Everybody is talking about APIs, API products in particular, and its key role in digitalisation and digital transformation. Generally, we associate APIs with agility, rapid innovation, business transformation and digitalisation. No wonder that everybody wants to adopt APIs. So far, so good.
Well, when we start our API journey and build APIs, we quickly realise that reality doesn’t meet our expectations. For example, we may build APIs on top of Web services and end up with yet another layer of abstraction. Or we build an API to integrate two specific computer systems and replace one integration pattern (e.g., Service-Oriented Architecture a.k.a. SOA) with another one. Both adoptions of API are typically far away from what we want, namely agility, rapid innovation, and digitalisation. But why does it go wrong?
There are two breeds of APIs, namely API solutions and API products. Both are different in nature how they provide value to an organisation, how they impact business strategy, how they relate to digitalisation and digital transformation, and what approach we need to get it.
In this chapter, we provide you a model to understand where in an organisation API solutions and API products prosper and how both relate to business strategy, tactics, and operations. Further, we’ll show the business value of API solutions and API products with respect to digitalisation and digital transformation.
In the following, we’ll first clarify the terminology of digitization, digitalisation, and digital transformation and how APIs related to them. Then, we present the two breeds of APIs, where in an organisation each prospers and the reasons why. This forms the model for understanding both breeds of APIs. It will help you either to setup API journey/program or to make the right adaption to your current journey to meet your goals.
What is the Difference Between Digitization, Digitalization, and Digital Transformation
Who is also confused by the terms digitization, digitalisation, and digital transformation? Hands up! Well, at least I was. That’s for sure because people use those terms as synonyms or mixing them.
Nevertheless, it’s important to differentiate between the three to grasp how they relate to both breeds of APIs, namely API solutions and API products.
In the following, we explain the three terms and how they relate to digital technologies such as API.
What is Digitization?
Digitization refers to creating a digital representations of physical objects. For instance, we scan a paper document save it as a digital document (e.g., PDF). In other words, digitization is about converting something non-digital into a digital representation or artefact. Computer systems can then use it for various use cases.
An API doesn’t digitize. However, an API can play the role of integrating two computer systems to reduce media breaks.
For example: a user enters personal info into a mobile app. The mobile app sends this info to an API that will push the info into a backend system or database. The data is then accessible for other computer systems and use cases.
What is the Business Value of Digitization?
Digitization itself has no business value. However, it lays the foundation for business cases that leverage the data. In other words, it’s the enabler to create business value, which needs data.
What is Digitalization?
Digitalization refers to enabling, improving or transforming business process by leveraging digital technologies (e.g., APIs) and digitized data. That means that digitalisation presumes digitization as described in the previous section.
For example: a company hires a new employee who will need a mobile phone with subscription to communicate with customers and his team. As part of his onboarding, the employee has to write an e-mail to the according fleet manager who manages both. The fleet manager will send a fax with the employee’s info to the telecommunication company (telco company) to order both. At the telco company, a customer agent will enter the info from the fax into the system and start the order fulfilment process. After some days the fleet manager receives the phone, a subscription, but without SIM card. The fleet manager waits until the SIM card arrives and sends everything to the employee. After two weeks, the employee is ready to communicate with his team and customers.
What if we digitalize the onboarding of a new employee? When HR employes an person, an HR process gets triggered that will automatically order a mobile phone, subscription, and SIM card via the telco company. The order triggers automatically the order fulfilment process. The telco company will send everything at once to the employees workplace address. The employee will already his working mobile phone from day one.
To this goal, the telco company offered an API to order mobile phone, subscription, and SIM card. The company integrated the API into it HR onboarding process and triggers it automatically.
What is the Business Value of Digitalization?
The business value of this digitalisation example consists of three values:
- Employee is productive and can create value from day one because he can communicate with customers and his team.
- Fleet manager gets automatically updated about the new employee, the mobile phone, and subscription. He can focus on supporting his employees rather than translating and e-mail into a fax and collecting goods.
- The telco company reduces costs for the order fulfilment process. The customer agent can focus on value generating interactions with customer and invest more time into a better customer experience.
Ultimately, part of the onboarding process (getting a mobile phone and subscription) is improved and even transformed. More specifically, the process is automated and reduces manual effort completely.
