Digital Strategy | HOW DO YOU KNOW HOW YOU ARE PROGRESSING?

Digital Strategy management is an ongoing practice based on continual review and update of the direction based on the reassessment of the environment and evaluation of the progress and achievements of the previously defined strategic initiatives. This requires ongoing strategic measurement and reporting. Measuring a strategy provides insights for its continual improvement or significant review, and may trigger a wider reconsideration, such as a business model review.

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KEY FACTS ABOUT MEASUREMENT

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Measurements provide information that can be used to make decisions and pinpoint issues, which can be tackled with management efforts, and assure a reliable foundation for motivation. Measurements have no intrinsic value. They only become valuable when applied in a management context.

They can help with four measurement tasks:

• Influencing behavior, each objective should have one or more indicators to enable the assessment of progress.
• Justifying changes, Metrics that display negative trends or deviations from target values are quantitative arguments for change.
• Validating decisions, Measurements help to ensure that activities have been completed, staff work towards targets, and decisions yield the desired outcomes.
• Intervening, Metrics, especially leading indicators are triggers for corrective actions.

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Most common categories of metric:

• Performance, What does the managed object achieve?
• Maturity, Does it have the necessary capabilities to fulfil its purpose?
• Compliance, Does it comply with internal and/or external requirements?

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To support these management tasks and measurement categories, various types of metrics are used.

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TYPES OF METRICS

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• Effectiveness metrics, Indicate the degree to which an activity fulfils its purpose and achieves its objectives
• Efficiency metrics, Describe how an organization utilizes resources to perform activities and manage products and services
• Productivity metrics (throughput), Describe the amount of work that is performed and the resulting outputs
• Conformance metrics, How a managed object meets pre-agreed rules and requirements

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Lagging and leading metrics

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Lagging metrics report what has already been achieved. Lagging indicators are impossible to influence and relatively easy to measure.

Leading metrics help to predict what is likely to happen in the future. Leading indicators are often difficult to measure, but fairly easy to influence

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Organizations that focus only on lagging indicators, such as those used in service level agreement (SLA) reports, might be able to report on trends based on past events, but are otherwise limited in their ability to shape future results. An example of a lagging indicator is revenue from a digital initiative for a prior month, whereas a leading indicator would be the number of experiments in support of a digital initiative that a team runs each week. Teams and leaders need to invest in the up-front time needed to define, set targets for, monitor, and review both leading and lagging indicators to support informed decision-making.

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OUTSIDE-IN AND INSIDE-OUT METRICS

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Outside-In:

• Consumer view of the organization’s service
• Used to drive priorities and actions that meet the customer’s needs rather than the way the organization works

?Inside-Out:

• The internal view of services
• Can be a constraint when used to forcing customers to comply with the way the organization works, rather than changing the way the organization works to meet the customer need

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Every customer-facing report should be based on outside-in metrics that focus on the value and outcomes that achieve the results and experiences the customer’s desire.

?Digital transformation efforts must maintain an outside-in focus as part of a balanced approach to measuring progress and, ultimately, the success of the effort.

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Metrics and indicators

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Metrics are useful when they support decision-making by indicating important aspects of a managed object; in other words, when they serve as indicators. The most important indicators are known as ‘key performance indicators’ (‘KPIs’).

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A metric is only a KPI when it is crucial for assessing an object’s state. The management context differentiates between metrics that indicate key information and those that are supplementary. Indicators are ‘key’ when they relate to the most important properties of an object or the factors that significantly affect those properties

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KPIs help to assess the state of an object in terms such as ‘good’ or ‘bad’, ‘acceptable’ or ‘unacceptable’. A metric can only be used as a KPI if it has an agreed target value and a tolerance (acceptable deviation from the target value).

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Most indicators used for services and practices also have a ‘target trend’; they should either rise or decline. For example, the timeliness of completing changes should increase, and time to market (TTM) should decrease. In these examples, the bands of tolerance are mono-directional. If the target trend of an indicator is growth, its tolerance will be lower than the target value.

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To use metrics as KPIs, it is important to:

• identify the key metrics
• define target values and trends
• define tolerances

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Cascading and linking measurement

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From a strategic point of view, it is important to note that the nature of the purpose, objectives, indicators, and metrics. Different audiences need to see metrics that allow them to measure and change things that are in their control.

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The measurement and reporting practice provides a universally applicable method for designing a measurement system. This method includes five distinct steps:

• Define the objectives.
• Identify success factors.
• Select metrics and measurement tools.
• Form a system of key performance indicators.
• Aggregate the measurement data.

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When applied to a strategy, these steps imply the following:

• Define the organization’s purpose and strategic objectives
• Identify success factors supporting the purpose and every objective. These may include key capabilities to develop, key results to achieve, and key requirements to meet.
• Select relevant metrics (performance metrics to evaluate achievement of results; maturity metrics to evaluate developing capabilities; conformance/compliance metrics to evaluate how the requirements are being met).
• For the key metrics, agree target trends, values, and tolerances (acceptable deviations), thus creating strategic indicators.
• Design a balanced scorecard of the key indicators; present dashboards and reports tailored for the target audience’s needs.

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The resulting system of KPIs must be balanced. It should be able to identify, for example, whether some aspects of an object’s state are being ignored in favor of others (e.g. if quality is neglected in pursuit of speed).

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Objectives and key results

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Objectives are the “Whats”.

They:

• express goals and intents
• are aggressive yet realistic
• must be tangible, objective, and unambiguous
• the successful achievement of an objective must provide clear value for the organization

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Key Results are the “Hows”.

They:

• express measurable milestones which will advance objective(s) in a useful manner
• must describe outcomes, not activities
• must include evidence of completion

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In next article I will talk about how to measure the strategies, principles, progress, performance, relevance. And how instrumenting strategy with dashboards and reports, with a strategy review.

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