David Warren, the inventor of the prototype of the airplane flight recorder “black box”, passed away in July, 2010. An Australian, he was inspired by the death of his father from a plane crash. His device accomplished his objective: to simultaneously record the conversations of pilots and instrument readings.
Do companies need a “black box” or something much better?
The analogy of the cockpit of an airplane and jet is a popular one for understanding business analytics and the role they play in improving an organization’s performance. The pilots rely on cockpit dials for feedback. They lock in the navigational system to the flight’s destination. They use levers and buttons to act on the information. They use an autopilot with manual override to steer the craft. They learn and test from a flight simulator.
However the purpose of a “black box” is to aid in the investigation of a catastrophe. For a business, by then it is too late. Maybe other managers can learn from understanding the causes of bankruptcies of failed companies, but a more positive way of thinking of navigational technology is for steering and control.
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A strategy map is an effective instrument for steering, and its companion balanced scorecard is effective for control. But they are just a starting point. It is not just about monitoring the dials but moving the dials, especially the specific dials where their movement will most contribute to achieving the executive team’s strategy and in turn result in financial performance optimization. This is where business analytics fits in.
How? Scorecards and dashboards are about measurements. You cannot manage what you cannot measure. You cannot improve what you cannot manage. Organizations struggle with identifying their strategic key performance indicators (KPIs) and their subsequently cascaded operational performance indicators (PIs). They are both important, but they serve different purposes. Embedding KPI and PI correlation analysis is the trick that maximizes alignment of the measures with executing the strategy. Which measures have the most contributory and explanatory value of the outcomes desired? Adding correlation analysis creates a laboratory, like the cockpit flight simulator, to continuously test for the vital and few measures that managers and employees can focus on. With this focus, they can determine which projects, initiatives, and core processes to amplify.
A “black box” is important to understand failure. Enterprise performance management methodologies with each embedded with business analytics is critical for improvement and pursuit of optimization.
