Litmus Test for Digital: Assessing your digital sustainability

Digital business is the reality of today and future for every company. Majority of companies correlate its progress or successes in terms of wallet share of digital, revenue growth, profitability, total number of new products or services or new customers addition on an annual or quarterly basis. While financial performance is definitely a must indicator to assess the growth of business, however it does not indicate how sustainable is your digital business or how effectively you as a company are running digital or how effective is the digital health of your organization?

The metrics that relates to digital health, digital effectiveness and digital sustainability are very important especially when every company is doing digital today or claiming to be a digital company. Companies must do the digital litmus test periodically and measure digital litmus scores similar to the measurement of financial metrics. The financial valuation of digital business is easy but the valuation of digital health, effectiveness and sustainability is difficult. Very few companies are measuring such metrics holistically. It is not about the gut feel of senior executives or percentage share of digital on paper or financial statements but more about the ground realities check of digital execution on the floor. The seamless strategic execution is reflection of success in digital litmus test for few companies.

Have you done your Digital Litmus Test?

The digital health, digital effectiveness and digital sustainability assessment on regular basis can be collectively referred as digital litmus test. The digital litmus test is very important for companies of all sizes.

The challenges for companies are not in finding a right digital strategy, vision or market or product fitment rather it is digital execution, sustaining the pace of digital and delivering at speed better than competition.

The situation or challenges of today are not going to be the same as of yesterday. How best are you prepared for today and tomorrow defines your readiness to pass the digital litmus test.

Litmus Test for Digital

There are simple ways to measure it just that it needs attention and seriousness. In some sense, it is the reflection of digital culture of your organization. The unfortunate part is companies are still measuring it in terms of traditional survey and questionnaires which are not effective methods for measurement. If you are really worried or care about the digital culture, you must refer the Glassdoor comments or PayScale feedback or Exit interview feedbacks rather than relying on internal surveys which mostly gives the rosy picture of the organization. Your attrition rate, the morale of the staff, the learnability opportunities, growth opportunities, pay parity, engagement level with staff, diversity, benefits, leadership quality etc. largely drives the behavior of employees which impacts the culture and digital outcome. The digital litmus test must holistically assess feedback of employees, customers, key stakeholders and comparable with the competition! Doing a course correction in a timely manner continuously is the only method to adjust poor litmus scores.

Why it matters the most today?

The widening demand-supply gap today in digital is one the key reasons for necessity to measure digital sustainability regularly. Demand for digital opportunities, digital skills and digital talent are at all-time high and expected to grow over next few years until supply of digital talent neutralizes or overpowers the market demand.

Digital Reality Check of Today

The risk of failure of digital projects have amplified in current times due to new challenges in digital execution. The ongoing COVID situation has added another variability to the whole equation where remote execution, remote engagement and remote governance are being tested for the first time. While things have worked so far, the digital fatigue, lower engagement and pandemic frustrations have started reflecting on work, productivity and staff morale for majority of companies. The softer people, productivity aspects would eventually impact product or service quality for many companies and expected to blur the boundaries of differentiation for companies in the new digital age. The cost of operations and cost of digital hiring has gone multifold in the last 18 months due to unexpected demand in digital.

Those who were ignoring the softer metrics of digital litmus test (encompassing digital health, digital effectiveness and digital sustainability) are forced to look into it either due to the pressure on bottom line or due to increase in the project failure rate or delay of project execution or decline in revenue. A good number of companies are losing on the digital opportunities to competition without realizing the real why aspect or reasons for it. Many are busy with root cause analysis and few have even employed external consultants to find their known problems. For sustaining the business, the continuous focus on digital litmus test is must.

What to check in Digital Litmus Test?

Those who are familiar with litmus test, would recollect how simple it is to use litmus paper to find substance properties that are either acidic, neutral or alkaline in nature. On similar lines, companies must devise simple measures to conduct digital litmus test to check what are its strength, weakness and opportunities during the changing times to improvise. This is not SWOT analysis rather the simple hygiene test for execution, sustainability and finding gaps in the current operating within the company. Below are few of the simple factors that companies must keep in mind while developing the Digital Litmus test.

• Measuring Digital Health — Churn of customers, decline of digital revenue, CSAT or NPS score, Attrition rate of employees, Number of complaints raised by customers and employees, Average monthly employee engagement
• Measuring Digital Effectiveness- Adequacy of budget allocated to digital projects, ROI on digital investments, Time to market of digital offerings, adoption of digital technologies, Talent and capabilities situation within company, pace and ease of digital hiring, rewards and incentives for digital success
• Measuring Digital Sustainability- Market and customer insights, innovation on products/services/offerings, new offerings released in market, Agility, Learnability, governance, partnership, new customer acquisitions, decision making speed of top management, brand positioning, leadership quality, communication effectiveness and org transparency

Digital Litmus Test Considerations

The Digital Litmus Test (DLT) framework

While the criteria for digital litmus testing could vary from companies to companies based on its industry types, a simple DLT framework would help companies to measure and navigate the digital challenges of current times effectively.

