A Formula to Measure Business Agility

by Michael Hugos on March 30, 2014

This weekend I spent an afternoon sitting in a coffee house in my downtown Chicago neighborhood pondering what it means to be agile and how to measure it. The place was busy but I got lucky and snagged the cushy armchair next to the plate glass window in front that looks out on the sidewalk and the apartment building across the street. Watching the other patrons, looking at the people who pass by, and enjoying that burst of mental energy induced by a fine café au lait is often a good way to get inspired and be creative.

I started with the definition of agility in business as: the ability to consistently earn profits that are 2 – 4% (and sometimes more) higher than the market average. Agility enables companies to earn an additional 2 – 4 % because they can make a hundred small adjustments every day to reduce operating costs and increase revenues. And sometimes agility enables you to earn even more by sensing and responding quickly to opportunities for new products or services, that for a while, have terrific profit margins.

I decided to use this results oriented definition of agility instead of attempting to describe what agility is because we have a lot yet to discover about being agile (agility “best practices” as they say) so any description I offer now will only change later. Also, I figured that unless agility actually delivers additional profits then why go to all the trouble of being agile in the first place?

There is one caveat to this definition of agility though – true agility is self-sustaining, not self-consuming. By this I mean companies can always get a short-term boost to profit margins by cutting headcount, reducing customer service, squeezing suppliers for lower prices, and deferring repairs and improvements to infrastructure. But that is self-consuming, like spending down your bank account. It’s not agile because it isn’t sustainable; it does not create or renew; it only uses up.

So if business agility is the ability to consistently earn an additional 2-4% (and sometimes more) then what is the combination of factors that delivers this delightful state of affaires? At this point I ordered another café au lait. And as I sipped that hot, foamy, milky coffee, I looked out the plate glass window and saw a woman walking by with two big dogs; the dogs were so happy to be outside they pulled at their leashes and wanted to charge off down the street. She worked hard to keep them out of trouble.

Then I eavesdropped on a conversation going on at the table next to me. A couple of college students were discussing an upcoming organic chemistry test; one student was showing the other how to read a formula and draw out the molecular structure implied by the formula. Good coffee houses serve up a stimulating mix of impressions like this to go along with their fine fare and the resulting blend is often the source of interesting ideas.
Here’s the idea that emerged from the blend of that second café-au-lait and the impressions I just described. First of all, I think agility happens when we see something we want and when we are highly motivated to go after it. But we can’t just go charging off down the street; we have to focus on what’s important and act effectively. Secondly, I think there’s a formula to measure agility and it goes like this:

Business Agility = (Visibility + Motivation) x Training

What this means is that companies will consistently earn an additional 2-4% profit if their people can clearly see what’s going on in their area of operation and if they have the motivation to respond appropriately. The effect of this visibility and motivation will be multiplied and magnified by the training people get. The better people are trained, the greater the results will be.

This formula identifies the main factors that promote agility and it shows how they interact with each other to produce different levels of agility. It points out what factors to measure when we’re trying to assess the level of business agility possessed by a company. Visibility can be measured by the technology and procedures a company uses to collect, store, disseminate and display information. Motivation can be measured by the incentives and authority people are given to make decisions and act to achieve company objectives. Training builds peoples’ skills for using visibility, for making good decisions, and acting effectively to achieve objectives. So training can be measured as well.

Wow. Now we can start to discuss agility best practices using a common and measurable framework to compare one practice to another (did I leave out something important?). This formula is either a very useful insight or it’s the result of too much caffeine.

(I explore this further in my book Business Agility: Sustainable Prosperity in a Relentlessly Competitive World)

 

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