Measuring Adaptability

Darwin got it right: it’s the ones that are most adaptable that survive. Adaptability is becoming a strategic necessity, especially now that customer expectations and new technologies develop at an unprecedented pace. Businesses crave Agility. Being truly agile, however, goes beyond just using the latest ‘buzz-words’. Adaptability requires a different definition of success and how this can be measured. In my experience companies often fail to achieve their desired results, because the correct success-metrics are missing. This article is about metrics that work to build more controllable adaptability within your organization.

You do not exactly need to be a guru to understand the critical importance of adaptability. Examples are all around; the story of Kodak, the Dutch V & D department stores, and the music, publishing and travel industry. The need for adaptability is nothing new. It’s the same changing force businesses have always had to deal with. The pace of digital innovation, however, is speeding up the pace of the game. Big time.

Building true adaptability is easier said than done….it hits existing organizations at their absolute core. It goes beyond obstacles like ‘silos’ and ‘technical legacy’. It demands a cultural shift. Whoever successfully wants to work on Agility should start by redefining what it truly means to achieve ‘success’ and how best to measure it.

In this article I advocate a different way of thinking about metrics and measurability of results. Based on my own experience and an analysis of a number of leading ‘digital native companies’. I come to the following conclusion:

“Building greater adaptability requires focus on measurable market focus, time to market, and team quality”

It is essential to recognize the interrelationship between these factors of success and to work on all three of them at the same time.

This is the complete opposite of how most organizations define success, responsibilities, and the use of KPIs nowadays. Therefore, in this article I will discuss:

1: Correct metrics are essential, the wrong metrics are deadly.

2: What metrics do Digital Natives (like Google / Booking.com) use?

3: A basic rationale for metrics about adaptability.

Part 1: Correct metrics are essential, the wrong metrics are deadly

Adaptability is a capability, a feature of your organization. It is a combination of substantive skills, practical conditions, and commitment from the management that enables organizations to constantly evolve. Therefore, companies largely invest in building teams that are able to find valuable solutions through customer insight, design, and technology. As a result, developers are in high demand. Designers are placed in key positions, and user research and customer focus is the new norm.

How do we define success?

Every board that decides to really focus on adaptability must understand one thing: it does not directly bring in money. The old way of thinking behind the business case simply doesn’t work here: you cannot judge the process as a one-time investment. This is where businesses often go wrong.

In the transition to more customer-focused and a faster work method, existing organizations will discover practical obstacles on their way. Delays, and conflicts of interest, are caused by a mandate that is fragmented across different silos. Genuine autonomy for teams is basically made impossible by technical legacy. Both obstacles are deeply embedded in the organization and work against agility and customer focus.

“Building adaptability is a process that will take time, require a substantial investment is bound to experience fierce organisational resistance”

To build adaptability, practical obstacles will have to be removed. This process takes time, requires a substantial investment, and is bound to experience organizational resistance. Therefore, the first thing that needs to be done is formulating indicators of success. After all, the directors have to be able to account for their decisions. They must be able to substantiate their decisions and defend their decisions towards internal stakeholders, external shareholders, and fellow board members. It is essential to make the process more ‘accountable’ and to identify clear success metrics. This allows management and directors to oversee the process, to adjust if necessary and to protect their investment towards stakeholders. If these indicators of success are missing the process will fail, at either the first setback, or under internal or external pressure.

How the wrong metrics can bring your company into serious danger

It seems so obvious: some investments have to be made with a long term focus. They don’t directly affect sales, customer retention, or service costs. Yet organizations often still rely on classic, short-term driven KPIs.

“Focusing on the wrong metrics can be a real threat to the survival of a company.”

Incorrect metrics are deadly. They create no incentive to collaborate, or to strive for sustainable quality, and they kill team-commitment. Therefore, poorly designed metrics can pose a very real threat to the survival of businesses. To successfully work on adaptability it is essential that organizations learn to place their focus beyond the short-term impact on business results.

It is imperative to formulate KPIs that are practical and encourage organizations to build adaptability and create long-term success. The KPIs should provide direction and stimulate motivation.

Google, Booking.com, and Dropbox prove that this is in fact possible to measure adaptability and that it can lead to very successful business results.

Part 2: Digital Natives and the Metrics they use

Creativity and adaptability cannot be judged by their short-term return-on-investment or other contribution to business results. However, this does not mean you can’t set clear and absolute measuring points. In fact, the right KPIs provide focus, encourage involvement, and create a shared purpose between the person that is financially responsible (the director) and the executive team. ‘Digital native’ organizations are well known for their digital capabilities and the innovative power that derives from it. At the same time they operate a measurable way of working.

The only difference is: they formulate different KPIs.

Ever since 1999 -2 years after the start of the company- Google has worked with the OKR (Objective Key Results) framework. Google uses this OKR framework to measure and control their efficiency and development. Currently, other ‘digital natives’ like Booking.com, Twitter, and Dropbox also work with OKR’s.

“Digital native companies are well known for their KPI driven way of working. The only difference is: they formulate different KPIs.”

