Big Data replaces established KPIs
Huge volumes of data don’t necessarily provide more or a better understanding. Even with Big Data, it’s vital to make sure that the resulting generated information is accurate and comprehensive. As you may see from the following example, the shift to Big Data from established KPIs takes creativity and a paradigm shift.
A well-known oil company has thousands of pumps on the seabed that pump huge amounts of oil on a daily basis. If a pump unexpectedly breaks down, it takes the oil company around 5 days to fix it, but it may take much longer if the weather is bad. For that reason, the oil company decided to equip the pumps with various types of sensors that provide constant Big Data flow.
Irregularities in that data flow indicated that a particular critical component was about to fail, which would threaten the operation of the entire pump. The data was monitored and analyzed in real time, and the necessary measures were promptly taken to deal with irregularities, when the weather allowed. The failing part of the pump was replaced as a preventative measure, which limited the pump’s failure (KPI) to a maximum of 2 days, the fastest possible.
This was a huge gain for the oil company. Over time, the good old failure KPI vanished from the management dashboard because the failure was “completely” under control. Targeted preventive maintenance, controlled by a Big Data source, made that KPI unnecessary.
Are KPIs thus completely unnecessary?
There has been a lot of deliberation about appointing the appropriate KPIs, not to mention the heated discussions around definitions and standards. Have KPIs suddenly become obsolete and useless with the advent of Big Data? Should we get rid of KPIs altogether?
No, because first of all, the established KPIs are very useful when thinking together and discussing how to reach the 100% (or 0%) score by using Big Data. We cannot throw out the baby with the bathwater. Moreover, when a good Big Data source replaces an established KPI, then measurement occurs earlier in the process and in advance instead of afterwards. The KPI window is shifting forward, now under pressure from Big Data.
This should ring a bell since this is a known phenomenon. Where organizations were once only concerned with financial performance (end of the process), savvy businesses measured earlier in the process, focusing on what was really critical for achieving high profits and customer satisfaction. The key performance indicator (KPI) was introduced. With the arrival of Big Data, KPIs got a different aspect because the window shifted. This different aspect called for a different name!
KPIs are now also determined based on Big Data
The SMART KPI Toolkit is a comprehensive and practical methodology for defining the appropriate set of KPIs, performance indicators, and million dollar insights. The KPI Toolbox is used by hundreds of companies as a KPI quick start course. Read more …
From financial control to business control
The trend described above coincides with the current trend in which financial control is converted into business control. Organizations increasingly realize that they should not hammer shut their entrepreneurial space with financial indicators. This is how they get managed into the ground.
This is why the modern controller will increasingly use his influence to carry out measurements earlier in the process and thus become more of a sparring partner in business operations. Of course, without losing control because that function will always remain as solid as rock. The form of control may change, but not its essence.
From reactive to proactive: new business models
The perpetual pushing forward of the KPI window results in the creation of new business models and other nuances. Sometimes with far-reaching consequences for the organization and targets. While the fire department continues measuring the number of fires (established KPI), various fire departments are busy significantly shifting the KPI window.
That is how the Amsterdam-Amstelland Fire Department could predict where the highest likelihood of the outbreak of certain types of fires would be, based on open (big) data sources. The firefighters now take iPads along in order to share specific information with residents and stop by the addresses where this information can make a difference. A shift that really accounts for why these firefighters were awarded with the award for Smartest Organization in the Netherlands in 2013.
Conclusion
Controllers who continue to stick with their familiar old KPIs and disregard the potential of Big Data will miss the boat or their boat will capsize. The smart application of relevant (big) data will progressively determine the competitive advantage and the social relevance of organizations.
Daan van Beek MSc, speaker, trainer and author of the BI & AI book 'Data Science for Decision-Makers and Data Professionals'. He is the CEO of the Passionned Group and you can follow Daan on Twitter.
