In June, the CIO of a global telecommunications firm gave a candid assessment of his enterprise software infrastructure. "Frankly," he said, "it's a mess." The mess he referred to is a conglomeration of some 800 different applications. These include more than a dozen different billing systems, the heart of the revenue-generating side of the business.
The context for this stark view was a dinner conversation with Scott Opitz, senior vice president of marketing for WebMethods in Fairfax, VA. WebMethods is one of a handful of independent application integration software vendors.
Opitz says he hears similar laments from IT executives across all major industries. The telecommunications CIO summed it up when he said, "The only piece of software that is really strategic to me right now is my integration backbone."
There is nothing new about integration. Getting application programs to communicate is a problem as old as software. In the mid-1990s a new acronym emerged, EAI (enterprise application integration). Now EAI gets respect: In these days of lean technology spending, it is one of the few categories claiming a larger piece of the pie.
"The decline in technology spending is a fact of life," says Larry Calabro, principal with Deloitte Consulting in Chicago, "but, overall, clients are spending a larger percentage of their portfolios on integration." Christy Bass, managing partner of global business solutions at Accenture, agrees. "We see more resilience in this space than in any other technology category. A company may decide to put that next SAP implementation on hold, but they tend to move ahead with integration projects."
The reason is simple. Integration promises the one thing every corporate technology executive desperately needs these days: more performance and better ROI from existing applications. "EAI allows clients to truly unlock the value of applications they have already invested in," says Calabro. In fact, EAI has risen so much in status that it is now on equal footing with the very applications that need to be integrated, he says. "Think of it like this," he explains. "You have a matrix of dots which are all the critical applications both inside and outside a large organization. Now think of all the white space in between these dots. That is where the integration takes place, and you can see it is really the largest application."
The Technology Formerly Known as …
The numbers back this up. Integration continues to make the top of the charts in technology spending plan surveys. (See box.) And consultants are paying attention. "All the spending intention surveys I have seen indicate that when IT budgets start to open up again, integration will be one of the first areas to show it," says Marc Hebert, executive vice president for marketing and alliances at Sierra Atlantic, a consulting firm in Fremont, CA.
Sierra Atlantic is, in fact, betting the company on integration. It is a small firm with about 225 consultants, and Hebert says the whole business model is now focused on the integration of applications. Most of this effort is concentrated on manufacturing.
Calabro's group at Deloitte has about 375 EAI consultants. Bass says Accenture has about 400 consultants in its global EAI practice. Lee Knight, director of EAI for the Americas Theater at PricewaterhouseCoopers, could not comment on the size of his practice because PwC is in a transition period.
"Any number I give right now is likely to be wrong by the time this article appears," says Knight, "but I can tell you that the evolution of EAI has brought us to perhaps the most exciting time in information processing in the last 25 years." What has really happened, Knight explains, is that it is finally possible to implement a long-known principle in information technology. "For over two decades we have understood the value in separating the presentation, the data, and the business logic. But until recently we did not have the processing power to make this practical."
Keeping these functions separate is what allows you to build a truly distributed computing architecture, and that is where EAI comes into its own. "In the beginning," says Knight, "you used to write little pieces of code for both the sending application and the receiving application, and whenever you made changes, these had to be rewritten. When you start adding more applications, you get a rat's nest of interfaces."
In an environment of distributed systems, things quickly become unmanageable. The need for a better way to hook these systems together and the fact that IT executives finally have the processing power to do it are the two real drivers of EAI, according to Knight.
"Part of my job as a consultant," he says, "is to explain to clients that EAI is really part of a distributed architecture. People aren't used to thinking of it this way." In fact, Knight would like to find a different term. "I think we are on the verge of a new era in information processing and information sharing, which is why I think of it as 'the technology formerly known as EAI.'"
More than Tool Jocks
Whether or not it gets a new name, there is no doubt that the nature of EAI is changing rapidly. Initially EAI vendors were primarily concerned with giving customers a layer of middleware with lots of connectors. These connectors were built to hook into popular applications from the likes of SAP, PeopleSoft, and Siebel. The more connectors an EAI vendor had, the stronger the sales pitch it could make.
Connectors are still important but they are now seen as low-level plumbing compared with something more interesting, BPM (business process management). "All the EAI vendors are doing more of this now," says Mike Gilpin, analyst with the Giga Information Group. "Some of them like Vitria and CrossWorlds had it from the start, but the rest have quickly added it."
IBM acquired CrossWorlds in October of last year, but Vitria remains one of the leading independent EAI vendors. Ted Murguia, vice president of product marketing at Vitria in Sunnyvale, CA, says it was never enough to just provide connectors for popular applications. "These are necessary," explains Murguia, but you also need to look at the people, systems, and data that are involved. What happens, for example, if there is an error? A connector that ties Oracle to PeopleSoft won't help you handle and process an exception."
Another of the independents, SeeBeyond, in Monrovia, CA, is also talking about BPM. "You can think of BPM as one more layer in the EAI stack," says Kate Mitchell, senior vice president of marketing and business development at SeeBeyond. At one end our BPM layer is a modeling tool that generates the data mapping and data routing between applications. And at the other end it is a tool for monitoring the flow of information and handling exceptions."