The OKR framework is a method in which organizations can break down their goals into smaller sub-goals and translate these sub-goals into measurable short term actions.

- Objective: the goal you are trying to achieve. Clearly formulated. Ambitious, but focused.

- Key Results: measurable actions that bring you closer to this goal. A Key Result is ‘measurable’ when someone can objectively determine whether or not a goal has been achieved.

For example:

- Objective: consistently provide a positive support experience to all users.

- Key Result: shortening the average internal response time to requests by 50%

Working with OKRs has four rules:

1. Set OKRs both annually and quarterly.

2. Be focused: formulate clear objectives and don’t formulate too many.

3. Aim high: objectives must be ambitious.

4. The Key Result must be objectively measurable and must therefore contain a number.

OKRs allow organizations to break down large goals into measurable actions. This method is popular because of its pragmatic simplicity. Another valued aspect of the OKR method is that it communicates a clear correlation between the larger purpose of the organization and the specific goals of any team or team member. This way each individual is aware of how his or her goals contribute to the success of the organization as a whole.

What we can learn from Google’s internal KPIs

The OKR framework is not a magical solution. It only works if you apply it deliberately and with discipline.

The true message is: adaptability can benefit from measurability and a firm grip on progress. Continuously building adaptability, and a KPI driven work culture go hand in hand, if you are willing to formulate KPIs that go beyond short term gain. Google and other ‘digital natives’ show: it is possible to make investing in adaptability actionable and accountable. It is possible to connect it to short term goals without falling back on classic ROI driven KPIs.

Part 3: The basic metrics for adaptability

A sharp formulation of the right KPIs requires accuracy, knowledge of the current state of the organization, and a deep understanding of the objective to be achieved. Therefore, the ideal KPI model varies per organization. But there is an underlying logic that can be applied broadly.

A strong KPI model encourages three success factors: user-focus, time-to-market and motivated teams. And perhaps even more important: it emphasizes the crucial interrelationship between these three success factors.

To achieve adaptability, a consistent customer focus is essential. As an organization you have to be alert and observant. You have to be aware of what goes on in the customers world. It is essential to quickly validate new ideas and opportunities with real users. Measurable KPIs that can be connected to this success factor are:

• # conducted customer interviews
• # validated tests of new ideas (eg. through qualitative prototyping)
• # tested optimizations to live products (eg. through quantitative A / B testing)
• etc.

If being agile is your goal, it is crucial to quickly ‘go live’ with new solutions. The ability to continuously deliver these improvements to users is essential. This requires an increased amount of organizing, both in terms of distribution of mandates, and technical infrastructure. Constantly shortening the time-to-market is a critical success factor that can be measured by:

• Release cycle: # releases per period (eg. quarterly) or # weeks from time of validation of a new idea to the first actual release
• Autonomy: % of the teams that can make end-to-end adjustments to products without depending on another team

When there is a strong sense of what the user wants, and teams actually have the means to bring this solution to the market, there is one conclusive success factor: the quality of the team . It is important to mention that it is not just the intrinsic quality of an individual team member that matters. The extent to which mutual team members understand each other (communication), and are involved in the economic objective of the organization, are just as important.

A number of specific measuring points on ‘Team Quality’ are:

• Mission: % of the team that is sufficiently informed, and are involved in the common vision and common goal of the organization (method: through interviews).
• Collaboration: % of the teams that speak the common language, use a shared methodology and co-form goal-based teams on specific challenges.
• Velocity: the average amount of work that a team is capable of doing in a limited amount of time, measured in ‘story points’.
• # applications: strong teams attract talent. Therefore, tracking the number and quality of incoming applications is a good way to measure whether your teams are on the right track.
• Happiness Factor: average score the teams give for their own motivation and productivity (method: anonymous monthly survey).
• Etc.

The phrasing of each success factor will vary per organization. Each success factor has many KPIs that will perfectly fit. The important thing is to recognize the interrelationship between the success factors.

“If all three success factors are moving in the right direction, you can be sure the adaptability of your business is growing.”

Just focusing on the number of completed tests will lead to pointless research. Even if you fully focus on a shorter release cycle, this does not guarantee you’re going to ‘go live’ with the right things. And even if your team is highly motivated and committed to the objective of the organization, this does not automatically mean they fully understand what it is the end user desires.

Conclusion: Stop being your own worst enemy

Organizations that largely invest in adaptability, client focus, and digital capabilities are definitely taking a step in the right direction. The process can only succeed, however, if organizations really think about the question:

“What is success and how do we measure it?”

Let no one fool you into thinking that a creative culture cannot be captured in measurable results. The commercial success of ‘digital natives’ such as Booking.com, Google, and Dropbox proves, without a doubt, that innovation and working with KPIs go hand in hand. The ‘digital natives’ simply use different KPIs than those of the classic business case.

For those who want to build adaptability and customer focus, the message is clear: strong success metrics are essential, the wrong metrics are deadly. If you formulate your metrics based on the success factors of user-focus, time to market and team quality AND you manage to work on these success factors simultaneously, this ensures the adaptability of your organization is doing well.

And Darwin will be smiling.