Perspectives

Measuring Transformation

As businesses continue to confront changes driven by transformation, it is imperative that any investments in innovation are measured. Robert Hillard argues that the only limit to putting a numerical value on transformational change is our imagination.

We live in times of rapid change when businesses that assume they have a secure market are suddenly having their world turned upside down. With the most substantive impact coming from technology, many have assumed that large investments in IT and digital would act as a protection.

In fact, many of the businesses that have made the largest investments, such as some retailers, are actually experiencing the greatest disruption to their operations.

Disruption

It is hard to describe disruption in a meaningful way, but I like Jack Welch’s famous quote: If the rate of change on the outside exceeds the rate of change on the inside, the end is near. A disruption index can be described in terms of the ratio of the external and internal rates of change. But, how do you measure change and the transformation within your organisation? And identify the numerator and denominator of this ratio?

When I was putting the finishing touches on the book I authored, Information-Driven Business, I had the opportunity to share an editor with Douglas W. Hubbard who wrote How to measure anything. This book is a wonderful reminder that the only limit to putting a numerical value on any business problem is our imagination!

Whenever someone argues that their change, driven by transformation, is too hard to measure, I’m reminded of this book.

Measuring change

Not only do I think that the change associated with any transformation can be measured, I also think that the first measure you think of is unlikely to be the best.

For example, customer-service focused transformations often default to a net promoter score as the main measure while overhead-driven transformations frequently rely on measuring the cost or headcount taken out of the business.

These are good measures, and should play a role, but they aren’t great denominators for the disruption ratio.

What we really need to measure is sustainable strategic change in an environment where the very nature of corporate strategy is changing. On the one hand, top-down one-off strategy work is making way for ongoing experimentation, combined with a small number of “crossing the Rubicon” moments.

On the other hand, too little focus on the Rubicon leads to worrying about horse carcasses in growing cities, something I discussed when I wrote about the difficulty of seeing past today’s problems.

This late 19th century story of ‘horse-power’ in New York City is one of unforeseen innovation and invention.

As city planners were dealing with exponential growth in populations and wealth, the horse was one of the most visible forms of technology in every street in those days. New York City had nearly 200,000 horses, and with the tough conditions they worked under, many horses could expect to live just two to four years. So on a par with food and manure, carcasses were the problem the planners thought they would be dealing with into the new 20th Century.

The then Times of London famously predicted that every street would be buried under nine feet of horse-generated waste by 1950! And the arrival of the motor car and the internal combustion engine was almost unforeseen by city planners who were unable to see beyond the horse carcasses of the time.

Thinking clearly about customer

Customer transformations that rely too heavily, for example, on the net promoter score, lend themselves to disruption by a better offer. I’ve seen numerous organisations get customer feedback after each interaction, only to find it a poor correlation to customer churn.

The issues are many, but can include a metric-driven incentive for customer service agents to provide exactly what the customer wants to hear, but without any realism that it can actually be delivered.

When we talk about customer loyalty, it really means a build-up of value.

Really thinking about this could result in some form of balance sheet recognition. Each time there is a genuine discount to the market, a real solution to a meaningful problem or a deeply insightful interaction, there is value. Similarly, the balance sheet value of employee-generated IP, is as much a meaningful measure of employee satisfaction, and inventiveness as any engagement score or innovation survey.

The good job’s strategy – how to measure sustainable transformation

A great resource which combines employee and customer engagement is Zeynep Ton’s work on The good jobs’ strategy.

Ton’s research very nicely identifies the relationship between the cost of staff, investment in their capability, and the loyalty of customers. From here can come an approach to measuring a sustainable transformation.

Like many researchers, Ton identified that transformation is as much about what you take away, as what you add. Simply targeting the creation and launch of new products ultimately destroys organisational agility, and adds complexity, which stymies both customer service, and future innovation.

Radical decommissioning is one approach. But another is to measure complexity and target its gradual reduction, as I previously suggested in Trading your way to IT simplicity.

The last word

Regardless of whether it is customer service, supply chain, human resources, costs, or products that you are trying to transform, the challenges are similar. While the strategic goals might be easy to describe, the real work happens when you try to design measures. Rather than setting once and assuming the measure is right, constant experimentation and confirmation is essential.

The attribute of a great transformation measure is that it doesn’t just correlate with the outcome you want. It is intrinsic to it. Given the complexity of changing a business, it is very likely that these outcomes will be complex, and the measures you need equally sophisticated.

This article was first published in Asia-Pacific Banking & Finance.

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