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Sunday, December 19, 2004The Horizontal Economy, Web Services and IT Consolidation -Part I( Via ZDnet). The horizontal economy is based on recent advances in technology - in telecom, computing and processes. In the late 1930s, economist Ronald Coase (later to win the Nobel prize) wrote an influential paper examining why firms tend to keep some activities in-house, yet rely on an open market of suppliers and partners for other things. Coase learned that "transaction costs" – the costs associated with coordinating and collaborating with outside firms – often were just too high. Under the circumstances, vertical integration made perfect sense. Unfortunately, it often tended to undermine entrepreneurialism, replacing it with excessive rules and schlerotic corporate bureaucracy. Much has changed since then. New technologies of communication, information and transportation have radically reduced transaction costs. Now, it’s possible for companies such as Dell Computer and Procter & Gamble to tout "virtual integration" – a business strategy focused on building dynamic relationships with partners and suppliers. As David Moschella notes in his impressive book Customer-Driven IT, Web services have the potential to go way beyond today’s focus on internal IT integration and leverage to drive far-reaching new waves of collaborative commerce. Imagine purchasing business processes and services on the Web – often, in real-time – much as we now purchase books from Amazon and tickets from Travelocity. "The real change, if it is to come, will have to be in the fundamental structure of companies and even the economy itself," he writes. "Many Web services advocates have argued that by increasing the flow of information and lowering transaction costs, the Web will eventually create a much more specialized horizontal economy in the United States and other technologically advanced nations. According to this scenario, longer, more integrated value chains will become the dominant economic pattern as specific business processes evolve into specialized third-party offerings."HP's Carly Fiorina expands this thought, "Value in this era of technology is delivered horizontally. Not in vertical silos", the ’80s and the ’90s was the era in which value was created with vertical organizations and technology was implemented vertically. Vertically by division, by department, by application, by process. Content was connected to very specific devices or infrastructures were connected to very specific applications. But stand-alone islands of technology no longer drive sufficient value. And you can look in any industry, any part of government or society and what everyone is talking about is the requirement for silos to begin to interact and interoperate. Silos can’t interact and interoperate unless the technology does. And so today, it’s about making a heterogenous world work together and speak a common language. It’s about connecting up what was not connected before. And this is not just about networking devices. It’s about networking businesses and companies and employees and suppliers to customers. And getting those silos to talk to each other. It is now about horizontal value creation, not vertical." Fiorina then goes on to apply this concept, quite specifically, to service-oriented IT: "You have to increase the business value of IT by delivering it as a service to the enterprise. That means you have to have a complete view of your whole IT environment – from business processes to applications to infrastructure and the tools to manage and control the whole environment in real-time…The answer to these challenges is a service-oriented environment that is tightly and dynamically tied to business requirements. That is managed as a single, globally distributed resource. That is powered by modular, standards-based components. And that draws on virtualized systems that can scale up or down to meet shifting business demands." Part II shall follow. | |
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