In-Depth

Integration’s dividends make for a tough sell

• By Alan Radding
• January 1, 2005

When N.E.W. Customer Services, of Sterling, Va., set out to handle extended warranty programs for retailers and manufacturers, it turned to WebMethods’ integration tools to connect its systems with those of its customers and service partners. The result was faster service, improved management reporting, and new offerings. "We can now let our customers’ customers schedule warranty service in real time," says Jay Jaiprakash, chief architect and integration manager.

Con-way Transportation Services, of Ann Arbor, Mich., turned to TIBCO-based application integration to handle a variety of challenges from expediting the movement of its trucks through Canadian customs to streamlining its collection process by combining information from multiple internal systems. “We’ve been able to reduce day sales outstanding by five days,” says Carol Dinham, manager of information systems development.

Does anyone doubt the value of integrating applications? Once you have experienced the delay of re-entering information from one application into another, and the errors that typically result, you’re likely to be convinced about the payback from enterprise application integration (EAI) even though you probably can’t easily put a number to it. Still, if you’re a development manager and you’re proposing the purchase of an EAI tool, you can be sure management will demand an ROI analysis.

Building the ROI case for EAI is a challenge. The lack of integration hurts, but it is hard to quantify. The problem? The benefits of EAI do not readily translate into quantifiable business gains. How much is it worth on the balance sheet to get new functionality working a few weeks sooner? What’s the gain in hard dollars from an improvement in customer service?

“The benefits from EAI depend on the particular applications being integrated,” says Tony Kotler, practice leader, Kotler Marketing Group, Washington, D.C., a firm that specializes in ROI analysis for software vendors. In addition, EAI is an infrastructure function buried deep within the IT infrastructure and often lacks any direct correlation to specific revenue-generating activities. “Building a return on investment case for EAI may seem like an exercise in the absurd,” Kotler continues. It may seem that way, but it’s possible to do.

The development managers interviewed for this article were able to approximate the payback from their EAI investments. They looked at everything from the cost of building interfaces manually to the value of giving customers direct access to systems and data.

They found a variety of benefits: increased IT productivity, improved customer service, streamlined business processes, new revenue opportunities. None, however, invested the kind of time and effort required to perform a level of ROI analysis that would pass muster with accountants. These managers did not calculate results in terms of net present value or compare internal rates of return. Instead, they looked at their organizations’ objectives and the processes involved, then approximated the business results they achieved. Often the payback involved a combination of EAI, business process redesign, and cultural change.

ROI made easy
For Gary James, deputy director of IT development at First Command Financial Services, in Fort Worth, Texas, justifying the cost of the company’s investment in Sonic Software’s enterprise service bus for EAI proved simple. First Command handles financial planning, investments, and insurance for clients in the U.S. military, and recently decided to expand its marketing to civilians.

To justify a seven-figure investment in Sonic Software’s ESB, a BEA application server, and new hardware, James identified the savings First Command realized from not having to code by hand or to support custom-made code. He also identified the savings from consolidating functionality, such as the operation of a financial calculation engine that previously had been different in each application. He also looked at the reuse of interfaces for multiple integration initiatives. “Now that we’ve built the foundation, we’ll need much less code for the next application,” he explains.

Although he identified areas of savings, he never had to calculate the ROI. “The president wanted this [unified] capability, and this is what we needed to make it happen,” James says. With this mandate, ROI didn’t matter. The EAI foundation is now in place for whatever new initiatives the business pursues.

The high cost of tools
One difficulty in justifying an EAI investment is the high cost of EAI tools. The cost of the technology, deployment, and maintenance must be deducted from the value of the benefits to arrive at a complete ROI. “In many cases, the costs of integration have outweighed the returns,” writes Kathy Quirk, analyst, Nucleus Research, Wellesley, Mass., in a recent report, “Market Scorecard: Integration” (September 2004).

The costs don’t stop with the acquisition of EAI technology. “Beyond the cost of the initial licenses and infrastructure setup, the personnel costs of maintaining existing integration projects and adding new ones can expand the cost of the initial investment over time,” Quirk continues.

However, the cost of not having EAI technology can be high, too, in hours spent manually coding and testing interfaces and redoing work whenever something changes. “If we were to have done it ourselves, there would have been significant costs and a lot of stumbling. We’ve grown things on our own enough to know we wanted to buy a tool,” James says.

Whatever the cost of the tool, organizations can maximize the payback by reusing the tool on multiple integration projects, standardizing on one framework for all integration activity, and opting for an easy-to-learn tool that can boost the productivity of the integration team. Almost any tool is cheaper over the long run than doing the work manually.

Looking for payback
Virgin Entertainment Group, a Microsoft-centric IT shop, turned to BizTalk Server when it needed to integrate data and applications for its 21 Virgin megastores in the U.S. and Canada. The cost, less than $100,000 for the software, allowed the company to dispense with a formal ROI altogether. Says Kotler: “If the investment is under six figures, you can probably pass on the ROI analysis altogether.”

