The Core Metrics for Digital Businesses
Article by Lital Marom
Companies often fail because they measure innovation using the wrong metrics.
Corporate innovation executives need to develop a set of metrics that demonstrate a return-on-investment to senior leadership and business unit leaders. But they also need to develop the relationships — and at times fight — to have the resources and white space that allow them to incubate high-risk, potentially high-impact projects that may lead to disruption and exponential growth.
The metrics that work for a mature enterprise do not work for a new digital business. The fundamental way of doing business today is constantly transforming, and for this reason we simply can not measure success the way we used to. Digital businesses are globally connected, they are collaborative, mobile and data-driven and most importantly the successful ones never stops changing.
The metric you optimize for is the single biggest factor that determines which business you end up building. The most important metric to encounter is the core user actions that drive value creation.
For example, Facebook tracks the ratio of daily active users to monthly active users, a measure of the proportion of its user base that participates daily. This measure makes sense since no single action of a Facebook user (post status updates, upload photos and react to content) accounts for the bulk of value creation.
Measuring core user actions is even more important when you have a multi-sided platform. In such cases, it is essential to understand how the various users co-create and exchange value. All sides of the market must succeed for the business to thrive. An example of a multi-sided platform is Uber. Uber needs to account for its drivers and also for its riders. Uber drivers perform two core actions: indicating their availability for booking and accepting booking requests. When a rider opens the Uber application and sees that no taxi is available, or cannot secure a ride, the driver-side core actions are failing. If this happens often, it reduces the chances that the rider will request a ride. In time, this can reduce the number of total users and their level of interactions.
Digital businesses that want to succeed with user-centric business models need to first identify the few core user actions that drive value creation. In multi-sided markets, these actions need to be isolated for all participants.
The next step is to define metrics that help minimize the failure of these core actions and maximize their repeatability. Focusing on these metrics helps companies execute with precision, benefit from feedback loops that increase the network effect and scale up efficiently.