elemental links

What are your ‘Rings of Defense’?

I’d like to attribute this recent ‘catching up on my reading’ to long sunny summer days in my Adirondack chair, but no such luck.  On the few rainless days, Zephyr has commandeered my chair.  Despite these obstacles, I’ve still managed to find time to read, and share some interesting articles.  Today, an article in June’s Fast Company caught my attention.  The article is entitled “Through the Fire” and shares strategies Cisco, Corning, IBM, Intel and Schwab are using to survive in the current economic crisis, and emerge even stronger as the economy rebounds.

Of the profiled companies and strategies, Corning's Rings of Defense clicked with me.  I can see the connection to business architecture, the business of IT, and business IT alignment.  [As readers know, I prefer “business-IT integration”, but I’ll go with the crowd this once.]

Corning’s Rings of Defense (emphasis is mine)

“If anyone should be able to build a shatterproof fortress, it's Corning. But during the telecom crash earlier this decade, the specialty glassmaker for everything from medical devices to consumer electronics to cars saw revenue nosedive from $7 billion to $3 billion in 18 months; Corning almost burned the village trying to save it. "We vowed never to let that happen again," says president and COO Peter Volanakis. Corning's executive team, the same senior managers as during its epic fall, instituted an early-detection system to identify signs of trouble as well as four "operational rings of defense" to help it manage through a crisis in a measured, strategic way.

The first step? A good offense. Corning created its own market-research system, relying not just on its customers but also on its customers' customers, even checking stores to measure demand for the products it helps to create, such as LCD TVs. Corning also stockpiled cash, which enabled it to absorb a $400 million loss in the fourth quarter of 2008 without selling off part of its business, as it had to in 2002 to make a debt payment. And it helped that the company modeled worst-case scenarios and a response to each.

As trouble started brewing last year, Corning implemented its first ring of defense: discretionary spending cuts, reduced production, and hiring limits. As things got rapidly worse through the fall, management quickly implemented the second and third rings: shorter work weeks in Europe and Asia, limiting its use of contractors and temps, and, finally, layoffs. But as hard as it was to trim the staff by 13%, that was a far cry from the telecom crash, when it shed 21,000 of its 43,000 workers. This crisis feels more under control, the actions "more thoughtful," Volanakis says.

Most important, Corning has avoided the last ring, which would include reducing its $630 million annual R&D spending. Its lifeblood is new products, such as those it's aggressively pushing this year -- scratch-free touch-screen glass for cell phones and laptops, smaller next-generation data centers, and a laser-light engine that turns a laptop into a projector. "We're an R&D-based company," Volanakis says. "R&D is the absolute last thing we'd cut."”

So, what stood out to me?  First, the use of scenario planning.  A long standing practice to envision the future and craft responses, which unfortunately many companies neglect to do when things are going well.  Clouded by ‘bubble fever’, perhaps.  From a recent WSJ Article:

“Use of scenario planning rose following the 2001 attacks, to about 70% of executives surveyed by consultants Bain & Co. in 2002, up from 30% in 1999. Since then, Bain's surveys have found fewer executives using the tool, though the consulting firm expects heightened interest this year, because of the recession.

"It's sort of like flood insurance," says Michael Raynor, a corporate-strategy expert at Deloitte Consulting LLP. "Everybody runs out and buys flood insurance the year after the flood."”

The second thing, was the “rings of defense” concept.  The diligent and deliberate articulation of responses, in this case cuts, that provide short-term relief, while protecting the future, in Corning’s case, R&D.  Too often, in bad times, unilateral cuts are made, disregarding long-term implications.

So, my questions for you to consider:

1. Does your organization do scenario planning?  Is this purely a business activity?  Or does IT participate?  Is the practice extended to the business of IT?

2. Has your organization articulated rings of defense?  Is there general knowledge of what business activity should be in the center, protected by the last ring?

3. Has your IT organization articulated its rings of defense?  Do the IT rings, the activities and capabilities being protected, align with the business rings?  Or, do the IT rings subvert the business rings?

SOA Zombies invade Boston, Film at 11:00…

…well, 11:00 on the evening of July 23.  As I mentioned on Business-Driven Architect, I’ll be hanging with the SOA Zombies, believers and one famous SOA obituary writer, at ZapThink’s “Night of the Living SOA Dead”:

“On July 23, 2009 dozens of experts, pundits, and influential guests will gather in Boston, MA for an evening of networking and discussion on the topics of Service-Oriented Architecture (SOA) and Enterprise Architecture (EA). Open to public enrollment and attendance, the topic of discussion for the panel will be the recent news and discussion about the "Death of SOA." Is SOA really dead? Is it dying? Or is it changing? And what about those that are currently doing something with SOA or even just interested in the topic? Are we the "living dead"?

