Measuring the Value of Business Agility

Posted by Daria Nozhkina on Sep 4, 2019 11:19:07 AM

Today, more than a third of all companies have embarked on some form of Agile transformation. Some are further along than others because their industries require agility to survive. Leaders of these companies face the arduous task of transforming their legacy organizations while still delivering sustainable financial performance to the stakeholders. These leaders need to conduct this transformation correctly — to get it right.

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Identifying and measuring what matters is at the heart of making such a transformation a success. This identification and measurement is a direct reflection of how effective the leaders are in making decisions and setting strategic goals, and it helps them improve the cost, speed, and direction of the transformational progress. Measurement also encourages people in the organization to make the vital cultural change. Once they see their efforts are translating into real value, they know their work is not in vain. Measurement is the key to unlocking the ROI and achieving the long-term value potential of business agility.

So, what do you measure to capture the transformational gains and make sure they come at a reasonable cost? And how can you be certain they are here to stay? Business agility generally adds value in three ways: it impacts the top line or the costs (or both); drives
profitability; and contributes soft value, which ensures that the profitability achieved is sustainable over the long term.

Organic top-line growth
Agile was pioneered by companies whose survival depended on dynamically responding to their customers' needs. Establishing Agile practices allowed these companies to quickly deliver relevant products and services, resulting in increased sales revenues, better time to market than their competition, and ultimately a higher market share. All of these effects can be measured at various levels of granularity — for example, sales revenue vs. customer conversion, customer churn vs. customer retention, units sold vs. product market share. These metrics can signal the effectiveness of change initiatives and help companies adjust in a timely manner.

Improved bottom line
More often than not, improvement in a company’s bottom line through cost reduction is a positive side effect of Agile transformation but not its goal, per se. Such transformations would lack a strategic focus on creating lasting change through Agile, making the tracking of value creation rather futile. There are three sources of cost reduction seen in Agile transformations: project delivery, resource optimization, and resource efficiency.

Project delivery improvements include process efficiency (do more with less), faster delivery (do it in less time) and higher quality (less rework required). In Agile, gone are the days when it was feasible to perform processes like throwing spaghetti on the wall (see what sticks or works), while accountability catches up (if ever). Leaders pay close attention to the project performance levels to see where changes are required both within and around the teams. Resource optimization results from some of the mid-level roles becoming redundant as Agile teams become smaller and nimbler, without the need for much oversight. Though a sensitive topic, it is nevertheless an inevitable part of Agile transformations, which require cultural shifts and changes in the set of soft and hard skills needed. Both project delivery and resource optimization are measured in a reduced number of FTEs needed to complete the initiatives in the scope of an Agile transformation.

The last source of cost reduction is in resource efficiency. At the basis of Agile is the principle of managing a portfolio of projects simultaneously, closely tracking performance and making go/no-go decisions quickly. A frequent and flexible process for allocating budgets to projects means resources are redeployed to projects with a high propensity to succeed, and no bad money is thrown after good.

Tracking these measures helps track the success of transformation at an initiative level, as well as monitor the overall scope of Agile transformation, as a case in point to the key stakeholders. 
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Soft value
In Agile transformations, the company's culture is the internal modus operandi that sets the tone towards its customer base. Ultimately, it's the people in the organization that drive the change. Leaders who want to show hard results as a result of an Agile transformation need to be uncompromising when it comes to finding suitable talent for the organization's strategic needs. “Agile” people possess qualities that are different from those who are more attuned to traditional corporate cultures. People obsessed with customer needs and delivering on customer promise are the new norm —the core of Agile. Making this culture visible to the client ensures long-term satisfaction, brand loyalty and, finally, competitiveness. Investing in attracting, growing and keeping the right talent to pivot the organization into Agile is essentially investing in your organization’s survival.

Naturally, the ultimate value of an Agile transformation depends on the starting point of the organization, the extent of transformational change and the leaders’ ability to identify where the transformation would make the most impact. There is, however, ample evidence that Agile transformations generate value for companies across the board, so it's not a question of “if” but a question of “when” — and to what extent companies are willing to accept the trade-offs they face in order to still be in business ten years from now.

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Topics: Agile Transformations, Digital Strategy