Companies that have been successful in their field for many years are driven by continuous development. At the management level and below, existing processes are constantly scrutinized, and products and services are geared towards the current needs of their customers. In this way, organizations are able to continuously improve and reach their own strategic goals. Agile working methods help to recognize the potential for improvement at various points in the value chain and address it in a targeted manner. But this is just the beginning. In order to sustainably reach strategic goals, it is essential to understand where one’s own capabilities as a company lie. One key to this is evidence-based management. In this article, we will tell you what it is, how it works and what should be considered.
- What is evidence-based management (EBM)?
- Advantages of evidence-based management
- EBM key value areas
- How does EBM work?
- Evidence-based management in practice
- Evidence-based management FAQ
Evidence-based management, also known as EBM or EBMgt, is a framework that helps organizations measure their own capabilities and values, improve them in a targeted manner and, as a result, reach their strategic goals more easily. The focus of EBM is on increasing company results, optimizing financial investments and reducing overall risks.
In this way, an adaptive culture is established within the agile organization, independently creating new opportunities the company can then use to gain a competitive advantage.
In addition to the advantages already mentioned, such as reducing risks and improving business results, the EBM framework also offers a more profound benefit: It decreases poor decision-making. Due to their versatile knowledge, particularly those in leadership positions often rely on their gut instincts. At such times, it is difficult to know whether one’s own actions are based on bias and if decisions being made are really the right ones for the situation. It is, therefore, understandable that one often listens to their own instincts.
Today’s world, however, is more complex than ever and driven by constant change that seems to be accelerating. Making clear decisions or determinations is becoming more and more difficult due to this complexity and to new trends. Long-term planning and forecasting? Almost impossible. Evidence-based management depends on neither instinct, nor current trends, which can both have unknowing negative influence on decision-making. Instead, actions in the course of EBM are based on diverse measurements of one’s own values—on a rational level. All measurement results are reviewed, the quality of the evidence is critically examined, and the strategic organization is aligned and adjusted accordingly. In this way, linear thinking is eliminated and a better way of dealing with the dynamic world is promoted.
Evidence-based management contains four different key values areas that can be helpful when making strategic decisions.
- Current Value (CV)
Measures the current added value a product or service delivers to the customer. Example: An app that allows any person to quickly and easily translate text from English into German.
- Unrealized Value (UV)
Measures the added value that can occur when all customer needs are met. Example: Not only can the translation app work with written texts within seconds, it can also directly translate spoken words in real time using an additional function.
- Ability to Innovate (A2I)
Measures the ability to provide new features that better fit customer needs. Example: Users request to have this voice function in their app. Is the company able to develop such a feature?
- Time to Market (T2M)
Measures the ability to deliver new services, features and the like quickly. Example: Programming the new voice function is possible. How fast can it be launched?
With help from these key value areas, EBM can formulate clear and measurable goals. Although these four areas may vary among organizations, they contribute equally to a company’s ability to deliver real results.
In many cases, an organization’s strategic goals focus on the UV. To improve this value, the CV delivered by each product or service should be viewed as a starting point. To do so, both the effectiveness (A2I) and responsiveness (T2M) are included in order to recognize where there is current potential for improvement.
Taking the next step with the experiment loop
When taking the step from the current value to the next unrealized value, the experiment loop is a suitable tool. Within four steps, you can understand the current state of your organization, the procedures you can derive based on the newly-gained knowledge and how you can ultimately reach the next goal.
- Formulating a hypothesis
For the first step, an idea based on one’s own experience should be formulated. This will be used to achieve the next organizational goal. Measurements that make it clear whether the hypothesis was successfully implemented should also be determined.
- Carrying out experiments/measurements
After the hypothesis comes the execution. Changes are made that, in your opinion, will lead to improvement. The data from the experiment is then collected.
- Inspecting the data
The obtained data is analyzed and reviewed to determine whether the results have led to the desired goal.
