Straight-Through Processing 3

Where have all the agents gone? asks Seth Godin. He is talking about travel agents, stock brokers, real estate, and so on.

"The problem with being a helpful, efficient but largely anonymous middleman is pretty obvious. Someone can come along who is cheaper, faster and more efficient. And that someone might be the customer aided by a computer."

Straight-through processing - sometimes seen as one of the potential sources of value from service-oriented architecture - is a mixed blessing, as I've pointed out before. There is always a danger of disintermediation, especially if the added value provided by the middleman appears trivial or easy to replicate. As Seth Godin points out, if you are just providing an anonymous human approximation of Google, don't bother - Google does it better.

In some industries, the middleman had become lazy - taking a cut for not doing very much. My local travel agent never gave me any useful information or advice, merely handed out brochures from the travel companies and struggled with the complexities of the booking system; so I stopped using them. And in the financial markets there are still companies that think they deserve a percentage of your pension fund in return for pressing a few buttons now and again.

In the past companies like these have often been able to take advantage of a strategic position in some larger process, extracting "rent" but without creating value. And there are doubtless still many niches in the system ecosystem that can be exploited in this way.

However, service ecosystem niches that allow companies to draw rent without creating value are going to be short-lived, and rightly so. In hard times, the percentage should only go to companies that are providing genuine value. (Actually the same principle applies all the time, but people are more motivated to follow this principle now than they have ever been before.) And ecosystem SOA should help us to make sure of this.

Then business strategy in a dynamic service ecosystem should not be based on finding and maintaining positional advantage, but on creating and maintaining genuinely productive relationships.

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Previous posts

• Straight-through processing (Feb 2005)
• Straight-through processing 2 (April 2005)

Straight-Through Processing 2

A couple of good posts on disintermediation ...

• Prosciutto Business Models, by Martin Geddes (Telepocalypse)
• Are On-line Retailers an Endangered Species, by Bill Burnham (Burnham's Beat)
  

... prompt me to post an expansion on my previous post: Straight-Through Processing (Feb 2005)

(thanks to Stefan Tilkov for kind remarks)

Straight-through processing (STP) generally makes the following assumptions:

• There is a collaboration between several service providers
• The purpose of the collaboration is to expedite some customer transaction
• The service providers have a common view of this transaction
  
• The customer transaction belongs within some domain, in which all the service providers participate.

The concept of STP is especially popular in the financial sector.

• Web Services and Straight-Through Processing, Gunjan Samtani and Dimple Sadhwani (Web Services Architect, June 2002)
• Straight-Through Processing and Orchestration of Web Services, Gunjan Samtani and Doron Sherman (Web Services Journal, November 2002)

But in my view, STP is a strategic error, because it invites disintermediation.

From this perspective, mediation and reintermediation can look pretty naive. For example, here's a blog posting by Luke (April 2005), who is planning to bundle and brand online services from UPS, USPS, FedEx, and DHL together in a single interface. What possible value-add is he offering? Er, federated identity? How is he going to create a serious brand? I wish him well, but he's got an uphill struggle ahead.

Straight-Through Processing

In an SOA context, straight-through processing means passing some input services onto your customers, with zero intermediation. This only works if the input and output services are in the same domain.

• Insurance. You buy insurance through a broker. You may pay either the broker or the insurer. (If you pay the insurer direct, then there is presumably some commission paid back to the broker.) You may claim through a service that is actually provided by a separate claims process, under the insurers’ brand.
• Travel. You buy through a travel agent. The services are delivered by the airline and hotel. (You are given a reference number to pick up your tickets and check into the hotel.)
• Logistics. You buy something on eBay, pay via PayPal, and the item is delivered by courier. (You are given a reference number so that you can liaise directly with the courier company.)

These supply chains are more or less transparent, until something goes wrong. If there are problems with the service, you may start by complaining direct to the ultimate service provider, but if you cannot sort things out you have to go back to the person/organization you have the contractual relationship with. There is a contractual chain which may not coincide with the operational information supply chain. However, there has to be a management control chain (higher level information supply) that supports the contractual chain.

In some of these sectors there is a serious risk of disintermediation. For example, many people have stopped using travel agents, and book their airline tickets directly with the airline over the internet. This is possible because the airline domain is just as accessible to the travelling public as to travel agents - in some cases more so. (Sometimes the agents don't have access to all the microservices. And sometimes even the airline employees don't have access to all the microservices. See this example.)

What about the next step? Can you disintermediate the airline by chartering your own plane? This is possible but it's a lot more difficult for two reasons. Firstly because it takes you to a different level of granularity - you have to charter the whole plane, not just one seat. Secondly, the aeroplane-chartering domain introduces (makes visible) a lot of new complications. One way of putting this is that if you want to charter a plane, you have to learn a different Domain Specific Language (DSL).

In many (perhaps most) business sectors, the input DSL is different to the output DSL. So the information supply chain involves considerable processing (transformation).

Let's consider the pharmaceutical industry as a much more typical example of a complex supply chain. A drug company produces a drug, together with lots of information relating to the drug. There are several different categories of information user: the patient who takes the drug, the medical practitioner who prescribes and/or dispenses the drug, the health service or insurer that pays for the drug, and the regulator who monitors the safety of the drug. The translations and transformations between these information domains calls for careful negotiation, not just mechanical mapping.

Many of the SOA champions are over-simplifying the picture by using examples where there is a single domain. The trouble with this is that the examples aren't very interesting, and moreover invite disintermediation. To find sustainable business benefits from SOA, we need to look at more complex ecosystems. Like pharma.

(Anyone with good examples, or interesting problem domains, please contact me.)


Related posts: Straight-Through Processing 2 (April 2005), Straight-Through Processing 3 (March 2009)