Murguia boldly predicts that yesterday's EAI, the low-level plumbing, will all but disappear in the near future. "Connectors will all be standardized around Web services," he says. "The real value of EAI is already shifting to BPM."
And this, he continues, is good news for consultants. "Applying best practices to automated EAI tools with BPM technology is a high-margin business with high-value intellectual property. That is exactly where consultants want to be." No doubt this is why Deloitte's Calabro, when he talks about his integration specialists, insists that "These people are not just EAI tool jocks."
The Fog Lifts
Fred Meyer, chief strategy officer for EAI vendor Tibco in Palo Alto, CA, agrees that the value in integration is shifting to higher-level business processes. But he says that connectors built with universal components are not going to just disappear into the sea of Web services.
"Believe me," says Meyer, "we would love to see it happen, since we devote a lot of resources to building connectors and they are not a high-margin business. Standards like XML certainly help, but it is still going to be the case that your purchase order will not look exactly like mine." Tibco, however, like its competitors, is focusing more than ever on business processes. Tibco cut its teeth in the financial services industry, an early adopter of EAI technology. Now the company is working hard to support the integration of complex, financial business processes mandated by the STP (straight through processing) initiative (see sidebar).
Analyst Kimberly Knickle with AMR Research in Boston says EAI will always involve a combination of application connectors and business process integration. She agrees with other analysts and consultants who say the adoption of Web services standards will help drive the market. In fact, AMR is looking for a near-term market inflection point in EAI (see box). If it happens, however, it will be due to the perceived ROI, not to any specific standard or technology. Tibco's Fred Meyer puts it as follows:
"Companies recognize that they have spent a tremendous amount of money on systems over the last 10 to 20 years. But, in isolation, much of their value is hidden. When you integrate them, the fog lifts and you can see what your business is doing."
Sidebar: Upcoming Deadlines Drive EAI in Health Care and Finance
Mandates in two of the industries that helped launch enterprise application integration (EAI) should fuel considerable EAI consulting action over the next few years. The federal government imposes HIPAA (the Health Insurance Portability and Accounting Act of 1996). STP (Straight Through Processing) for the financial services industry is a self-imposed, trade organization-sponsored initiative.
"In both cases, organizations will be under increasing pressure to streamline processes by integrating systems both internal and external, and this will drive EAI business," says Larry Calabro, principal with Deloitte Consulting in Chicago.
HIPAA requires large health care providers to implement changes by October 15, 2003. These providers must adopt standards and business practices that will reduce paperwork and increase the efficiency of claims processing. The work required to do this has been compared to other massive technology updates, namely Y2K readiness and the adoption of the European common currency. Calabro says that getting applications to share information more efficiently will be central to this effort.
STP is a voluntary measure sponsored by GSTPA (Global Straight Through Processing Association), a financial services trade group. Financial service companies are in near unanimous agreement on the need to move quickly to what is commonly called T + 1 processing. T + 1 means that a trade, such as a stock purchase order, would be completely settled one day after the order is placed. Currently the industry operates in a T + 3 mode.
The original STP goal was to be T + 1-compliant by 2005. Now, in the wake of September 11 with security concerns taking a higher profile, there is some debate as to the feasibility of this timetable. In any case the industry remains committed to T + 1, which, again, implies a tremendous amount of integration work over the next few years. A typical trading scenario involves an institutional investor on the buy-side placing an order with a broker. This alone involves several systems on the buy-side and the sell-side. On top of that there are completely separate processes and systems that kick in at the settlement phase.
A true T + 1 system would necessitate getting most of these systems to share information seamlessly and automatically. This is EAI at its most ambitious and complex. Some of the leading EAI vendors like Tibco are concentrating a good bit of their development efforts on supporting STP. "I have seen estimates that financial institutions will spend as much as $25 billion over the next five to ten years on STP," says Fred Meyer, chief strategy officer at Tibco.
Vitria, another EAI vendor, has already written software modules to support HIPAA and STP. "There are tremendous consulting opportunities here," says Ted Murguia, vice president of product marketing at Vitria. "Both (HIPAA and STP) are about business process improvement. That begs for a consultant who can come in, understand, document, and implement the changes."
Sidebar: Integration Tops the Charts
A January Morgan Stanley survey of 225 IT executives from Fortune 1000 companies revealed:
• Thirty-five percent rated application integration as the top priority, tying for first place. The only other category that rated as high was security, also at 35 percent.
A June survey of large (most had more than 1,000 employees) organizations from SoundView Technology Corp. and Giga Information Group revealed:
• Of 150 respondents, 75 percent said they expected spending on integration to show an increase in 2002 over 2001.
Sidebar: Integration Has a Future
A March survey by AMR Research of 150 large (most had more than 2,500 employees) companies, all of which had completed some application integration work in the previous 12 months, revealed:
• Forty-four percent of companies integrate only 3 percent of applications in their portfolios.
• The average cost of in-house integration projects is $2.1 million. The average cost of integration projects using an integration product is $1.4 million.
• AMR expects the integration product market to hit an inflection growth point that could come as early as 2003.
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