- Adjusting the goals and processes
With help from the experiment loop’s various results, you should now be able to adjust your goals and make improvements. If the experiments have helped you reach your goals, you can define new ones. If the obtained data helps you determine that the goals and actions need to be changed or revised, you can also proceed to do so. Not every experiment will end successfully. However, it is important to obtain insights from these situations in order to gain value from them. Due to external influences, goals and actions may need to be modified in some cases.
Without practical application, key value areas, hypotheses and the like sound cryptic. So what does evidence-based management look like in practice?
Since the main focus of EMB is supporting organizations in reaching their goals, it is perfectly suited to be integrated into agile processes and combined with other frameworks, such as Scrum or OKR. A lot of times, it is this exact approach that first authentically brings agile methods to life. The combination is particularly good at helping product owners align the respective product with the defined company goals.
How are EBM, Scrum and OKR related?
Scrum is a project management framework in which a team of various specialists organizes itself to be able to flexibly react to short-term changes. It is particularly suitable for solving complex problems with unknown solutions. In this case, the goal is always set, but not the exact path to reaching it.
OKR is a strategy execution method that institutionalizes customer centricity and makes the added customer value measurable. It is made up of Objectives and Key Results. The Objectives represent the value proposition and the Key Results measure whether the respective value proposition has been achieved. The Objectives are applied at different company levels. For example, they can be found at the organizational level, where strategic Objectives are used, or at the product level, where product Objectives and their corresponding Key Results are developed.
Based on the various OKRs, initiatives that need to be implemented in order for teams to reach their respective goals are derived.
The EBM steps or—to be more exact—the experiment loop, can be developed based on the Key Results at the product level. These concentrate solely on the outcome of the respective company. If you want to know more about the difference between outcomes and output, you can read here. The initiatives implemented by the teams form the hypothesis of the EBM experiment loop. Subsequently, all EBM steps are conducted in Scrum sprints, the results and data are analyzed in the sprint reviews, and the appropriate conclusions are drawn to determine whether the initiatives contributed to reaching the defined OKRs or if they need to be adjusted. In this way, the agile team constantly learns and, based on newly-gained knowledge, is able to continuously create new hypotheses and experiments.
What is evidence-based management?
Evidence-based management is a framework that helps organizations measure their own capabilities and values, improve them in a targeted manner and, as a result, reach their strategic goals more easily. The focus of EBM is on increasing company results, optimizing financial investments and reducing overall risks. In this way, an adaptive culture is established within the agile organization, creating new opportunities that can be used to the company’s advantage.
What are the advantages of evidence-based management?
First and foremost, EBM reduces poor decision-making. The framework depends on neither instinct, nor current trends, which can both have unknowing negative influence on the decisions made. Instead, actions in the course of EBM are based on diverse measurements of one’s own values. All measurement results are reviewed, the quality of the evidence is critically examined and the strategic organization is aligned and adjusted accordingly.
How does evidence-based management work?
In many cases, an organization’s strategic goals focus on the UV. To improve this value, the CV delivered by each product or service should be viewed as a starting point. To do so, both the effectiveness (A2I) and responsiveness (T2M) are included in order to recognize where there is current potential for improvement. An experiment loop can help in conducting evidence-based management. Within four steps, teams can learn what the current status of the company is and how they can accomplish their desired goals. The data obtained from the experiment is reviewed and recommendations evaluated as to whether or how goals and procedures need to be adjusted.
How are EBM, Scrum and OKR related?
EBM supports organizations in reaching their goals, meaning it combines perfectly with other agile frameworks, such as Scrum or OKR. While the EBM steps are derived from the Key Results, the initiatives, which are needed to achieve the goals defined in the OKRs, are the hypotheses from the respective experiment loops. With help from several Scrum sprints, hypotheses can be experimentally conducted, data can be inspected and the final implications can be drawn with reference to the goals and procedures. These can then be adjusted.