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— August 9, 2006

European Net Retail Crosses The €100 Billion Mark — And Keeps Growing
From Forrester Research
2006 shows some remarkable eCommerce stats: 100 million European online shoppers will spend an average of €1000 each, and drive online retail past the €100 billion mark. Online retail sales in Europe will more than double in the next five years, to €263 billion in 2011, according to Forrester Research (Nasdaq: FORR), as the number of online shoppers grows to 174 million. Fueled by improved supply and aided by comparison shopping sites, a more confident online shopper will increase his average yearly Net retail spending to €1,500. In the UK, Net consumers will outspend even their US counterparts online. The winning Net purchase categories are travel, clothes, groceries, and consumer electronics, all above the €10 billion per year mark.

Jaap Favier, Research Director Consumer Markets at Forrester Research, comments: "The number of Europeans shopping online has increased by 37% in the past two years. At the end of 2003, 48% of Europeans went online at least once per month, and 19% had shopped online; two years later, these numbers had soared to 54% and 26%, respectively. The average online shopper has increased his quarterly Net spending by 10%, from €244 in Q4 2003 to €268 in Q4 2005. Combined with the increase in the number of online shoppers, total European eCommerce grew 50% in two years."

The UK continues to head up the European league of online spenders, as forecast by Forrester, followed by Germany. The average UK online shopper will spend €1,744 online in 2006 and €2,410 in 2011, driving UK eCommerce from €43 billion in 2006 to €76 billion in 2011, 29% of total European Net retail. The average German online consumer will almost double his online purchases, from €786 in 2006 to €1,441 in 2011 — almost half of what UK Net consumers spend online. The sheer scale of shoppers — 43 million in 2011, a quarter of all online European shoppers — ensures Germany's strong second place on Europe's eCommerce map.

In the coming years, the growth of the French online retail market will outpace that of the UK and Germany, more than tripling its size to €39 billion in 2011. Online spending per French Net shopper will remain roughly on a par with the European average. The online retail market in the Benelux is and will remain roughly half the size of the one in France. But the Benelux market is far from uniform: The Netherlands has the most Net shoppers, but their yearly online spend is low — only €688 in 2006, compared with €851 in Belgium.

As the Nordics finally embrace eCommerce, the average online spend per Net shopper in Sweden and Norway is almost as high as in the UK; online Swedes will raise this to more than €3,000 by 2011, including spending more than €300 on clothing online. Online Danes today spend less than half of what their Norwegian counterparts spend on the Net, but will reduce the gap by quadrupling their online spend by 2011.

Spain and Italy together make up a quarter of Western Europe's population and a fifth of its Net population, but jointly account for less than 7% of its eCommerce. In the next five years, their share of online retail will gradually rise to nearly 10%. While Portugal and Greece trail their Mediterranean neighbors, Switzerland and Austria are at the other end of the spectrum: Their share of online retail will keep pace with Germany's.

Online Europeans learned to shop online at sites like Amazon.com and Expedia.com for CDs, books, and airline tickets — products that don't necessarily offer the great high-street shopping experience that shoes do. But the more experienced online shoppers keep expanding their Net purchase categories. For example, online sales of alcohol and sports equipment will see the highest growth in the next five years — 283% and 245% — respectively, although jointly they won't account for more than 4% of total online purchases. As a result, online travel has lost some — although only a fraction — of its massive lead.
Favier states: "Today, one in three of the euros, pounds, or kronor that consumers spend online go to leisure trip bookings. Online travel spending will grow by 133% to almost €77 billion in 2011 — making it the biggest grower in absolute terms — but its share of total retail will decline to 29%. Clothing will see its online turnover grow from €10 billion in 2006 to more than €31 billion in 2011. Big winners will be catalog retailers like Neckermann, Otto, and La Redoute, which are refining their decades-old CRM best practices for the Net. Along with travel and clothing, food and beverages and consumer electronics will see Net revenues increase to more than €10 billion across Europe as the likes of Ahold and Media Markt keep persuading consumers to click the 'buy' button."
http://www.forrester.com/

The 'A' in SOA is for Architecture
From BPM Institute/ JP Morgenthal
Are you confused about the term service-oriented architecture? Is the lack of a formal definition of SOA causing governance issues within your organization? You're not alone. Many individuals are as confused as you are; including me.
It's easy for me to espouse the benefits of SOA and the return-on-investment for moving to SOA,ut as an individual, I cannot force my definition upon the industry. I am at the mercy of definitions de jure, same as you all. In reviewing the literature on SOA, the theme that emerges is highly-biased toward software development. In fact, you'd be hard-pressed to find a white paper or presentation on SOA from any software company selling SOA wares that doesn't illustrate the enterprise service bus linking together disparate business systems.