Still, Virgin is on the lookout for the payback it’s supposed to get from integration. “The first project and the one that will give us our biggest ROI is loss prevention,” says Robert Fort, Virgin’s director of IT. The company uses BizTalk to poll the stores’ POS systems and look for anomalies. BizTalk polls every 15 minutes and runs the data through an analytical application. It then fires off alerts to security personnel if something looks amiss, such as the same credit card being used with unusual frequency. “Instead of taking weeks to look at the data, we can see it in minutes,” Fort says. “It helps us stay on top of problems instead of forcing us to chase down a cold trail.”

Because employees know the company monitors transactions and reports them throughout the day, employees are less likely to engage in retail fraud. “Our director of loss prevention thinks we will save a few million dollars over time just because of this,” Fort says.

First in, first out
EAI tools don’t have to be pricey to generate high returns. Industry Canada Corporations Directorate, an agency of the Canadian government, spent $100,000 to license Juxtacom, EAI middleware from Tielhard Technologies, Calgary. The directorate estimated savings resulting from the use of the EAI technology at more than CDN$1 million because of business process automation. As an added benefit, Industry Canada reduced the price of a federal incorporation from CDN$500 to CDN$200.

The integration effort supported an initiative to shift the directorate from paper forms to electronic filing. This involved building a Web site, creating electronic forms, integrating them with back-end systems, and triggering outgoing e-mail messages in response. “It was an effort to reduce the process time. On paper, it was first in, first out, and things just shuffled along,” says Kim Wilson, of Wilson Information Technologies, Inc., of Ottawa, an independent consultant who spearheaded the project.

The entire process can now be handled online. If the filing is typical, human intervention is not needed. Filers can have a response in an hour or less, and the fees also are handled online. “Industry Canada offered a reduced fee to encourage online filing because it reduced workload on the staff,” Wilson adds.

Juxtacom proved to be the right tool. “Industry Canada didn’t want any changes to the backend systems. This sits on top of everything without requiring any changes,” Wilson explains. The total development time for phase one of the project was 29 days, compared to months doing it the conventional way, which represents a significant savings in itself, she says.

Success at City Hall
The Washington, D.C., municipal government paid more than $600,000 for SeeBeyond software and connectors to a variety of systems, but the investment paid off in a big way. The initiative to streamline and integrate the city’s procurement, HR, payroll, budget, and property management divisions resulted in a $150 million cumulative payback over five years, according to Sandy Lazar, director of key systems for the city’s Office of the Chief Technology Officer.

Of that, about $30 million comes from procurement savings resulting from having better information. “They can negotiate better contract prices due to access to information,” Lazar explains. “They will be able to break down purchases by commodity code and know the volumes being purchased.” Another $30 million will be saved through operational efficiencies such as reducing the labor required for legacy system maintenance and by reducing the amount of paper moving through the organization. In payroll operations alone, integration has enabled the city to reduce the number of people responsible for gathering and reviewing time sheets from 1,200 to about 200, freeing 1,000 people to do more productive work.

The city began its modernization in 2000 when it implemented a costly general ledger system. If the city were to do the project over, it would have opted for a big, integrated commercial package from PeopleSoft or SAP, but those weren’t viable options for the city at that time, Lazar says. “We knew even before day one we would have to do the integration work ourselves,” he adds. At one point, the IT group counted more than 120 different application interfaces they needed to build.

With a team of just six people to build the interfaces and maintain the integration, the city brought in SeeBeyond EAI middleware. Using SeeBeyond, the team has completed 40 interfaces and is working on 40 more. “SeeBeyond helps us leverage our work. Without it, we would need a much larger team,” Lazar says.

Not every EAI project is likely to produce such a dramatic payback, but even small improvements can add up to big benefits. Hannaford Bros., a retail grocery chain based in Scarborough, Maine, integrated a new POS system with its check-processing system to cut customer time at checkout by 20%. Although that may shave only a few seconds off each customer’s transaction, “given that we do 40-50 million of these, it can add up to big savings,” CIO Bill Homa says.

The benefits are there, analysts and IT managers insist. It is just a matter of identifying and quantifying them in terms of cost savings, increased process speed, improved customer service, and new revenue potential. It may be tricky to do and a pain in the neck, but it may be the only way to get management approval for an EAI purchase.

Game Plan for Success

1. Identify specific business goals for the integration
2. Document and measure the existing process
3. Redesign the process for integration
4. Educate and train affected parties (workers and partners)
5. Document and measure the new integrated process
6. Reuse integration components (connectors, interfaces, messages) wherever possible

Discusion Points

SELLING INTEGRATION

• If you want to purchase an EAI tool, take it as a sure bet that management will demand an ROI analysis.
• The benefits of EAI depend on the particular applications you want to integrate and your specific business goals.
• One key measure: How much can the company gain in hard dollars if an EAI project translates into customer service improvements?