The team at the Harvard Business Review once identified six types of digital strategies. They’re still just as relevant in today’s digital-first world. APIs (Application Programming Interfaces) are pivotal in shaping effective digital strategies. They not only facilitate seamless integration and interaction but also open new avenues for innovation and growth.
Let’s delve into the six types of digital strategies identified by the Harvard Business Review and explore how APIs play a transformative role in each.
Offensive digital strategies
These three types of digital strategies aim at targeting new demand, new supply or new business models.
1. Platform play
Initially, this strategy involves creating digital platforms to connect customers and suppliers, leveraging network effects. APIs amplify this by enabling seamless integration and interaction across various services, enhancing user experience and operational efficiency.
For example, Airbnb uses APIs to integrate local experiences and transportation options, providing a more holistic travel experience.
This platform play is what drives the open banking revolution, and Commerzbank is an excellent example of using APIs to forge a whole new partner ecosystem. By offering a powerful self-service API experience, the German bank is attracting new customers, gaining market share through integration with fintech ecosystems, and growing revenue via its own partner network.
2. New marginal supply
This approach taps into new market opportunities with low operational costs. APIs open gateways to these markets, allowing businesses to easily connect with new suppliers and customers, broadening their market reach.
For example, Etsy uses APIs to connect with small-scale artisans, expanding its product range without significant overheads. And Macif, a leading French mutual insurance company, manages and publishes a growing catalog of business services to external partners via APIs. In this manner, they’re able to tap into “Open Insurance” opportunities such as offering Macif products (like health, life, property, or casualty insurance) through third-party channels, or bringing in complementary services from external providers.
3. Digitally enabled products and services
Enhancing traditional products with digital capabilities. APIs play a crucial role here by allowing these products to connect with other digital services and ecosystems, thus adding more value to the consumer.
For example, a smart thermostat like Nest uses APIs to integrate with weather forecasting services, optimizing home temperature settings. Manufacturers can use APIs to allow clients to place orders directly from their own ERP systems, or to visualize IoT data in their asset management systems.
Defensive digital strategies enhanced by APIs
These 3 types of digital strategy are defensive in nature since they are aimed at improving what the firm already does, and therefore not a source of differentiation.
4. Rebundling and customizing
This strategy involves using digital technology to customize or rebundle services. APIs enable greater flexibility and personalization in service offerings by integrating various functionalities and user data. For example, Spotify uses APIs to personalize playlists based on user listening habits, enhancing user engagement.
This is something that can be quite valuable in banking as well. For example, CommunityAmerica Credit Union uses APIs to integrate member data into analytics processes, enabling personalized marketing with a 360-degree view of each member – and then offering automatic recommendations with compelling up- and cross-selling opportunities.
5. Digital distribution channels
Focuses on using digital channels for product and service distribution. APIs are key in expanding these channels, enabling integration with diverse platforms and thus wider accessibility. For example, Netflix uses APIs to distribute its content across various devices and platforms, increasing its reach.
Health insurance providers like Henner do this to offer a more frictionless experience, so customers can submit a claim and continue to monitor it just as easily on mobile as they do online.
Involves using digital technologies for reducing operational costs. APIs contribute significantly by automating processes, enhancing data flow, and optimizing resource usage, leading to more efficient operations.
For example, FedEx uses APIs for real-time tracking and automated dispatching, optimizing logistics and reducing operational costs. Santher, one of Brazil’s oldest and largest makers and distributors of paper products, uses APIs to continuously monitor and pinpoint failures and errors in the supply chain before they can impact operations.
APIs are at the heart of successful digital strategies
Our exploration of digital strategies, particularly through the lens of APIs, aligns with a critical finding: successful companies, especially those with bold corporate strategies, are more likely to adopt offensive digital strategies. These organizations focus on innovation, targeting new products and new customer segments rather than just cost-cutting measures.
APIs are a cornerstone in these offensive strategies. They enable companies to create dynamic platforms, integrate new services seamlessly, and continuously innovate in product offerings. Our data echoes the trend that while digital attackers often disrupt markets with platform-based models, few incumbents have fully embraced this approach. This hesitance often leads to playing defense, which may not be sufficient in the face of digital disruption.
For companies committed to transformative growth, the key lies in leveraging APIs to shift from a defensive to an offensive strategy. This involves going beyond cost-efficiency and focusing on creating new value propositions, entering new markets, and reimagining customer experiences. As we’ve seen, APIs can catalyze this transformation, offering the agility, scalability, and connectivity needed to compete in the digital arena.
Are you ready to harness the power of APIs in your digital strategy? Whether you’re looking to innovate, expand, or optimize, APIs can be the key to unlocking new opportunities and driving your business forward. Don’t let the digital revolution pass you by. Start exploring the potential of APIs in your business strategy today.
Connect with our experts to embark on your transformative journey with APIs. The future is digital, and the time to act is now!