In my last blog post, I shared insights from Brightline research on how agility and collaboration drive strategy execution, particularly breaking through organizational silos and decentralizing decision-making. But we mustn’t forget that in order for this to happen, it is vital to remain customer-focused. That’s the glue that holds everything together.
Noted author and former CEO/Founder of the VISA credit card association, Dee Hock often wrote about how you want to operate on the edge of chaos but with a binding element to add just enough order. To this end, he coined the term, “chaordic.”
In a true agile and chaordic environment, the tie that binds everyone together is the customer.
But how do we ensure the organization is working toward the good of the customer as opposed to the good of their political status in the organization or their department, or, just as bad, their department’s isolated goals? a fundamental set of guiding principles can definitely help. But when it comes to assessing progress and alignment and driving behavior, most companies institute metrics.
Therein lies the problem in most organizations: the metrics are all wrong.
There’s a great article in Forbes by Steve Denning, author of “The Age of Agile” titled “Why Agile Often Fails: Metrics.” He notes an epiphany that happened during a meeting among leaders of major organizations on the topic of metrics: None of the organizations represented had ever changed their behavior significantly as a result of their metrics!
That is an astounding revelation, but not surprising, and is consistent with what I’ve seen as well. Indeed, most metrics are put in place to confirm existing beliefs or validate an internal process, not drive behavior. As Denning puts it, they’re an elaborate form of numeric public relations.
He cites Amazon as an example of an organization that has overcome this disorder by instituting “real” metrics that are relentlessly and unapologetically customer-focused, and that cross-functional teams can get behind.
At Amazon, he says, “metrics are established in advance of every activity and specify what actions are expected to happen in ways that can be measured in real-time…. Every activity is in effect a genuine scientific experiment focused on whether it is delivering the value to customers. No activity begins until those metrics are in place.”
According to Denning, metrics in organizations generally operate at mutiple levels. The strongest, and the ones Amazon uses, are “impact metrics” which assess changes in customer behavior that the product or service is intended to elicit. He cites several examples, such as:
- Timely availability
- Delivery speed
- Percentage of delivery issues
- Absence of returns/complaints
- Re-purchases or related purchases
- Survey responses
Note that these are specific, measurable, and directly relate to customer behavior. General “outcome” metrics such as customer satisfaction, or even Net Promoter Score, according to Denning, are “outcome metrics” that are a bit too fuzzy and hard to measure, though they do indicate a positive correlation with actual impact.
In the article, Denning also cites ten steps Amazon takes to measure impact. I’ve summarized and paraphrased:
- They focus on customer value, not shareholder value. Shareholder value is the result, not the goal.
- There is a shared responsibility for customer focus. Everyone is expected to be obsessed with knowing about and enhancing the impact of what they do for the customer.
- Metrics are customer-focused. Real-time customer metrics are built into every aspect of the work, as opposed to metrics in firms with a financially oriented mindset.
- All metrics are built on a written narrative laying out the benefits the customers are getting. This must be reviewed and approved before the activity can begin.
- Activities report to the organization, NOT the unit. Unlike most big organizations, executives at Amazon aren’t accorded prestige or salary according to the size of their staffs or their budget.
- The organization, not the business units, budgets activities. Cross-functional teams are instituted, with end-to-end responsibilities to deliver value to customers.
- Work is done in small, integrated, autonomous, multidisciplinary teams working in short cycles.
- Budgeting is a subset of planning, not vice versa. Every activity is reviewed in terms of its value to customers. At Amazon, the reviews revolve around real-time customer-related metrics of individual activities, not about which unit gets how much money.
- Controlling spending vs. managing impacts. Real-time, transparent customer-related metrics drive action, not solely metrics tied to the control of spending.
- Human Resources helps set the culture. At Amazon, the compensation structure is tied to long-term value creation through large and small achievements, not budgeted level of outputs for their unit.
I highly recommend reading the full article for even more details.
In any case, by now, the message should be clear: Customer-focused metrics assessing the ongoing progress of self-led cross-functional teams that are empowered to produce value, will always triumph over the internal-facing, silo-driven, budget and unit-focused folly that exists in most organizations today.