KPIs for APIs: Why They Matter
In this new series, we discuss the importance of setting appropriate key performance indicators (KPIs) for digital programs and the APIs that underpin them. It is based on years of consulting work on digital programs at Fortune 500 companies. Here, we define digital KPIs and explore why they matter.
Many executives at large enterprises are now connecting the dots between the performance of their core business and the relevance of digital capabilities powered by APIs. To facilitate the next steps in realizing value from these critical assets, enterprises need to become savvy in the use of key performance indicators (KPIs) to drive digital programs—in particular, in the development of APIs.
Enterprises have long relied on KPIs to align all areas of the business, and this applies to digital initiatives as well (see the Apigee Institute’s KPIs, Conviction, and Competitive Advantage and Three ROI Criteria to Drive Digital Success). Without KPIs, digital programs and the API initiatives intended to enable them often struggle to realize their business value. Gartner, Forrester, McKinsey, Deloitte, MIT, and others have found that industry leaders are hungry for guidance on how to include metrics that accelerate “getting great at” digital.
Preparing for a digital future
The use of KPIs in API-powered digital programs can impact the business in profound ways.
Take the car business. The future of self-driving cars is fundamentally changing the definitions of “driving” in ways that turn basic concepts, such as liability and ownership, upside down. Software is the source of this disruption, and just as software continues to expand its role inside the vehicle, it also permeates the buying, servicing, insuring, and managing value chains around the vehicle.
As a result, several car companies are accelerating development of “digital” capabilities around their vehicles, while others—a dwindling number—appear content to remain manufacturers of increasingly isolated hardware. These fundamental changes will arguably be as consequential as the advent of just-in-time and kanban manufacturing in the 1980s, and should, as has often been the case in enterprise paradigm shifts, be driven from the executive suite.
Just as Ford has redefined itself to be a "mass mobility" company, car makers such as Daimler and Toyota are adding KPIs that prepare the enterprise for a digital future.
What is a digital KPI?
Working with enterprises over the last five years, it has become clear to me that without good digital KPIs, transformation efforts can become stuck in one-off projects. However, good KPIs are sometimes not obvious at first glance, and supporting metrics play an important role.
Good KPIs should cause the different operating units of a company to align toward common goals, even though the required changes can be quite diverse. Continuing with the car example, here is what this might look like:
- Financing units can create software-enabled shared ownership models (e.g., Ford Leasing, Subscriptions, Travel on Demand)
- Auto-pilot engineers can invest in the artificial intelligence (AI) necessary to improve the safety and utility of the vehicle
- Vehicle analytics teams can design algorithms that enable new insurance, risk management, and maintenance services
- Marketers can shift messaging platforms and adapt content to appeal to new and more diverse “user” experiences
- Human resources teams can pursue the creative talent needed to pull off these changes
In fact, virtually all executive roles can reshape the way their units work. Even the CEO may spend over 50 percent of her time on transformation (for more, see this excellent article at Harvard Business Review).
Here are some real-world examples of companies shifting their KPIs and business models to digital:
- Humana is increasing interoperability across its partner ecosystem
- The Financial Times is moving its revenue entirely to digital channels
- Pitney Bowes targets digital commerce as a core competence
Coming up next, we’ll discuss how to avoid bad digital KPIs, and how good digital KPIs fit into the digital value chain.
Michael Leppitsch works on transformation strategies for global enterprises at Google Cloud.