From the course: Balanced Scorecard and Key Performance Indicators

Technology's impact on KPIs

From the course: Balanced Scorecard and Key Performance Indicators

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Technology's impact on KPIs

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- In the 1870s, Albert Fink was an executive for the Louisville and Nashville Railroad. The financial panic of 1873 placed financial stress on the railroad and caused Mr. Fink to look closely at railroad cost. He focused on just a few key measures, the most prominent being the cost-per-ton mile, the cost of shipping one ton of freight one mile. Mr. Fink found that this cost very dramatically, from as low as 1/7 of a cent for high volume freight carried against the normal flow of traffic in cars that otherwise would be returning empty, to 73 cents for freight carried in small quantities in the busiest sections of the railroad. In other words, it cost 500 times as much to ship some freight, 500 times. So Mr. Fink focused on this one number, this key performance indicator, or KPI, as he organized operations in the Louisville and Nashville Railroad. These days, this relaxing notion of running an organization by focusing on one single measure has been overwhelmed by the quantity of data that we have available. Now in my lifetime, which I admit is quite long, the cost of data gathering, analysis, and communication has plummeted dramatically. For example, in 1972, my father's office bought two new information storage disks. These disks were about a meter in diameter and one centimeter thick. The storage capacity of these disks, five megabytes, yeah, five megabytes. Cost, $5,000. At the time, a person could buy a new car for $2,000. So in 1972, it cost the equivalent of the price of 2-1/2 new cars to by five megabytes of storage capacity. Now how much would it cost today to buy a thumb drive holding five megabytes? Well, you can't do it, it's too small. In essence, five megabytes of storage capacity today is basically free. Similar advances have been made in computing power and in data transmission speed. So today, if Mr. Fink were trying to run the Louisville and Nashville Railroad, he wouldn't need to restrict his attention to just one measure, this cost-per-ton mile. The railroad's computer system could generate hundreds, thousands of detailed measures. But what hasn't changed? What hasn't changed is the capacity of the human brain to store and process information. We're swamped with data, overwhelmed with data. This increase in computing power and the quantity of available data, combined with the unchanged cognitive capacity of the human brain has made it increasingly important for organizations to boil down all of these data into a few key important measures, a few key performance indicators, or KPIs.

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