Today’s digital economy has elevated APIs from a detail of technical implementation to a strategic asset. APIs make it easier to share data with suppliers, partners, and customers, improve operating efficiencies, and generate new revenue streams. For example, APIs help Salesforce.com generate 50% of its revenue through its AppExchange, Expedia.com generates 90% by allowing third-party websites the ability to tap into its functionality, and eBay generates 60% by using APIs to list their auctions on websites outside of their own.
In a recent article, “What It Really Takes to Capture the Value of APIs,” McKinsey recommends some practical steps to implement and derive value from API-based solutions. I agree with many of the recommendations, but this one caught my eye:
Establishing a centralized body, such as an API Center of Excellence (COE), is crucial for overseeing API design and development across the organization.
That recommendation is not unexpected. Anytime a disruptive technology surfaces, there is a rush to control (or mandate) its use. I’ve seen these centralized governance bodies or COEs installed for cloud, big data, mobile, and DevOps just to name a few. But, I always get concerned when I see recommendations for centralized governance organizations or “Centers of Excellence.” Why? They can be barriers to adoption rather than enablers.
A practical example of this thinking can be seen in local government zoning laws. Although these laws are created with good intentions, they often put unnecessary burdens on developers with strict construction regulations while also driving up the cost of land for potential residential buyers.
API-driven ecosystems have been successful because they support innovation without requiring a centralized planning organization. That is, APIs are essentially contracts between applications or companies that allow them to work independently and eliminate high coordination costs (see Brook’s Law for information on the impact of coordination costs). Centralized bureaucracies that try to manage all development, eliminate any redundancy, mandate toolsets, or demand monetization can stifle innovation or be a bottleneck to progress.
The authors go further:
“COE governance also extends to managing funding requests “
This is where companies must be even more careful. Putting funding in the hands of centralized governance teams can greatly impact time to market. I’ve seen companies where five or six COEs (e.g., cloud, data, security, customer experience, etc.) must all weigh in on a problem before funding is approved. This can extend time to market by months!
I’m not suggesting there shouldn’t be standards in place to govern the development of APIs. Some standards are required to ensure success (e.g., security and authorization). Strong leadership is also needed to ensure teams work toward a common goal (Jeff Bezos famously threatened to fire anyone who didn’t expose their systems’ data via external APIs!). But Amazon still finds a way to generate new capabilities and expose them via API at an incredible pace without getting bogged down with administrative overhead and approvals.
Striking this balance is not easy. At Credera, we’ve helped many companies put the right governance in place without blocking innovation. Here are some key principles to consider:
Focus on the End User: The best APIs are the easiest to use; don’t overburden users with unnecessary concepts.
Keep It Simple: When faced with decisions, do the simplest thing that might work.
Iterative/Agile Approach: Advanced functions such as monetization, throttling, versioning, etc., are best learned and over time based on feedback from real users. Start small and iterate based on customer feedback or measured results.
Data-Driven Decisions: Ensure the appropriate tools are in place to measure results and make decisions based on real data, not opinion or consensus of committees.
Decentralized Control: While goals and standards may be put in place company-wide, responsibility for implementation must be delegated to individual business units. You must minimize coordination costs.
Like the authors of the McKinsey article (and many others), I believe that APIs drive collaboration and innovation in the digital economy. I hope this information helps you find the right balance between governance and delivery. This can be a difficult area to navigate, so if you need help or have other experiences you’d like to share, please feel free to contact us at findoutmore@credera.com. We would love to hear from you.
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