As a way of encouraging dialogue, networking, and communication within the SOA and EA, ZapThink is hosts its evening ZapForum networking events throughout the world. At this upcoming event on July 23, 2009 in Boston, MA, guest experts expecting to attend include Anne Thomas Manes (Burton Group), Dana Gardner (Interarbor Solutions), Jason Bloomberg (ZapThink), Brenda Michelson (Elemental Links), Sandy Rogers, and Ronald Schmelzer (ZapThink).”

The gathering is Thursday, July 23, 2009, 5:30PM-8PM ET @ M.J. O'Connor's Irish Pub, 27 Columbus Avenue, Boston, MA 02116.  For more information go here.  But before you do that, note this 50% off discount code: PRTDISC.

Still time to brag about your S-O-A Success --- Contest Deadline Extended until July 20, 2009

By popular demand, the deadline for the SOA Consortium | CIO magazine SOA Case Study contest has been extended until July 20, 2009.  The contest is a great way to recognize your organization, garner industry-wide praise for your hard working project team, and as Dave Linthicum suggests, contribute your knowledge and experience to further industry best practices. 

The entrance requirements and submission are simple.  To qualify, your organization (business or government, any size) must have successfully delivered business or mission value using a SOA approach. That’s it.  No membership, no fees, just brag about your success.

As for the submission itself, we understand your time is in high-demand.  To submit your story, merely answer the following 7 questions:

1. What was the business challenge or problem addressed by the SOA project, and why was SOA selected to address this? (500 words max)

2. When was the project started, how large was the project and how was it funded, and how long did it take to see results? (300 words max)

3. What was the planned and achieved ROI/Business Value (ie, improved agility, innovation, flexibility, optimization, resilience)? (500 words max)

4. How was the SOA Project team organized and what types of business staff were on the team? How was cross-organization collaboration (Business/Technical) achieved? Was a Center of Excellence or Competency Center created? (300 words max)

5. What technology or software was used in the project? What vendors were involved? Was service reuse taken into consideration? What was the most complex technical challenge encountered? (300 words max)

6. What were the most significant lessons learned from the SOA project? (300 words max)

7. How has the challenging economic climate influenced your SOA project? (300 words max)

Need more information?  Learn more about the contest, read about last year’s winners or get the scoop on last year’s judging.  Still more?  Check out what (my fellow) SOA-rati are saying – Dave, Joe, and ZapThink.

Ready to start your submission?  Go here.  Good Luck! 

 

[Disclosure: The SOA Consortium is a client of my firm, Elemental Links.]

Lessons from Googlenomics: Data abundance, Insight Scarcity

“"What's ubiquitous and cheap?" [Google’s Hal] Varian asks. "Data." And what is scarce? The analytic ability to utilize that data.”

The June issue of Wired has an excellent article by Steven Levy, entitled Secret of Googlenomics: Data-Fueled Recipe Brews Profitability.  The article delves into the history and algorithms behind Google’s auction based ad system, highlighting the significance of engineering, mathematics, economics, and data mining in Google’s success.

On the economics front, the article explains Hal Varian’s role as Chief Economist at Google, including why Google needs a chief economist:

“The simplest reason is that the company is an economy unto itself. The ad auction, marinated in that special sauce, is a seething laboratory of fiduciary forensics, with customers ranging from giant multinationals to dorm-room entrepreneurs, all billed by the world's largest micropayment system.

Google depends on economic principles to hone what has become the search engine of choice for more than 60 percent of all Internet surfers, and the company uses auction theory to grease the skids of its own operations. All these calculations require an army of math geeks, algorithms of Ramanujanian complexity, and a sales force more comfortable with whiteboard markers than fairway irons.”

After reading the article, Varian’s economic view of data ubiquity and analytic scarcity really stuck with me.  The quote I opened the post with isn’t directed at software availability or processing power.  It refers to the scarcity of people qualified to churn abundant data into economic value.  

What follows are some excerpts “about harnessing supply and demand”.  The sub-headers and emphasis are mine.

Enter Econometricians

"The people working for me are generally econometricians—sort of a cross between statisticians and economists," says Varian, who moved to Google full-time in 2007 (he's on leave from Berkeley) and leads two teams, one of them focused on analysis.

"Google needs mathematical types that have a rich tool set for looking for signals in noise," says statistician Daryl Pregibon, who joined Google in 2003 after 23 years as a top scientist at Bell Labs and AT&T Labs. "The rough rule of thumb is one statistician for every 100 computer scientists."

