In this blog post we describe a framework for connecting agility to profitability in four steps:
- Profit comes from high performance;
- High performance can only come from being focused;
- Being focused can only happen if everyone is aligned behind a common purpose;
- High performing, focused and aligned organisations only remain profitable if they maintain the agility needed to respond to changing market forces.
This provides both a foundation and the core of a methodology for digital transformation.
Figure 1. The perfect storm facing businesses (graphic by Goal Atlas, cloud image from Shutterstock: Vladislav Gurfinkel)
The perfect storm facing modern businesses is a combination of:
- Customers who are connected and informed, are demanding, have high expectations and have declining levels of loyalty due to lower costs of switching to competitors.
- Competitors who can bring products to market rapidly (software is eating the world) giving them reduced entry costs. Competitors can also be highly disruptive market entrants because they are well established in a different industry vertical and have an already established global reach.
- Internal business processes being transformed, e.g. upgrading technology platforms, adopting new marketing channels or adding new measurement methods. These require innovation but are also held back by entrenched bureaucratic processes and legacy technologies.
These intersecting pressures can add up to turbulent times for a business. A tangible measure of its impact is the progressive decline in the lifespan of companies over the past decades.
How then should companies respond?
Terms such as profit, performance and agility are often talked about in business but rarely are they connected in a way that could lead to positive transformation and a solid foundation for change. Our agility to profit framework below sets out how this can be done.
Figure 3. Goal Atlas’s agility to profit framework
Step 1. Profit from high performance: We begin our agility to profit framework with the assumption that profit is a high level goal for all businesses (although not necessarily the only goal). To continue to be profitable, in a highly competitive marketplace, companies need to be high performing; if not, their market share will be eroded by their better performing competitors. We are aware that this is a friction-less view of marketplace economics and that, in reality, some companies will manage to sustain profitability whilst performing poorly (e.g. the incumbent market leader in a stagnant market) but this is an edge case for present purposes.
Step 2. High performance from focus: No business can perform at market beating levels of performance in everything it does. It needs to decide where to be excellent. It needs to decide what are its core competencies. It needs to decide what, strategically, to focus on and what to relegate to lesser importance. This has been, and continues to be, a central theme of leading thinking on business strategy.*
Step 3. Focus from alignment: In order to achieve high levels of performance, focus is necessary, but on its own is not sufficient. Everyone in the business must also be aligned and working towards that focus. Otherwise the business will pull in different directions at once, with efforts in some direction counteracting the efforts in others. The business may think it is focused and it may even proclaim its focus to the world but its actions remain unfocused.
Step 4. Agility: If the business world moved slowly and change little, building rigid systems to maintain alignment with a constant focus to achieve high performance in exactly the same way year after year would be the path to sustainable profitability, but it isn’t and it doesn’t. So we need to be agile. We need to be able to change what high performance means from year to year. We need to be able to change focus on different inputs, different processes and different outputs, and we need to be able to re-align our employees as this focus changes whilst keeping them informed, purposeful and engaged.
In conclusion: The insight we feel this model offers is two fold;
Firstly, it presents a logic to connect front line operations (we need to be focused and aligned) with strategy (we need to be profitable).
Secondly, it highlights the tension between being aligned, focused and high performing (something we could progressively refine and optimise) with the need to be agile (disrupting that refinement and optimisation process).
* Leading thinking on business strategy, such as Robert Kaplan and David Norton 1996 The Balanced Scorecard. Harvard Business School Press and Richard Rumelt 2011 Good Strategy, Bad Strategy. Profile Books.