“Unbundling the Enterprise: APIs, Optionality, and the Science of Happy Accidents” reminds me of “The Phoenix Project: A Novel about IT, DevOps, and Helping Your Business Win“. Both books I have a hard time understanding. But I get the principles of happy accidents, managing uncertainty and innovation.
The headline
Once you acknowledge that a specific future can’t be predicted, the basic premise of being flexible (i.e., having low-cost options) in the face of generic future changes is the common-sense choice to at least hedge your uncertainty.
Flexible treasure hunting
A book about IT and how APIs give you direct access to experimentation, serendipity, randomness, open innovation, flexibility, adaptability, options, scaling, and unlock (hidden) value. Funding the treasures in the digital seas. Using data as the raw material for creating digital products, high-speed, low-cost communication, and mass observability. Unbundling business capabilities into API-enabled digital building blocks establishes the foundation for the tools that everyone can use to drive innovation.
An API ecosystem
Connected applications, software to software (or soon AI to AI). Look at how API-enabled services allowed companies like Uber and Lyft to launch and scale in record time. Additionally, both rideshare startups can run their applications through API-enabled cloud services, another factor that contributed to the rideshare companies’ rapid growth. This rideshare example also illustrates the most important aspect of API-enabled digital treasure hunting: you don’t need a map. Google didn’t create Maps with Uber in mind.
Friction
APIs have a unique leverage point in reducing friction and expense between suppliers and consumers. There are many more examples of API options driving web innovation. In all these areas, APIs feature prominently. Successful digital companies handle this pace by spending less time trying to predict the future and more time preparing for any eventuality. Preparation comes in the form of optionality: unbundling their business capabilities into digital assets that can be combined and composed into new products, processes, and experiences that meet opportunities unlocked by innovation.
Value dynamics
Business can be viewed on a macro level as a series of value exchanges. Value dynamics is a visual method of designing business models through value networks and API-enabled value exchange. It will help you “place bets” on opportunities that arise from optionality.
Feedback loops
When an organisation is exercising multiple options simultaneously, feedback loops are crucial for determining as quickly as possible which options are succeeding and which need to be discontinued.
Tips
- See APIs as mission-critical business assets, not as technical components.
- Have an “outside-in” view of their business,
- Weigh near-term opportunities against a high-level mission rather than trying to adhere to a rigid, long-term plan.
- From linear to ecosystem or platforms
- APIs will provide a gateway for all the smart and creative people who work outside of your organisation to create unanticipated innovation for the company.
- The web functions like an ecosystem: “The more life there is, the more there is for everyone.”
- Use APIs to cheapen experiments.
- Use APIs to provide data on the performance of the experiments, which they use to increase returns by doubling down on successful ones and quickly shutting down those that fail.
- Allow for the H-API accidents.
- Create optionality by unbundling business capabilities through APIs
- The value of digital systems can be measured by how well they align with an organisation’s business model.
- Convexity is easier to attain than knowledge.
- Preserving serial optionality beats a strategic plan.
- By decoupling each of the capability layers from each other organisations have attained a high degree of convexity and are fully transformed.
- Fully closed systems (i.e., monoliths) are non-starters in today’s interconnected and hyper-specialised world.
- Embracing modularity by default. Modularity, or optionality through unbundling, is the best hedge to “manage the unpredictability of the future. Read “How big things get done“.
- Use APIs not only as the connection points between systems but, more importantly, as the lubricant between business models.
- In your efforts to drive your enterprise to embrace an unbundled future full of convex options, finance will either be the friction or the flywheel to your success.
- Shift towards multidisciplinary fusion teams.
- Give developers operational responsibilities.
- Place development teams as close as possible to the point of revenue.
- Traditional enterprise IT teams are seen as a cost centre. Stream-aligned teams are seen as a partial cost centre. Business-centric teams are seen as value creators.
- 10X wins don’t require 10X investment to get started
- Data is a business asset.