Ubiquitous Data

“As the amount of data at the company's disposal grows, the opportunities to exploit it multiply, which ends up further extending the range and scope of the Google economy…

Keywords and click rates are their bread and butter. "We are trying to understand the mechanisms behind the metrics," says Qing Wu, one of Varian's minions. His specialty is forecasting, so now he predicts patterns of queries based on the season, the climate, international holidays, even the time of day. "We have temperature data, weather data, and queries data, so we can do correlation and statistical modeling," Wu says. The results all feed into Google's backend system, helping advertisers devise more-efficient campaigns.”

Continuous Analysis

“To track and test their predictions, Wu and his colleagues use dozens of onscreen dashboards that continuously stream information, a sort of Bloomberg terminal for the Googlesphere. Wu checks obsessively to see whether reality is matching the forecasts: "With a dashboard, you can monitor the queries, the amount of money you make, how many advertisers you have, how many keywords they're bidding on, what the rate of return is for each advertiser."”

Behavioral Based Insights

“Wu calls Google "the barometer of the world." Indeed, studying the clicks is like looking through a window with a panoramic view of everything. You can see the change of seasons—clicks gravitating toward skiing and heavy clothes in winter, bikinis and sunscreen in summer—and you can track who's up and down in pop culture. Most of us remember news events from television or newspapers; Googlers recall them as spikes in their graphs. "One of the big things a few years ago was the SARS epidemic," Tang says. Wu didn't even have to read the papers to know about the financial meltdown—he saw the jump in people Googling for gold. And since prediction and analysis are so crucial to AdWords, every bit of data, no matter how seemingly trivial, has potential value.”

Rise of the Datarati

“Varian believes that a new era is dawning for what you might call the datarati—and it's all about harnessing supply and demand. "What's ubiquitous and cheap?" Varian asks. "Data." And what is scarce? The analytic ability to utilize that data. As a result, he believes that the kind of technical person who once would have wound up working for a hedge fund on Wall Street will now work at a firm whose business hinges on making smart, daring choices—decisions based on surprising results gleaned from algorithmic spelunking and executed with the confidence that comes from really doing the math.”

Now, a few questions I think folks should consider:

1. Who does that math in your organization? 
2. Does your analytics / active information strategy suffer from information processing richness and insight scarcity?
3. Who are, or should be, your datarati? 

Conversation with Steve Goldman of the CME Group on CEP as Enterprise Platform & StreamBase

Late in May, Mark Palmer, CEO of StreamBase, piqued the event processing community’s curiosity with this tweet: “Today I signed what I think is the most exciting CEP deal of 2009 - corporate selection by a household name…”. 

While many household names use Complex Event Processing products, the products are acquired solve a particular business problem, or perhaps, a handful of scenarios within a business unit.  In his tweet, Mark signaled an adoption pattern shift, from CEP as application enabler, to CEP as enterprise technology platform. 

For the event processing community -- vendors, researchers, early adopters and advocates -- this shift has been long overdue.  Of course, as a fact based community, we require a little more information than a 140-character tweet.

That information became public this week, as StreamBase announced that the “household name” is the CME Group:

“StreamBase today announced that CME Group, the world’s largest and most diverse derivatives exchange, has selected StreamBase Complex Event processing solution for enterprise-wide deployment.  After a comprehensive evaluation, CME Group chose StreamBase as its internal standard Complex Event Processing (CEP) platform, and will be initially deploying it for their options pricing applications.

“CME Group is one of the most demanding technology environments in the world, processing millions of orders a day in milliseconds, and disseminating market data in a reliable and low latency manner is critical to our customers,” said Steve Goldman, Director, Enterprise Architecture, CME Group.  “Their high-performance multi-threaded server and easy to use modeling tools met our requirements and will enable the exchange to quickly react to the ever changing needs of our customers.”

…As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on trading floors in Chicago and New York. By acting as the buyer to every seller and the seller to every buyer, CME Clearing virtually eliminates counterparty credit risk. CME Group offers the widest range of benchmark products available across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, and alternative investment products such as weather and real estate. More information can be found at www.cmegroup.com or via Twitter @cmegroup.”

Earlier this month, I had the opportunity to speak with Steve Goldman, Director of Enterprise Architecture at the CME Group, about event processing at the CME Group and their selection of StreamBase.   We had a great conversation that substantiated Mark’s proclamation “of the most exciting CEP deal of 2009”. 

One administrative note before I jump into the highlights from our conversation.  What follows are an edited and summarized version of my notes from the call.  In other words, these are not direct quotes. 

