The Forrester study surveyed 75 IT executives at large North American companies and found that 85% plan to use Web services this year. The vast majority of the projects will be inside the firewall -- for internal application integration (70%), access to mainframe or legacy client/server systems (65%), and portal integration (64%). (The survey permitted multiple answers to a single question.)

But for the first time, executives also are indicating strong plans to use Web services to link with external partners. More than half -- 57% -- said they would use Web services to link with customers, while 44% expect to use Web services to communicate with suppliers.

The majority of respondents also said they will adopt XML data formats this year for customer data (62%) and product/services data (58%), reflecting the importance of standards to external communication. Fewer respondents said they will adopt XML data formats for employee data (40%) and financial information (39%), which are used primarily internally.

A technology comes of age

Gartner, meanwhile, offers insight into why Web services are poised to take off. The reason, according to Gartner Research Director Charles Abrams, who specializes in XML and other web-based communication standards, is that Web services are finally approaching a level of maturity that makes them practical for companies to implement.

“When will Web services happen? They’re happening now,” Abrams said in a recent Gartner Webcast entitled Will Web Services Build Collaborative Commerce?

“If you believe that Web services will not affect your business you are wrong,” Abrams said. “Web services will affect every business. Collaborative commerce already is a $1 trillion reality that is growing 20% to 30% per year. Reliable, enterprise-class Web services aren’t here today but they’re on the way, and if you aren’t experimenting with them today you will be left behind.”

Web services are the standards -- SOAP is the leading one today -- that allow disparate applications to communicate with one another without expensive integration efforts. Web services can’t do the entire job on their own -- data transformation, horizontal and vertical industry standards, business process alignment between key partners and efforts to reconcile differences in XML semantics are other pieces of the pie, according to Abrams. But Web services will play a key role in bridging the gaps between trading partners and entire supply and demand chains, a role now the Forrester survey results indicates has now begun.

One of the best ways to begin experimenting with Web services today, Abrams said, is to use them to integrate different implementations of ERP within a single enterprise. By wrapping XML objects in SOAP envelopes, integration can be accomplished at low cost with relative ease. Starting with Web services inside the firewall, as the Forrester study indicates so many companies are doing, allows them to gain experience with the technology even while security standards for external use of Web services are still in development. Internal projects also will help prepare companies to present a more singular, consistent view to external customers and suppliers when Web services security measures mature to the point that they can be used externally.

Integrating the supply chain with Web services

In time, Gartner believes Web services will play a key role in enabling five key supply chain processes -- business process management, visibility, business activity monitoring, analytics and optimization.

Business process management will allow different platforms -- SAP and Oracle, for example -- to exchange information, simplifying interactions between different partners. Gartner predicts that Web-services-enabled BPM will become common by late in this decade.

Visibility may become one of the most valued benefits of Web services. Today, Abrams said, it takes most enterprises 15 days to track an inbound order and 10 days to place an outbound order. Not surprisingly, this contributes to a buildup of excess inventory. Web services will improve real-time visibility to the point that he predicts the typical 100 days of inventory will be replaced by five-day Available to Promise (ATP) cycles.

Business activity monitoring will alert users to imminent problems in the supply chain. Analytics will enable the collection and computation of analytics across the extended supply chain. Optimization will help organizations solve complex problems and evaluate different “what if?” scenarios to arrive at the best solution.

Be aware of Web services risk

Although there is risk in implementing Web services today, early adopters also will reap the greatest reward. Gartner calls these early adopters Type A enterprises -- companies that experiment on the “bleeding edge” of technology.

Today, Type A enterprises are in Phase I, building e-hubs using Web services. By 2005, these same companies will have moved on to Phase II, which Gartner defines as using Web services to achieve integration with a limited number of external trading partners. By 2007, Type A enterprises will be in Phase III, using Web services and online directories to identify new suppliers and customers and helping to create a global, autonomic, connected trading grid.

Abrams cautions that no company should be experimenting in Phase III today -- the risk of exposure to viruses and worms is too great given the current state of Web services security technology. But as security evolves, the potential to use Web services for collaborative commerce will continue to improve.

On the horizon: self-integrating software

Software itself will be transformed by the capabilities of Web services, Gartner predicts. A new breed of cross-function, end-to-end process applications enabled by integration and interoperability based on Web services already has begun to appear, Gartner reports. Beginning next year, application vendors will begin offering smart enterprise suites that incorporate Web services-based integration. These suites will aggregate the functionality that today can only be achieved by combining portals, team collaboration support and content management.

In the next few years, Gartner predicts that organizations will create their own composite applications by using Web services to integrate legacy, vertical and best-of-breed components together with current and new offerings from major vendors including SAP, Oracle, Siebel, Peoplesoft, Microsoft and Commerce One.

Although using Web services for integration will be more cost effective than current integration options, it will still be prohibitively expensive for companies to fully integrate with all of their trading partners. Gartner therefore recommends that enterprises focus on integrating with their strategic customers and suppliers -- generally the 10% of their trading partners that influence 80% of revenues. Only by ranking their customers and then offering each one the appropriate level of integration will enterprises be able to move from random, point-to-point integration to real-time integration using Web services and XML-based trading standards.

Swiss Interbank: a case history

The potential rewards are great. Gartner cites the example of Swiss Interbank Clearing, which clears most of the checks written in Switzerland. The company’s old process, which used an asynchronous EDI infrastructure, took four to six days to clear a check. Using its existing mainframe, the company scripted its existing EDIFACT messages in XML and encased them in SOAP to connect the XML data with the HTTP transport layer.

Swiss Interbank clients can now choose to access data via browser, Java client or end-to-end integration, and Secure Socket Layer (SSL) is used to ensure safe transfer of data. Response times have been reduced to seconds and Swiss Interbank clients receive immediate feedback on each step in the payment clearing process. The result is that the time required for checks to clear has been cut by as much as 75%, to as little as one or two days.

Recommendations for action

So what should companies be doing now to prepare for the changes Web services will bring? Gartner recommends the following three-stage approach:

Within three months:

• Categorize the applications to be shared with top-tier customers and suppliers.
• Identify bottlenecks standing in the way of real-time supply chain integration.
• Investigate the potential to use SOAP-based Web services to unify internal ERP applications.

Within six months:

• Use Web services to build e-trading hubs connecting unified business processes via enterprise portals.
• Identify and begin to build Web services with top-tier trading partners.

Within two years:

• Be well on the way to deploying a service-oriented architecture (SOA) and sharing processes with the top 10 percent of your customers and suppliers.
• Identify and deploy key, directory-based approaches for sharing cross-industry knowledge, including sourced Web services and integrated XML.