Are you being served?

And though the debate is perhaps more mature in financial services than other industries, it is none-the-less still raging and relevant. To explore where the industry is, FST caught up with Ian Gardiner-Smith and Don Mowbray from Oracle, who explained the benefits of SOA in the context of Financial Services, and also gave us some clues to its long-term viability.

FST. We start with an obvious question, but one that can still prompt debate: What exactly is the definition of SOA?
IGS. If you look at Wikipedia, a source that is trying to give a definition that enjoys wide consensus, it describes SOA as ‘a perspective of software architecture that defines the use of loosely coupled software services to support the requirements of the business processes and software users’.

DM. Yes, but while Oracle agrees with the spirit of this definition, our definition tries to tie SOA down to something more concrete, by adding that software services are reusable business functions that can be discovered and invoked using open standard protocols across networks. Services can in turn be combined and orchestrated to produce composite services and business processes, in accordance with pre-defined policies, security and service level agreements (SLAs).

FST. And why is SOA so important?
DM. SOA helps an enterprise respond quickly and cost-effectively to the changing market conditions it faces. Much of this responsiveness in SOA comes down to the improved alignment of business and IT and consequentially more efficient business processes.

IGS. The SOA philosophy allows us to better address the mismatch between business and IT language or, to put another way, to provide a more direct translation of business to technology. As SOA services can be defined in business process terms, it is easier to relate the business value of processes to their real cost in IT and human resource terms. SOA also allows us to use a language that describes the response to operational business events (e.g. the trigger for a credit risk check or an insurance claim) and the strategic business events that drive process change (e.g. a change in market conditions). Well-implemented event driven SOA built on sound information architecture provides a platform for agile strategic and operational business change by enabling the response to real business events.

FST. So is increased agility a factor driving business to adopt SOA in their systems?
IGS. Absolutely, you’ve got the market demanding new financial products and services while at the same time institutions need to extend and evolve aging, high maintenance systems. SOA is seen as a way of addressing both of these needs in an evolutionary fashion.

DM. Another compounding factor is the significant increase in regulatory and compliance expectations we are seeing. This is driving institutions towards a holistic approach to real time risk management; SOA enables this by providing mechanisms for transparency in business process, information architecture and infrastructure components.

FST. SOA seems like it has really hit a tipping point in the last year or so. Why is this?
DM. The answer is fairly straightforward, SOA really addresses a set of problems that have faced IT for decades and which people have attempted to address with a number of different architectural styles. For example the 80s saw Client-Server and the 90s multi-tier (using object oriented technologies along with Corba and Com), but it is only in the 00s that a number of key technology and financial service standards have emerged that are specifically designed for this architectural style and all use Extensible Markup Language (XML) as their lingua franca.

IGS. It is only now that these technologies have become mature enough for mission critical implementations, and the standards been adopted by the industry-at-large”.

FST. And why are these standards so important?
IGS. Because they enable organisations to address problems in a more coherent and interoperable way, with this interoperability extending to customers and partners too. This explains the phenomenal growth in XML based financial service standards such as the ACORD standards for Insurance, SwiftNET for Payments and a veritable alphabet soup of banking standards such as FIX, FPML, OFX, IFX, MDDL and RIXML.

FST. And, of course, these standards mean that vendors such as Oracle can really offer value to business?
DM. Oracle has been standards-driven from the beginning with its active adoption of SQL for the database. We now support the key SOA standards and in many cases actively drive those standards on the industry standards bodies too.

FST. So, we have already heard that SOAs strengths in business agility and better business- IT alignment along with the increasing pressure from regulators are key to driving the adoption of SOA, but are there any other benefits we can expect?
DM. Well, where do you start? Ultimately service architectures allow organisations to focus more resources and budget on innovation and on delivering new business services. We have already mentioned reuse in terms of business function, but once SOA is up and running it will also breathe new life into existing software and hardware assets as existing functionality (maybe embedded in some 30 year old loan application) can be exposed through SOA services allowing those assets to be re-used.