Business Scenarios

The CME Group’s first StreamBase use case is generating options settlement prices.  The daily settlement process involves complicated calculations based on a number of market data feeds.  For an idea of the complexity and product line variations, here are some details from the CME’s Daily Settlement Procedures (pdf):

“Equity Options: Exchange staff identifies “seed strikes” that include the at-the-money straddle and several out-of-the-money calls/puts. The midpoints of the bid/ask quotes in the seed strikes on Globex are used to create an implied volatility skew. The skew is adjusted based upon the underlying settlement price to automatically generate the out-of-the money settlement prices, and the in-the-money options are settled automatically, using the method referenced on page 4 of this document. For longer dated options for which no Globex data exists, market participants provide bid/ask data for the seed strikes. Adjustments may be made to incorporate relevant pit data.

Non-Treasury Interest Rate Options: Similar to the procedure used in equity options, settlements in the front year of expirations are generated based on the skew derived from taking the midpoint of the bid/ask quotes in Exchange-designated seed strikes from the pit and from Globex. The skew is adjusted based upon the underlying settlement price. The additional guidelines referenced on page 3 of this document are also utilized. All other contract months are settled by Exchange officials based upon input from market participants.

Agricultural Options: Market participants provide quotes in Exchange-designated seed strikes which are used to generate the implied volatility skew and the skew is adjusted to the underlying futures settlement price. Dairy products are settled using a flat volatility determined by the at-the-money straddle.

Weather Options: Option trades are converted to “standard deviations” using a model based on Stephen Jewson’s model for pricing Weather. This standard deviation creates prices in the entire options series which is then applied to the open strikes.

Housing Futures and Options: The futures are settled to the last trade or better bid/offer on Globex. Absent a trade or better bid/offer, the prior day settlement is used. The options are settled using volatility skews derived from the midpoints of the bid/ask in a given strike, tied to a futures level.

Metal Options: Exchange officials, in consultation with market participants, establish the at-the-money volatility and create the volatility surface for the out-of-the money puts and calls for all option series based on traded/quoted outrights and spreads, which is entered into an options pricing model to determine the settlements for all strikes. Settlements may be adjusted in accommodate relevant orders.”

[For more on the CME Group’s business, see Mark Palmer’s Innovation by the Numbers post.]

Event-Driven Organization

Goldman shared that the exchange has been an event-driven organization for a long time, at least since they began electronic trading.  Goldman described CEP as the epitome.  CEP introduces an engine to process thousands and thousand of real-time events, with a simple way to instruct the engine on what to do with those events.

Goldman emphasized the productivity benefits for business users.  Business users will be able to build, dynamically change and test models.  Once the business scenario is resolved, the business hands off the models to technology personnel who focus on implementation aspects, such as scale, reliability and monitoring.

[Weather Options Settlement Example in StreamBase, Click on Picture to enlarge]

 

By adding StreamBase, they now have a powerful and flexible tool to work with market data. To maximize this flexibility, the solution is being architected to receive all market data within the exchange, as well as many external data sources. 

Future use cases include real-time risk analysis and the margining aspect of the business.   

Selection Process

In respect to the selection process, Goldman spoke of mature enterprise architecture practices and deep business participation.  They started by developing an enterprise architecture framework that looked into the entire settlement process.  This resulted in a design, which ultimately led to Complex Event Processing.

Goldman outlined an evaluation process that continually narrows the field via introductory briefings, RFI responses, follow-on meetings, proof-of-concepts, gap analysis, and business terms.  During the CEP evaluation, the CME Group looked at four vendors, and ended with two finalists.

The team determined that both finalists could do the job, meeting functional, performance, scale and monitoring requirements.  Ultimately, the usability of the StreamBase Studio won the day.

The product’s ease of use, Goldman believes, also contributed to the business team’s deep engagement in the proof-of-concept and involvement in the final decision-making. 

Return on Investment

Goldman projects the CEP engine investment will pay-off in less than a year.  The alternative to purchasing a CEP engine was a custom solution.  A custom solution would have required more development time and delayed the introduction of business capability, which the CME Group needs now. 

In addition, a custom solution would have included manual processing and “taped together” third party tools.  Besides cost and time, this path introduces more opportunities for error.

Real-time World

Speaking to opportunities outside of capital markets, Goldman spoke of the importance of real-time business in an increasingly real-time world.  The ability to see and process orders, data, risk and regulatory compliance in real-time ultimately results in more business.  More business results in more profits, now.

 

[Disclosure: StreamBase is not a client of my company, Elemental Links.  Nor do I have the skill to trade on the CME Group’s exchanges.]