About a year ago, the Royal Bank of Canada began to hear the same demands from different divisions within the bank. Everybody wanted business process management and real-time analytics, and the bank faced a number of distinct integration challenges. But instead of building dozens of one-off solutions, the bank decided to go with an enterprisewide standard platform. "Defining corporate enterprise standards is key to competitive differentiation," said Morteza Mahjour, SVP of enterprise information and technology services of RBC Financial Group, adding that enterprise application integration, or EAI, will allow the bank's processes to become "simple, flexible, and efficient."

The reason is in how EAI works. Traditionally, when a company has application A and application B, and the two don't talk to each other but need to, the company builds a bridge. Let's call it the A-to-B bridge. Then, when application C comes along, the company has to build the A-to-C bridge, and the B-to-C bridge. If yet another application is added, then the company has to build three more bridges. In other words, as each new application is added, the integration process becomes increasingly more complex.

EAI solves this problem by selecting a platform for all applications to connect to. It's a little bit more work at the beginning, because instead of building the A-to-B bridge, the company has to build the A-to-platform bridge and the B-to-platform bridge. But as new applications come on, the integration process is straightforward since they only need to be connected to the common platform, known as the middleware. If the middleware is good enough and sufficiently popular, then many of the common applications will come with their bridges already pre-made.

EAI: The Next Generation

A number of vendors made a good amount of money selling their middleware, until the rise of Web services commoditized the whole shebang and threatened to put everybody out of business.

One sign that the market is mature, according to Shawn Willett, principal analyst at Sterling, Vir.-based Current Analysis, is that a number of big players are getting into the game. The pure EAI companies like webMethods, Tibco, Vitria, and SeeBeyond, and portal companies like BEA and IBM, have been joined by Microsoft, Oracle, SAP and Siebel.

So the integration vendors got smarter and asked themselves, what do users really want from integration?

Do they want their applications to just talk to one another, or do they also want to keep track of what they're saying? Do they want to organize entire processes in order to get a handle on problems, exceptions and inefficiencies? And do they want to automate the management of the peskiest parts of all business processes, the human elements?

If RBC Investments' Jim Brown has anything to say about it, the answer is yes to all these.

RBC picked Vitria because of its ability to connect people, processes and systems involved in the trading cycle, said Brown, director of information technology at RBC Investments. He also wanted to see improved accuracy in dealing with trade execution and settlement. And, of course, the integration solution had to expand easily to include new applications. "It was imperative that the product would scale to meet our future needs," Brown said.

RBC had a "bake-off" between the various integration vendors last summer, recalled John Parker, VP of financial services at Sunnyvale, Calif.-based Vitria Technology, Vitria won the competition and started work on the brokerage project for RBC Investments at the beginning of September.

The project-scheduled for completion in the first quarter-is expected to increase the processing rate of transactions, allow for intelligent exception management and automation, and offer improved real-time visibility into the back office.

Keeping an Eye on ROI

A key requirement in the bake-off was that the integration had to solve an immediate, tactical problem while simultaneously making it easier to solve similar problems down the road. One way to do this is with prebuilt integration packages that solve specific integration projects common to a particular industry. For example, RBC Investments is a charter customer for the Vitria STP integration package. The package will be available to the industry as a whole in the first quarter of 2004 through a joint partnership with Accenture. Both invested more than $2 million in the project.

"Everyone is looking at smaller, tactical, strategic initiatives that are well-bounded and have a scope and an ROI definable ahead of time," Parker said. "Our initial estimate is that we can reduce back-office costs 30 to 40 percent based on this product through automated exception handling, real-time visibility and increased process automation. So if you have orders sitting in your order management queues, you can dynamically manage the queue so that the biggest, riskiest trades are fixed first."

Other areas that Vitria is targeting for prepackaged integration products are financial messaging convergence and reference data. "Reference data is emerging as more important than a lot of people realize," Parker said. Without good reference data, integration just means that bad information is passed around faster between applications, he explained. Vitria isn't the only EAI vendor to follow the path to business process management and packaged integration solutions. All the major EAI vendors, plus integration consultants like Deloitte Consulting, are working on developing ready-to-go integration packages for Wall Street firms.

According to Gartner analyst Roy Schulte, the application integration space is where software development was 20 years ago. Back then, people had specific business problems they needed to solve, and would write software to solve those problems. "Nowadays, whenever possible, you buy the application and then you tweak it," he said. "And now you can buy off-the-shelf integration."

Selling to Ops, Not IT

Buying prepackaged integrations may reduce the cost of integration projects but, more importantly, it will speed up the integration process. "If it used to take six months, now it will take three months," said Schulte. "EAI projects don't often fail. But they can take longer and cost more than they were expected to." That, in itself, is a business risk worth guarding against.

If these integration packages are based on common standards then they can be tied together to provide true enterprisewide integration. And, with data moving around easily and efficiently, companies can take the next step and start integrating and managing entire business processes, not just individual data flows.

"Just moving data back and forth is not really very clever anymore, it's a commodity," said TowerGroup analyst Tim Lind. "The kind of things we see most EAI companies moving toward in financial services is more around business process monitoring tools. And it's not really a technical sale anymore. They're not selling to IT staffs about how to connect different applications on different platforms. They're selling to lines of business about how they can make operations run more smoothly."

But business process automation is still a new deal for Wall Street companies, he said, and not many firms have gone public with their projects yet. It will come, he said. There are a number of drivers that are moving firms toward business process management. Companies can reduce costs, eliminate risks, identify bottlenecks.

"Despite the fact that the economy is turning around, what end-users are still trying to do is figure out how to grow revenue as things pick up, but do it sanely so that when the next downturn comes we've protected our margins," said John Knightly, senior director of financial services marketing at San Jose, Calif.-based BEA Systems

One way to do this is a refinement of business process management called business activity monitoring. It lets a firm create a set of virtual gauges to keep track of key business processes in real time, or close to real time.

"I think after the recent downturn, people are much more savvy about how they're going to invest their money," Knightly said. "They want to save dollars just as much as make dollars. Business activity monitoring gives you much tighter control over your business to keep your costs down."

The Basel II Factor

And, in some parts of the world, reducing operational risk can also reduce a company's capital reserve requirements. "The whole point of the Basel II Accord is to justify the amount of capital you need to set aside to protect yourself against some sort of failure," Lind said. "The more we can demonstrate that we have a handle on all the transactions that flow through the system, the more we can monitor the health of those transactions, the more information that I have that demonstrates that I have a handle on what's going on in my enterprise, the more I can justify a lower allocation of capital to handle risk."

U.S. regulators are likely to follow suit, according to Joanne Friedman, CEO at Toronto-based ConneKted Minds, a corporate strategy firm focusing on EAI and business process integration. "They will become part of a bigger picture in the long term, say 2006 or 2007," she said. "The U.S. will implement new regulations around the Internet that deal with things like straight-through processing in terms of taxation and reporting, modeling what's going to be put in place in the European Union."

But even before that, she said, there are plenty of business drivers for EAI.

"It's going to become part of the overall portfolio of all the financial services companies in the next couple of years," she said.

According to Giga Information Group analyst Andrew Bartels, the integration software market will grow 7 to 8 percent in 2004, compared to only 4 percent for overall IT budgets. "Most of the information we're seeing points to a good rebound in the coming year," said fellow Giga analyst Ken Vollmer.