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Why API Management is required for a business? — part I

What is the correlation between business growth and API Management?

Introduction

APIs are the digital connectors that act as the interface between business data and consumers. APIs allow organizations to convert data into money through innovative ideas. API platforms are becoming a mandatory part of the IT ecosystem across many industries including financial services, healthcare, telecommunications, manufacturing, and many more. Building an API platform requires an investment from the organization.

Common questions from the business leadership

Business leaders care about the investments and their return more than anything else in most cases. They will see API platforms as an investment that should bring back the return at a given time period. Sooner the better. They will ask questions like

  • What will this project bring to our company?
  • How will this project make us gain more business?
  • What are the initial cost and recurring cost? (Opex vs Capex)
  • How long will it take to reap the benefits of the program and return the investment?
  • How the business is going to be profitable with this?

These questions are directly related to the success of the company and finding answers to them at the beginning of the API program is quite important. It is not an easy task to directly map the value that the API platform brings to the organization into monetary terms that business leaders like to see. But it is possible to do this if we define a set of API KPIs at the beginning of the program that directly or indirectly maps to the business goals of the company.

IT-driven vs Business-driven API programs

Many API initiatives are IT-driven than business-driven. This causes problems when it comes to funding and convincing business leadership. That is why it is essential to define a set of KPIs to measure the business value of APIs. Identifying KPIs that are related to business goals need to be done by partnering with business stakeholders. Most of the time, business analysts are given the responsibility of representing the business side of things in these conversations but that approach won’t work well in most cases since BAs won’t have the full picture of the business spectrum.

IT-driven KPIs

This article does not claim that there are no KPIs measured in existing API programs. But most of the KPIs that are monitored by existing programs are related to runtime and operational metrics such as

  • Number of applications
  • Number of APIs
  • Latency
  • TPS (Transactions Per Second)
  • Number of users

These metrics help IT teams to keep the system running smoothly and scale up and down based on business demands. But it does not capture the business value of the platform.

Business-driven KPIs

Here are some of the business metrics that business leaders would like to see.

  • Cost savings through API reuse
  • No. of partners using APIs
  • New revenue generated through APIs
  • Operational cost savings by moving to the cloud

To measure the above-mentioned metrics, we should define a set of metrics from the API platform itself to automatically generate reports out of these metrics.

Identifying the business goals

We should always start API projects by talking to the business leaders about the program and derive 5 main business goals that need to be achieved through this program. This can be different for each organization, but here are 5 of the generic business goals that we could think about.

  1. Revenue growth
  2. Cost reduction
  3. Data security
  4. Business expansion
  5. Citizen engagement

Once you identify the business goals, the next step is to set concrete plans to achieve these goals.

Set quantifiable goals

Here are some of the concrete action items that can be used to reach the targets set by the above-mentioned business goals.

  • Increase revenue from existing sources
  • Add new revenue sources
  • Acquire new customers
  • Reduce operating expenses
  • Reduce time to market
  • Reduce the chance of security breaches
  • Engage more partners

Now we have identified a set of concrete actions to achieve the business goals. Let’s convert these action items to a set of KPIs that can be measured against the API platform.

Defining the KPIs of APIs

API platforms allow users to engage with the platform through different channels like mobile, web, and partner ecosystems. At the same time, there are different components in the API platform that helps the interaction between customers, developers, and many other stakeholders. The KPIs that we define need to capture these various aspects of API management while aligning with the business goals.

Given below is a sample list of KPIs that we can define based on the business goals that we have identified before.

  • New revenue ($$$) gained through APIs
  • Total sales executed through APIs
  • No. of new partners integrated through APIs
  • New customer sign-ups via API channel
  • Cost reduction through automation via APIs
  • Time to market improvements using APIs for integration
  • Average time to build a new functionality
  • Count of API related security incidents
  • Direct revenue generated through monetization

This list can be expanded to many more KPIs based on the use case. But the idea of presenting this list is to show the type of KPIs that can be defined to measure the business performance of the API platform.

Higher-level goals

In addition to the above mentioned KPIs, there can be higher-level KPIs to monitor the overall performance of the API platform as a whole, such as

  • Upsell revenue gained through the API ecosystem
  • Increased retention through API management
  • The total cost of the API ecosystem (Opex + Capex)
  • The profitability of the API ecosystem

Once the KPIs are defined based on the business goals, the API platform should be able to provide the necessary tools and mechanisms to measure these KPIs in a direct or indirect manner.

Measuring the KPIs with API Management tools

Not all the APIs will provide a direct monetary impact on the business. We can categorize the APIs into 3 main categories based on their impact level.

  • Direct (Products) — These are the APIs that generate direct business value. As an example, monetized APIs will contribute directly to the profits of the business.
  • Indirect (Strategic) — These APIs contribute indirectly to the revenue. As an example, a sales checkout API or partner interaction API can indirectly help to increase the profits of the business.
  • Enabler (Platform) — These APIs enable a whole set of systems and users to interact and integrate. As an example, an API that is exposed to build mobile applications to 3rd party organizations is an enabler that will contribute to the business in an indirect manner that is not easily measurable in monetary terms.

The below figure depicts the summary of the relationship between business goals, KPIs, and actions.

Figure: How business goals are correlated to API Management

Now we have identified the KPIs for APIs and different types of APIs that contribute to the business from different angles. Let’s try to build a use case with a hypothetical company and how the WSO2 API Integration Platform can help increase the ROI based on these KPIs.

That’s all for part I of this tutorial. We will discuss how an API Management vendor helps us to achieve these goals in part II.

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Chanaka Fernando

Chanaka Fernando

1.7K Followers

Writes about Microservices, APIs, and Integration. Author of “Designing Microservices Platforms with NATS”