However, my efforts in producing an enterprise architecture (EA) for a client have forced me to examine SOA from the perspective of the EA, which requires a very different mindset about SOA than from the perspective of IT alone. As the EA is about strategy and organization, I had to clearly identify the aspects of SOA as they relate to the organizational hierarchy and business processes. Through this effort I began to focus on the 'A' in SOA.

That the 'A' in SOA stands for architecture is a critical point. An architecture is a plan for implementation, it is not the instance of the entity. Industry pundits, analysts and others often use the 'A'-word interchangeably with implementation.

This leads to confusion. Consider a building. The building architecture is the plan for the building—not the building itself. If we compare aspects of an SOA to a building, perhaps we can compare the foundation to the enterprise service bus; the beams to the SOAP protocol; the floors to the business services, etc. There are probably hundreds of ways I could build this building based on the same architecture.
By staying true to the word 'architecture' in SOA, your SOA is your plan for how you will build, deploy, access and manage services in your organization.

Indeed, not all services are machine-based. We have human-based services as well. The abstraction simplifies the development of business processes and makes them extremely reusable. Most importantly, your SOA does not have to look like any other organization's SOA in order to work.

There is one caveat with the last sentence of the last paragraph. When a building is being built, there are certain engineering principles and laws of physics that must be adhered to, or the building will come crashing down. Likewise, there are some basic tenets of building, deploying, accessing and managing services that must be adhered to or your SOA will amount to a telephone network with no phones at the endpoints. What are these tenets? We'll address that in future articles.
Know this: no longer must you endure in silence the shame of not knowing what SOA is, because no one else does either. Whatever SOA is, it's still emerging and taking shape, much like the Blob as it slowly consumed small villages and towns. However, by staying true to the architectural underpinnings that gave birth to the 'A'-word being placed after service-oriented, you will create an environment that allows you to take full advantage of a services-oriented approach to building whatever it is you wish to build.
http://www.soainstitute.org/

IT Organizations Must Play a Key Role in Supply Chain Process Outsourcing Initiatives From Gartner/C. Dwight Klappich
Globally, supply chain process outsourcing (SCPO) is growing at an accelerated pace as companies look to focus more of their efforts on differentiating activities. In some markets, such as Europe, SCPO is mature and a predominant method for operating supply chains, while in others, notably North America, it is less mature, but growing exponentially. This research is not intended to address why companies should or should not outsource. Instead, it will address role the IT organization must have in the evaluation of prospective outsourcing partners when companies outsource supply chain processes.

IT organizations often have little or no role in SCPO decision making — this is a mistake. The IT organization has the most knowledge and expertise in evaluating information technologies that are fundamental to outsourcing relationships, so IT organizations must work with the user community to evaluate SCPO partner candidates.

Companies have purchased supply chain services (for example, freight forwarding, transportation) for years, so what differentiates SCPO from simply buying a supply chain service, such as tendering freight to a common carrier? SCPO occurs when a company completely shifts stewardship and control of a supply chain process (for example, order fulfillment, international logistics and manufacturing) from itself to a third party. When it simply buys a supply chain activity (for example, freight), a company retains control over broad processes such as order fulfillment, which limits supplier involvement. The company owns the process and only involves third parties as needed. The company has little concern with the IT capabilities of the supplier beyond the specific information that flows between the parties (for example, orders and invoices).

Although somewhat an oversimplification, with SCPO companies transfer ownership and relinquish control over processes to third parties. Customers do not dictate how to perform tasks, but instead only tell partners what results they expect. Partners then determine how best to perform functions to deliver the expected results. Companies do, however, maintain responsibility for the results. This causes problems for companies, namely how to effectively keep responsibility while having little or no direct visibility and control over supply chain activities. This is largely addressed through the appropriate use of information systems and technologies, which supports Gartner's view that IT organizations must actively participate in choosing SCPO partners.

