Author: Rhonda P. Marcucci, CPA
The API (application programming interface) market continues to mature. A few years ago, it wasn't uncommon to be met with a blank stare when we asked an HR technology provider (or insurance carrier) about their API strategy. Not so today. Serious market contenders know that API technology must be at the center of their integration strategy. Why? Because APIs make the integration of HR technology point solutions significantly easier than with other processes—including file transfers—and ease is what employers want.
While HR tech service providers and carriers are becoming more knowledgeable about APIs, most employers still have a limited understanding of the technology. As such, they are likely to equate "API" with "integration" when the truth is that API is just one of several different types of integration—one increasingly viewed as a best practice for enabling two software applications to "talk to each other." The formal definition of API varies in the marketplace, but for our purposes, an application programming interface, or API, is a set of protocols and definitions that allow two software applications to exchange data in real time (Broader definitions do not necessarily dictate the "in real time" aspect.).
Integration is a big deal in the HR technology industry because the concept of a single unified platform that supports all HR functions is highly appealing to employers. Until a few years ago, service providers would routinely develop new, proprietary components for their core product to deliver a unified, all-in-one solution. Unfortunately, the add-ons were seldom as good as the core product. This was not surprising because it is extremely difficult for one service provider to be good at all things.
The rise of point solutions integrations with API
The result was an upsurge of third-party "point solutions"—tools designed to deliver a specific function—which could be integrated (to varying degrees of success) with an existing platform. Point solution integration relies on various methods, including file exports and imports. Thanks to APIs, however, point solution integration has greatly improved. Service providers can now enable the delivery of a cohesive HR technology experience “built” using third-party solutions, made available through APIs, versus developing (or acquiring) new functions.
Employers have embraced API technology (even if they didn't know what to call it) to assemble best-in-breed solutions in a unified platform that delivers a quality experience. These solutions are typically available for a fee through an HR technology service provider’s "app marketplace," which offers pre-built API integrations that connect with other software providers, giving employers lots of quality choices (alongside some poor and mediocre choices).
While HR tech service providers and carriers are becoming more knowledgeable about APIs, most employers still have a limited understanding of the technology.
Be an informed buyer on API technology
While all this is good news, there are two downsides to API technology as it currently exists. The first is that there continues to be a lot of marketing hype and miscommunication on the part of the HR service providers, which can result in employers making poor buying decisions because they don't fully understand the technology.
Our consultants regularly encounter sales teams and marketing literature that incorrectly refers to a traditional file transfer (think an employee census file being sent from a payroll system to a benefits administration system) as an API. A file transfer is a type of integration, but it is not an API. This erroneous labeling also extends to offerings in app marketplaces. Partners in the app marketplace might be working towards real-time integration, but they sometimes lack true API technology. In those cases, the integration may not deliver on a buyer's expectations.
In a perfect world, providers would all use the same precise terminology to describe their integration technology. But that's not the world we live in, so the onus is on the employer to be a smart buyer and ask questions. To help employers make an informed decision, we encourage them to have an in-depth discussion with potential providers and to ask questions about how data moves between applications, including:
- What data (at the field level) is moving from one place to another?
Examples: Moving hiring data from the applicant tracking system to the onboarding system or moving benefit enrollment data from the benefits administration function to the carrier’s enrollment system.
- What direction does the data move (one- or two-way)?
Example: Sending payroll census data to a benefits system (one-way) or from a benefits system to payroll for deductions expected to be taken and then back to benefits for deductions actually taken (two-way).
- How often does the data move?
Example: Daily, weekly, pre-set schedule, real-time, etc.
- What triggers the data to move (manual schedule, automatic schedule, or a specific event)?
Example: Hiring a new employee could be a specific event that immediately triggers data to move from one system to another or scheduled several times a week. Alternatively, it can be part of a manually-executed event, instituted with each hire, or scheduled periodically (e.g., weekly).
Who is the owner of your API integration?
The second downside of embracing APIs is that there’s no single "owner" for all this integration. With API technology, you may have five or six point solutions integrated into the main platform, but you also have five or six contacts to manage. If there’s a problem, e.g., one platform is not accepting data from another, there’s potential for finger-pointing as to which solution is the source of the problem.
There is no simple resolution in sight, but we believe that consumer demand will eventually result in the provider of the primary system stepping up to assume responsibility. Unfortunately, we’re not there yet, so the best an employer can do is engage in a dialog with the respective providers. Lacking a specific situation, you may not get a firm commitment, but asking key questions will provide an opportunity to evaluate how each provider approaches service issues related to integration, e.g., what steps will you take to assess and resolve a data transfer problem?
APIs are the future of HR & benefits technology
APIs are the future of HR and benefit technology solutions—enabling clients to have a portfolio of technology tools that deliver best-in-breed functions integrated effectively with a core platform. We are also confident that service ownership issues will sort themselves out, but buyers must shoulder some responsibility for understanding the technology and how it will meet (or not meet) their needs when it comes to the flow of data.
Employers looking for help sorting out integration issues should consult with their benefits advisor to effectively facilitate a conversation between service providers and their clients. Contact us today to learn about Gallagher’s services in this area.