DIGITAL TRANSFORMATION : HOW APIS DRIVE BUSINESS MODEL CHANGE AND INNOVATION

Abstract: Over the years, information technology has created opportunities to improve and extend businesses and to start conducting business in new ways. With the evolution of IT, all businesses and industries are becoming increasingly digitized. This process, or coevolution, of IT and business coming together is called digital transformation. One of the recent trends in this digital transformation is the use of application programmable interfaces (APIs). APIs are standardized digital communication interfaces, used for communication and exchange of information between systems, services and devices (such as computers, smartphones and connected machines). API communication is one of the foundational building blocks in recent disruptive technology trends such as mobile and cloud computing. The purpose of this study is to gain an understanding of the business impact that is created in digital transformation related to the use of APIs. To investigate this novel area, an exploratory study is performed where a frame of reference with an exploratory framework is created based on established academic literature. The exploratory framework consists of three main parts which cover the research questions, including Business Drivers, Business Model Change & Innovation and Challenges & Limitations related to API-enabled digital transformation. The framework is used to gather empirical data consisting of two types, interviews (primary data) and contemporary reports (secondary data). Interviews are performed with API-utilizing companies, consulting firms and IT solution providers and contemporary reports are published by consulting and technology research and advisory firms. Two main business drivers are identified in the study. The first is Understanding & Satisfying Customer Needs which is derived from companies experiencing stronger and changing demands for automated, personalized value-adding services. This requires higher degree of integration across channels and organizations. The second driver is Business Agility, which derives from higher requirements on adapting to changing environments while maintaining operational efficiency. Cost Reduction is also mentioned as a third and secondary driver, as a positive side-effect in combination with the other drivers. The identified impact on business models is that business model innovation is mostly happening in the front-end of business model towards customers. Several examples also exist of purely API-enabled businesses that sell services or manage information exchanges over APIs. The challenges and limitations identified are mostly classic challenges of using IT in businesses and not specific to use of APIs, where the general consensus is that IT and business need to become more integrated, and that strategy and governance for API-initiatives need to be established.