Evaluations of SCPO providers traditionally focus primarily on accessing the physical capabilities of candidates. Evaluations emphasized physical supply chain management (SCM) capabilities, worker experience and skills, and the costs to deliver specific services. SCPO includes:
Physical supply chain services — The manual and physical activities involved in executing a supply chain process, where stated activities might be supported with technology. Examples include warehouse management activities, such as receiving and storage, picking, specialized packing, labeling, light assembly and shipping.

Information services — Include the business applications used to perform SCM activities, the data captured as part of the physical activities, and the knowledge gained from running the physical supply chain. Minimally, companies need to connect their information systems with whatever systems the outsourcing provider supports, but information services can also include business applications such as warehouse management, or tools such as visibility.

Evaluation of physical services will remain paramount; however, companies must recognize that SCPO relationships always include physical and information services, even if the information services are minimal. The growing importance of information services to SCPO relationships is amplified by leading logistics service providers, such as UPS, FedEx and A.P. Moller-Maersk Group, that have invested tens of millions of dollars in IT during the last several years. Without question, information services are a significant differentiator among SCPO candidates, which is why developing an appropriate evaluation methodology is so important.

Many companies do not include a formal evaluation of service provider information services as part of their SCPO selection methodology. In fact, many do not involve IT organizations until very late in the SCPO evaluation cycle, if they involve them at all in partner selection. IT organizations are often relegated to implementation post facto, and have little control or influence over partner selection. Because information- and technology-related issues are critical to SCPO success, not involving IT organizations in an SCPO evaluation is unacceptable.

An IT organization's role in SCPO engagements should be determined by the information service needs of its company, and an evaluation of the offerings of potential outsourcing partners. IT organizations must be involved throughout the evaluation process (see Figure 1) and should own, with the end users' participation, the evaluation of information service offerings, capabilities, resource requirements and IT costs. IT organizations should define information service evaluation criteria; then IT organizations should rank each partner's capabilities, address any economic considerations (for example, procurement of new technologies), and build project and resource plans to address information service requirements.

For the complete report and graphics, go to:
http://www.gartner.com/

Transform Overhead Costs With SaaS
From Gartner/Jeff Woods
Many services that companies provide for their customers are simply "rolled" into overhead costs. Enterprises often struggle with these costs because they are assumed to be recoverable in the product/service contribution margin. This approach can, however, be frustrating, because justifying the overhead coverage rate to customers can be difficult and confusing.

Some companies have begun to use SaaS as a way to build a hard, justifiable cost into the billable costs to customers. For example, law firms and investment firms are moving to SaaS discovery rooms (used in due diligence for transactions). Logistics service providers are moving global trade management functions to this model. This enables the company to transfer all costs associated with this part of the project to the customer, without leaving anything in overhead. Other industries that provide services as a complement to their core products (such as customer order status support or data synchronization) should consider the possibility of value-added offerings supported by these technologies as a way to recover costs and increase the value provided to customers.

For this to work, the SaaS vendor must structure the product to be consumed and charged separately by project. This means the product must be partionable by the customer and separately licensable on a customer-by-customer basis.

IT organizations should consider whether they can provide a similar, separately billable service to leverage investments in established infrastructure. Also, a strong governance structure around SaaS and the outsourcing of value-added activities is necessary so the IT organization doesn't lose control of key enterprise architecture components.

Companies that bill clients for services should evaluate all business processes supported by licensed software to determine if the processes can be supported by a SaaS model to reduce overhead and increase direct client-billable costs. Even companies in product-centric industries should evaluate services provided in conjunction with products to determine if the business process can be transformed from a free service to a technology-enabled, billable, value-added offering.
IT organizations should re-evaluate their applications proactively to help the business understand how this model works financially and whether internal transfer pricing can serve the same goals without the downsides of the SaaS model. IT organizations should build a SaaS governance strategy to prevent costs from application portfolio chaos from outstripping the benefits of making these technologies client-billable.
http://www.gartner.com/

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