Digital Litmus Test (DLT) Framework

A digital Litmus test includes 6 simple steps: -

1. Define the Litmus scale which is simple and easy to measure
2. Define Litmus categories that companies want to measure but simple to implement. The recommended ones are digital health, effectiveness and sustainability
3. Identify factors impacting each of the litmus categories
4. Measure the financial and non-financial KPIs for each factor. Focus must be on non-Financial KPIs measurement as financial KPIs are already measured very closely by every company.
5. Calculate the overall digital score base. Measure the DLT score at least once every quarter
6. Identify areas of improvement, do the course corrections and Re-assess the litmus test periodically

These Litmus test must be easy to conduct with simple scoring mechanism such as value of 0, 1 and -1. (0 for neural, 1 for positive litmus value and -1 for negative litmus value). A higher numerical range can also be used (for example -5 to 5 litmus scale) to evaluate the different elements more preciously similar to the pH scale as used in normal litmus test. One may decide to put different weightages to various factors outlined above and calculate the overall Litmus score for the Digital. For an effective approach, it is advisable to assess the litmus test every month or at least once in a quarter for the most impactful parameters. The higher or positive litmus positive score trend over months indicates companies are making good and sustainable digital progress and positioned to excel in digital business. Without measurement of what’s going wrong where, there is no way to ascertain and course correct digital cracks. Assumptions, gut-feels must be kept at bay.

Who should participate in Digital Litmus test?

In a real world, the litmus test should produce similar results for any substance against which it is being tested, at any time. Since not everyone is familiar with all the KPIs used across the organization, it makes sense to split the digital litmus test between SMEs, Employees and customers randomly. This split helps in removing subjectivity or bias or influence of powerful people who are either ignorant or unfamiliar of the company’s ground reality or concerned primarily on the financial parameters. Internal customers need to be involved in designing litmus test and made aware of the end objectives of this exercise whereas CSAT or NPS methods can be measured directly using customers’ feedback.

Those who calls Digital Litmus test a “good thing to have” must be involved to run or own the Litmus test for some of the factors so that their involvement and commitment can be time tested. Digital litmus test works best when there are clear accountability and ownership across organization for each of the parameters that are defined within the digital litmus test categories. Most of the organization while have good ownership for measuring financial parameters but often have poorly or loosely defined ownership for softer areas that covers the digital sustainability, digital health and digital effectiveness aspects. It is time to holistically assess the digital business with litmus test and the find the course correction in a timely manner.

Final Thoughts

Companies need easy ways to find bottlenecks that are derailing it from achieving digital outcomes. Sooner it finds and act, better it is to do the course corrections. One of the easy ways is to do regular litmus test. The digital litmus test is required to assess the digital health, effectiveness and sustainability dimensions together. The factors impacting digital outcome can be decided or picked up as per type of industry or nature of business however such methods cannot be ignored or taken for granted or driven based on guy-feel of top executives.

Digital business is cascaded and continuously evolving ecosystem. Any shortcuts or delays in addressing digital challenges without analyzing execution bottlenecks are bound to be expensive.

On an average, 1 quarter of delay in measuring or correcting digital litmus scores, can drag back an organization or penalize it for minimum of 2 quarters or more, so focus and timely actions are most critical.

The litmus test needs to be simple so that anyone within the organization can assess it uniformly anytime based on areas of expertise of individuals. It is not the maturity assessment of the organization which are complex time-consuming exercises rather a simple dip check (litmus check) that gives a steering sense of where the organization is heading and what are the headwinds for the organization. Companies who fail to take timely actions are the one who gets impacted the most in the digital race. If any of the categories within the litmus test produces a negative score, it is bound to impact the other digital parameters invariable due to cross dependency and would impact the end results.

The organization must form a task force that can run and govern the digital litmus test. This task force must report to the top leadership and must have representation from key departments/BUs including business, technology, HR, Operations, Sales, Marketing, Finance, KM groups. Keeping it simple, timely and ownership driven. The execution approach for conducting litmus test could vary and companies may give it different name but measurement of softer or cultural things that indirectly impacts financial numbers cannot be taken at ease or for granted anymore.

COVID has served as a wakeup call for many executives. Especially when the demands are back and reaching its peaks, companies cannot run or govern things the traditional ways which had been the case for decades.

The good news is business demands are back; the bad news is every company is facing growing execution challenges which are amplifying. It is the time to tightly bind the strategy with execution, capabilities with expertise, expectations with rewards and focusing more on softer dimensions (read it as culture realignment) than the hard financial numbers. If you can think of something better, easy and effective method than Litmus test approach, you must implement it. For sustaining digital, companies must continuously adapt and readjust. Long live Digital!