- By gaining more correlation between the data you have and being able to put it in context, these abilities drive an exponential increase in the data’s value.
- Apply just-in-time compliance
- Accessibility is more important than security.
- The digital economy has open borders.
Think platforms
Think platforms. A platform is a software-based system whose functionality is broken into discrete capabilities that are made accessible to developers through APIs. By providing this collection of building blocks to developers, offering the right incentives, and aligning the appropriate business model, platform owners can significantly diversify their strategic options over the long term. The Golden Rule of Platforms is that you ‘Eat Your Own Dogfood. ‘Eat Your Own Dogfood’ can be rephrased as ‘Start with a Platform, and Then Use it for Everything.
Bezos API
The memo—now often referred to as the “Bezos API mandate. All teams will henceforth expose their data and functionality through service interfaces. Teams must communicate with each other through these interfaces. There will be no other form of interprocess communication allowed. It doesn’t matter what technology is used: HTTP, CORBA, PubSub, or custom protocols. All service interfaces, without exception, must be designed from the ground up to be externalisable. Anyone who doesn’t do this will be fired.
Remove the innovation bottleneck
Amazon had initially instituted a “New Process Initiative” to prioritise funding for new ideas. However, this process became a bottleneck and a hindrance to innovation. They had twenty good ideas and were only able to fund two. They were able to unstick the process by addressing their software architecture and allowing for quick and constant experimentation (that can scale quickly)
Google Maps
Google Maps provides even more insight into how packaged products can be unbundled into discrete capabilities, enabling unanticipated innovations. Savvy developers who didn’t work at Google figured out how Maps was built and thought of new ways to use the technology. To do this, they connected directly to the API that underpinned the Google Maps application. Sites like HousingMaps.com and ChicagoCrime.org were early adopters of this approach. Its organic growth had been so steady that by 2011, the number of maps served by the Maps API exceeded the number served by the Maps web application. By 2012, the number of apps and sites using the product had grown to more than one million.
H-API Accidents?
APIs played a big role in the growth and success of both Amazon and Google Maps. The good news is that there are now many transformation success stories from companies that are digital settlers. Cox Automotive uses APIs to power its industry-leading marketplaces, such as Autotrader and Kelley Blue Book. Coca-Cola uses APIs to introduce new technologies across all its business lines and to crowdsource its product innovations. Capital One’s APIs dynamically connect its customer channels with its core banking capabilities. Best Buy uses APIs to synthesise disparate lines of business.
Combinatorial innovation
There is a popular saying in the tech world that we overestimate the change that will happen in one year and underestimate the change that will happen in ten years. This phenomenon is explainable. When people predict the future of technology, they often look at things linearly. We underestimate longer-term change because we fail to see that innovation happens in combination. New innovations are built on a synthesised foundation of multidisciplinary capabilities. The mobile phone expert from 1998 may have predicted touchscreen keyboards and high-resolution video playback, but it is unlikely they would have foreseen the App Store or the treasure it would deliver to Apple asymmetrically.
Composability
The biggest innovations—the ones that offer the most significant business opportunities—tend to stem from a combination of innovations that occur in multiple related fields. And we have no way of knowing what those big innovations will be. That is why organisations should focus on cultivating an environment in which happy accidents can take place. Organisations should strive to have many capabilities, and those capabilities need to be “combinable” or “composable.” Using APIs to expose business capabilities enables an enterprise and its partners to streamline the process of committing to exactly how a capability will be utilised, allowing the business to pursue multiple options simultaneously.
Digital products
Besides combinatorial innovation, another dynamic is at play in the digital economy that accelerates the rapid pace of change. In the manufacturing economy, there are constraints. Digital products are different. In economic terms, data is a non-rival good. Non-rival goods, however, can be consumed or possessed by multiple parties simultaneously. Rival products are limited by unit costs. Non-rival goods have the opposite property. Because each unit can reach an unlimited number of consumers, their potential returns are unconstrained by unit costs. This means they have a convex curve. Digital technologies make it easy to move data at speed and scale.