FST. Does this mean that we can keep our old mainframes and still get benefits from SOA?
DM. Exactly, in financial services it is recognised that mainframes play a significant role in the IT landscape and many organisations are seeking to extend the value of these systems and only migrate to newer platforms over time. Maintaining these legacy systems can become an enormous drain on resources, but while companies would like to move on, ‘ripping and replacing’ the mainframe can be extremely risky and costly. Just consider how much of the enterprise business rules are tied up in those systems. The challenge for SOA is to deliver value within the context of existing legacy applications.

IGS. One approach is to leverage SOA techniques to retire the mainframe application, one service at a time. The first step is to retire the process code of the mainframe application and rebuild the process layer in Business Process Execution Language (BPEL) on top of a services layer that exposes the mainframe business logic. Many companies find this initial step extremely beneficial, because it already gives them greater flexibility in process management and extends the value of the mainframe applications. The reuse doesn’t end with the legacy; SOA promotes and enables service reuse in general and underpins the creation of more reliable, higher-quality services on modern lower-cost technologies.

DM. An example from the Hartford insurance group illustrates this; Hartford has implemented SOA using Oracle technology to orchestrate their underwriting, claims and policy management processes, using it to modernise an existing mainframe system and provide integration with other systems.

FST. All of these benefits are great for helping IT deliver more and better business functionality, but can SOA really help with the bottom line?
DM. Sure, with lower development, maintenance and integration costs. These accrue because SOA services are built at a component level with well defined with SLAs and standardised loosely coupled interfaces that represent real-life business building blocks. These are then assembled into applications to address business needs through a process of orchestration. Because these building blocks represent core business capabilities, they can be rapidly recon- figured and reassembled to meet new needs significantly reducing development costs. This reduced complexity and strict control of interfaces also leads to lower maintenance costs. The loose coupling of these services adds icing to the cake by reducing service interdependencies and thus lowering the complexity and subsequent cost of integration (commonly thought to make up 70 percent of the cost of IT projects).

FST. Could this capability help somehow with overcoming some of the issues institutions are seeing with outsourcing?
IGS. Yes, these same features also enable more predictable and cost effective outsourcing capabilities. As anyone who’s been involved in outsourcing either IT functions or business processes will know, there are two major barriers to success, one is the potential loss of operational control, and the other is managing the additional strain put on the process interfaces between the outsourcer and the provider. Given the importance and cost of managing these it is no surprise that many institutions are bringing previously outsourced functions back in-house. By utilising service architectures, the relationships between business processes and supporting services are well defined thus making it easier to incorporate outsourced services in the overall business process. Additionally the service contracts can contain the additional information needed to maintain service audit capability, the result being better quality and more efficient outsourcing. Maybe we could call this Service Oriented Outsourcing.

FST. So, if the benefits of SOA are legion, how widespread has its adoption been in the Financial Services industry?
IGS. The Financial Services industry was an early adopter of SOA, particularly in the case of larger institutions, who have typically built their own core systems. They see SOA as a way of renovating these systems in a stepwise fashion and building the foundation for managing their evolution over time.

DM. A good example is what we have seen at Webster in the US. Webster is using SOA to reduce transaction error rates and costs. But more importantly it is evolving beyond the static workflows commonplace in the industry. Using Oracle’s industry-standard Business Process Execution Language (BPEL), Webster has created a payment processing solution that is easy to modify, based on customer, time of day, liquidity, or just about any other factor you can think of. As a result, it is more responsive to its customers and is able to dynamically modify its systems as new opportunities arise.

IGS. Utilising SOA standards allows them to purchase commodity services while enabling cost effective customised development where they feel they need competitive advantage or localised specialization.

DM. In another example, Cattles PLC in the UK, which provides high-risk loans, developed a SOA solution that orchestrates the loan approval process and provides the ability to monitor the key business metrics. This platform is successfully supporting an initial implementation of more than 2000 users and processing 25,000 plus loan applications per day.

