Formula for Business Agility 1
A FORMULA TO MEASURE BUSINESS AGILITY

By Michael Hugos


I spent an afternoon one day sitting in a coffee house in my downtown Chicago
neighborhood pondering what it means to be agile and how to measure the conditions that
make business agility possible.

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 grand old 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. Sometimes agility
enables you to earn even more by sensing and moving quickly to capitalize on
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 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, milky,
foamy 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
Center for Systems InnovationFormula for Business Agility 2
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 effectiveness. 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.

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.


Michael Hugos is a mentor and practitioner in business agility at the Center for Systems
Innovation in Chicago, Illinois. He is an award-winning business architect who integrates
technology and business process to create decisive competitive advantage. He is also a speaker
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and has authored several books including Essentials of Supply Chain Management, 2 Edition
and The Greatest Innovation Since the Assembly Line: Powerful Strategies for Business Agility.

This article was first published in my CIO.com blog "Doing Business in Real Time", March 2007.
© Copyright 2007, Michael Hugos.

Michael Hugos can be reached at: www.MichaelHugos.com
Center for Systems Innovation