The economic benefits of modularity and optionality.
Option value is high when consumer tastes are heterogeneous or unpredictable, and technological trajectories are uncertain. In these cases, it is not obvious what will succeed. Over the last twenty years, Taleb has written a five-volume work, notably including The Black Swan, which consistently explores problems of randomness, probability, and uncertainty.
Taleb
What Taleb is pointing out is that in systems where the future is uncertain and inherently unpredictable, and optionality can be preserved at low cost, the potential gain to be had by creating and preserving optionality is staggering because “uncertainty increases the upside but not the downside. The best strategy is to have LOTS of bets where you can control the costs. A large exposure to a single trial has a lower expected return than a portfolio of small trials. In other words, in convex environments (where cost is low but potential gain is high), success can be found by systematically capturing and building upon a small set of winners from a large set of small bets placed via trial and error.
The questions
- How balanced and sustainable are the value exchanges?
- How well-differentiated are your organisation’s enabling capabilities?
- Are there additional value currencies that can be captured on existing exchanges?
- Are there any constituents who are positioned to disrupt the overall ecosystem?
- What do my competitors’ value networks look like?
- Are there constituents or value exchanges my organisation is missing?
- What do the value networks look like for organisations in similar positions in other industries?
- Are there patterns of innovation my organisation can replicate in our industry?
- What are other ways my organisation can reach its customers with the value it delivers?
- What value exchanges can be disintermediated?
- What value exchanges can be digitised using new channels?
- IS there anything my organisation is capturing from value network constituents that is not currently being used to create or deliver value in the network?
- Are there any value exchanges where my organisation is not capturing data that is being used to create value for or deliver value to other value exchanges?
- Are there any value exchanges that could be augmented through the intangible currencies of time savings, reach, or risk reduction?
- Can added trust or data transparency accelerate and enhance the exchange of value?
- Are there any areas where your organisation is dependent on a sole supplier that could be diversified to reduce cost or risk?
- Are there suppliers or service providers that rise above their peers and warrant exclusivity?
- Are there any supplier value exchanges that could be insourced?
- Are there commoditised capabilities in your organisation that could be outsourced?
- What value can capabilities in one value network deliver within another?
- What data can be shared between value networks to create new value that can be delivered in one or more value networks?
- Can capabilities in one value network provide intangible value—such as reach, reduced risk, time savings, trust, and value transparency—in another value network?
Do/don’t
DO commit to unbundling by default
DON’T engage in framing unbundled capabilities as exclusively internal or external.
DO commit to being intentional when choosing which interfaces to control and expose
DON’T allow business package design to be an afterthought
DO commit to lowering the cost of experiments
DON’T be afraid to shut experiments down: In many enterprises, there is a culture where failure is not accepted.
The rise of generative AI
The hottest trend that has captivated the world as we write this book is the rise of ChatGPT and, more generically, the power of generative AI. As AI advances make self-describing services and autonomous agents leap from the pages of science fiction to join real people in the real world, we stand at a unique point in time. The intelligent and autonomous algorithms of the future will further accelerate the amount of traffic and activity channelled through APIs, specifically because the provided API interfaces are already optimised for machine-driven consumption.
Systematic serendipity
For someone who knows very little about software and/or APIs, the approach is super interesting as an approach to managing innovation. A self-discovery innovation approach using APIs. Systematic serendipity. Reminds me of Haier. Haier is a shining example of intrapreneurship at a strategic level or a truly entrepreneurial organisation. A network, ecosystem or platform of mini-companies that are extremely close to the market. Like APIs.
Contact
- If you want to shoot the breeze and talk about books, strategy, leadership, innovation and future trends, you can book a free appointment here.
- If you want me to speak at your event, or book me as a coach, contact me at ron@ronimmink.com
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