FST. And how do Financial Service institutions get hold of SOA solutions tailored for their needs – can they buy off the shelf solutions?
IGS. Not quite yet, some packaged applications have already been service enabled, including some of Oracle’s, so they can be used to build composite application in a SOA fashion, but it is early days for core financial services off the shelf. I would however point out that things are moving fast. For instance, i-flex, a majority-owned subsidiary of Oracle, has already brought out an extensive repository of end-to-end banking business processes (iPFB, i-flex Process Framework for Banking). This framework can be utilised in consulting engagements today, and will form the basis of the next generation i-flex architecture (SOA of course) in the not too distant future.

FST. And how exactly does Oracle support SOA in the software it sells today?
DM. In particular, the Oracle SOA Suite, part of the Fusion Middleware stable, is a complete set of service infrastructure components that enable services to be created, managed, and orchestrated into composite applications and business processes. One of the major features of this Suite’s and the rest of Fusion middleware is its ‘hot-pluggable’ capability. By this we mean the ability to integrate modules of Oracle software into a heterogeneous environments, enabling customers to take advantage of the many benefits SOAs provide, while maximising the investment in their current technologies. Using this capability, organisations can seamlessly connect, extend and evolve their existing IT systems to rapidly deliver new business services.

IGS. Most analysts rate Oracle’s offering highly: for example, Forrester, in its December 2006 report on BPM Suites says Oracle has a leading role in the Integration-Centric BPM Market. These findings are confirmed in the marketplace as well, as illustrated by the latest survey of fortune 1000 company’s SOA intentions published in a December 2006 Goldman Sachs investor report. The survey showed Oracle ranks number one as preferred strategic partner for deploying SOA, outperforming Microsoft, SAP, IBM and the rest. Top marks were earned in most demanding and active SOA space – that of large multinational organizations – by an 80 percent leap in Oracle preference since June 2005, underscoring Oracle’s spectacular momentum.

DM. Perhaps much of the reason for this can be found in the fact that Oracle’s SOA offering consists of the best-integrated set of popular best-of-breed technologies that includes the first native BPEL engine for web services orchestration and execution as part of its Oracle Fusion Middleware family of products (see diagram).

IGS. In addition, Oracle offers a Business Process Analysis Suite based on the market leading ARIS design platform from IDS Schemer. This delivers a comprehensive set of integrated products allowing business users to design, model, simulate, and optimise business processes to achieve maximum operational efficiency. The BPA suite is, of course, fully integrated with Oracle’s Fusion Middleware. Together these best of breed components provide the most enterprise adaptability and the best total ownership experience combined with the world’s number one information management platform.

FST. As we draw to a close we ask about the future – is SOA just a passing trend, to be replaced by the next big thing, or will most enterprises, in time, be running on Service architecture?
IGS. All of the world's enterprise software vendors, including Oracle, have bet their future on SOA. Oracle itself is re-developing its entire applications stack on SOA principles and, as already discussed, a number of enterprises have already made significant investments in SOA. In time we believe you will find it difficult to do business without doing SOA, and we are not alone in this belief.

DM. Gartner, for example, expect SOA will be used in more than 80 percent of mission-critical applications and business process by 2010, and that more than 65 percent of packaged applications’ users will adopt ‘SOA enabled’ versions of their core business application products. And looking at our own business, in FY06, revenue for Oracle Fusion Middleware exceeded US$1 Billion, and license revenues grew a healthy 34.5 percent in FY06, culminating in a 57 percent increase in the final quarter. If our business is anything to go by, all the talk about SOA in the last year is being backed up by action on the part of customers.

IGS. But of course, SOA is not the holy grail of computing technology, and we are sure to see many more advances including other concepts, architectures and technologies. But SOA will prevail, as with relational databases that came before, as it serves as a new foundation on which higher-level capabilities can be built now, and into the future.

Ian Gardiner-Smith is a senior director responsible for architecture in the Financial Services practice at Oracle Software EMEA. Don Mowbray is Director of SOA and Integration for Oracle Corporation Europe Middle East Africa.