Traditional metrics measure traditional things, and the wave of digital transformation is anything but traditional. In an article for Harvard Business Review, Jeff Maling, Rod Fertig, and Arun Muthupalaniappan share three new metrics for measuring digital strength that they have identified. These metrics are the result of analyzing trillions of data points collected from 1,000 U.S. companies:
- Digital magnitude
- Digital share
- Digital momentum
New Metrics for New Times
The authors describe digital magnitude as the aggregate of all the conventional digital metrics, such as page views and social media visitors. In essence, it is a measure of how much people are interacting with your business on electronic devices. You want your magnitude to be greater than that of other companies.
Next, digital share is “magnitude divided by the sum of the magnitude of [your company’s]competitive set.” In other words, it measures how much of the electronic interaction pie belongs to your company in your competitive space. If it turns out that your digital share is higher than your actual market share, the authors believe this is strong evidence that your business is capable of taking a greater market share.
Lastly, digital momentum is whether your assorted digital interaction metrics are trending upward or downward and at what rate. This metric, when combined with the others, highlights how important it is to sustain and continually improve digital experiences over time. Allowing your digital share to shrink could directly or indirectly shrink your market share. The authors illustrate this with their data:
The revenues of companies in the top decile of digital strength (our proprietary metric that is an aggregate of all our digital signals) grew 9.6% the following year. By comparison, the revenues of those in the bottom decile fell by 8.2%. That’s a nearly 20-point difference between digital leaders and laggards in a single year. This phenomenon played out in virtually every industry. Leaders also beat analysts’ consensus predictions of revenue more often (65% versus 45% for the laggards), resulting in higher share performance for the leaders and a significant valuation penalty (12% over three years) for the laggards.
For further thoughts on how to use these metrics, you can view the original article here: https://hbr.org/2017/09/are-you-accurately-measuring-your-companys-digital-strength