This is an example of two companies who leverage digital technologies like API to improve or rather transform business processes.
What is Digital Transformation?
Digital transformation is the profound transformation of business activities, competencies, and business models to fully leverage the opportunities of digital technologies.
For example: a company has personal information about many customers. Other companies have to verify person info to do business (e.g., insurance companies). Based on the customer info, the company provides an identity verification product for other companies who want to verify a person’s information. And since the company has so many customer info, other companies likely use this identity verification product.
What is the Business Value of Digital Transformation?
Please note that identity verification wasn’t a competency of the company until now. However, the company identified an additional business model based on customer info that might complement or even supplement its current business and market. This is digital transformation.
This is an example in which a company fully leverages digital technologies to transform business activities, competencies, and business models.
Two Breeds of API and Paradigm of Change
Peter Drucker was a master in the field of business thinking. I stumbled upon his Paradigm of Change Model, which I found very useful to understand both breeds of APIs.
Peter Ducker’s Paradigm of Change model suggest that an organisation can be described with the following three components:
- Strategy (What-Should-Be): strategy describes what an organisation wants to accomplish. In other words, where the company should be. Strategy is transformational.
- Tactics (What-Will-Be): tactics describes how the organisation is accomplishing the goal. In other words, what the company will do. Tactics is transitional.
- Operations (What-Is): operations describes what an organisation is doing. In other words, what the company is right now. Operations is traditional.
Strategy, tactics, and operations are the components that describe the constant fluctuations of an organisation.
The three components are depicted as Venn diagram in the following figure. As you see, they overlap. The intersection of strategy/tactics, strategy/operations, and tactics/operations is where the real power of APIs are.
In the following, we’ll use this model to present the two breeds of APIs, where the prosper and why, and how the provide business value.
API Solution is the Breed of Operations
Every organisation has to ensure that their operative business runs as smoothly as possible. It’s the foundation of a healthy organisation and sustainable success.
Hence, it’s important standardise processes to optimise them with respect to time, cost, and quality. When you standardise processes, you can define meaningful metrics, start measuring, and monitor KPIs.
Naturally, every organisation runs into business problems, which needs to be solved. To this goal, organisations typically apply critical thinking to solve business problems.
“Critical thinking is the objective analysis of facts to form a judgement”, Wikipedia, Critical Thinking.
Hence, critical thinking is appropriate to solve business processes because you can analyse them and evaluate KPIs to make fact-based decision about what to improve or change.
Generally, API solutions are built to reduce costs and improve quality of processes through standardisation.
What is an API Solution?
An API solution consists of one or several APIs that solve an integration problem. More specifically, an API solution is an integration solution between computer systems to enable inter-communication.
In the beginning of an API journey, API solutions are the most popular breeds. If designed well, they may provide a simple layer of abstraction that can be used by engineers without profound domain knowledge. E.g., an organisation may have various systems with customer info. An API solution may provide one single endpoint that consolidates this info.
How can you spot an API solution? Typically, IT architects and business analyst work on API solutions. The computer systems are known during the API design phase. The reuse of an API solution is often limited due to its design dedicated to the involved computer systems.
Architects and engineers strive for generic solutions in general to enable reuse. This is no different for API solutions. In theory that works perfectly in practice. However, in practice theory doesn’t work.
We tried to create API products from API solutions. We had two motivations to try it:
- API solutions are funded by projects. So, let’s be smart and use it as seed money to build an MVP or enhance an API product.
- We may satisfy the project with an API solution and leverage the work for our own agenda. Let’s exploit synergies.
However, projects have many stakeholders (e.g., business project manager, architects, product owners) and goals (e.g., budget, schedules, staffing). Generally, time, budget, and staffing constraints are quite tight and don’t provide you enough space to create new products. Nevertheless, projects may be useful to enhance your existing product. But be careful not to add specialisations to your API products, which will render it less reusable. A clear product vision will be is key.
In the end, we were usually left with a highly specific API solution and many dependencies.
API solutions prospers within operations or the What-Is. The reasons are that the problems to solve are precise and the outcome measurable. Typical problems are integration of two computer systems or automation of business process X to improve speed and reduce costs.
What is the Business Value of API Solutions?
