organizations. Headquartered near
Boston
in
Needham
,
Massachusetts
, and with offices in North America,
Europe
, and the Asia-Pacific region, TowerGroup serves a global client base.
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