API solutions enable faster and cheaper business processes. Right, but how? Organisations leverage digital technologies such as APIs to enable, improve, or even transform business processes. This is digitalisation and API solutions are one approach to digitalisation.
An API solution enables the automation of the interaction between computer systems. Automation may reduce significantly manual efforts and thus making processes cheaper and faster. Automation requires standardisation, which fosters higher quality.
API Product is the Breed of Tactics
A sustainable organisation needs the ability to adapt or it will die. The proper adaption of new technologies is one element for sustainable business success.
As our friend once stated and became the slogan of one major API conference:
“Adapt or Die”, Kay Lummitsch
The right business strategy is essential. However, good execution of a strategy is often challenging without the proper tactics. The goal is clear but the problems to solve not. This is when design thinking shines. What is design thinking?
“Design thinking in business uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.”, Wikipedia, Design Thinking.
Thus, design thinking is a feasible method to find optimal solutions that satisfies the strategy, limitations of an organisation and customer needs. Limitations of an organisation can be staff resources, skills, time, money, etc.
Generally, API products help customers getting the job done. To this goal, API products address customer pains and offer gains. API products have a business model and thus creating value for both the organisation and its customers.
API products prospers within tactics or the What-Will-Be. The reasons are that the problems to solve are precise and the outcome measurable. Typical goal is to explore and find new business models thus, impacting the strategy it self. This is digital transformation in its core.
What is an API Product?
An API product consists of one or several APIs that provide an interface to a value proposition. In other words, an API product consists of value proposition interfaces or rather VPIs. In contrast, API solutions consists of API, which don’t provide an interface to a value proposition. The value proposition of API solutions is creating the communication link between computer systems.
From my experience, every organisation has at least one obvious opportunity for an API product. For telcos, it’s SMS, an API to send SMS to people’s mobile phones. We call it the “Hello World” product, which demonstrates the simplest form of an API product: a monetized API that provides one simple interface to a digital product.
How can you spot an API product? Typically, an API product is owned by a dedicated API product manager. Nevertheless, APIs can also be used as an extra feature of an existing product. But that’s a feature and not an API product. Please note that there is a great potential for conflicts and opportunities between API product managers and product managers.
Since an API product has a business model, it targets a market out side of the organisation. But that shouldn’t restrict its usage only to the external market. You might apply a different business model within the organisation or rather internal market.
What is the Business Value of an API Product?
API products are the key to new or enhanced business models. You can target existing or new markets with an improved or new digital products powered by APIs.
It becomes interesting when an API product doesn’t support the current business strategy. Your management will either trash it or it will transition the strategy into a new one. This is digital transformation, leveraging the full capability of digital technologies that transforms the business of your organisation.
Essentially, there are two different breeds of APIs: API solutions and API products.
API solutions are APIs to solve an integration problem. For example, API solutions can integrate some computer systems or automate a business process. API solutions is an approach to adopt the capability of API as digital technology to current integration tasks and business processes.
API solutions enable the digitalisation of business processes, which become often automated. The business value of API solutions are typically faster, cheaper, and standardised business processes.
API products are APIs that provide an interface to a value proposition, i.e., VPI. A business model is fundamental part of API products. Products powered by APIs are an approach to fully leverage the capabilities of APIs as digital technology and thus, enabling digital transformation. API products are a tool of tactics to meet the goals of a business strategy.
API products enable digital transformation of your business models and strategy. The business value are complementary or supplementary business model. This helps an organisation to adapt to changing customer needs and market situation. This is crucial for sustainable success.
Be aware about the three components of this model that are operations, tactics, and strategy. Define your ambition and goals and how you want to contribute to the strategy. Do you want to drive digitalisation or digital transformation. Both have a different motivation and scope.
The API Product Management book focus on methods to create API products. Nevertheless, you can apply the methods to create API solutions as well.
Are you interested in our methodology for API product management? We are writing a book about it. Become an early adopter. Get early drafts of the book chapters to apply it. We appreciate your feedback.
Well said. Excellent article that I have ever read about APIs.
Excellent article !!’ Never read such clear definitions! Well done
Thank you! I’m very happy to hear that. It’s what we aim for.
Thanks for this amazing article. The most simplest form of communicating the new transforming businesses and technology.