Andrew White

Gartner introduced the idea of Pattern Based Strategy™ last year which represents a connection between three separate big ideas: pattern analysis, optempo, and performance driven culture.  Pattern analysis alone is fine – but without execution and tuning, it is nothing.  Optempo provides the mechanism to “make business value accrue from patterns” by aligning the whole organization to specific tempos, as needed.  Performance driven culture is all about changing how the organization behaves such that pattern analysis and optempo can take place and be sustained.

Anyway, part of this research highlighted how “leading indicators” were very important.  The idea being that most KPIs are “in the past” and rear-view mirror looking – so few are forward looking.  So leading indicators play a role in any Pattern Based Strategy.  I blogged on the Baltic Dry Index just as the economy was blowing up.  The Baltic Dry Index measures the rate charged for chartering the giant ships that carry coal, iron ore, and grain.  Some few weeks before the economic boffins of the world spotted a slow-down in global trade, the Baltic Dry Index fell to the floor.  The obvious “leading indicator” seemed to have been found.  At that time, the indicator seemed to align well as a portent of the doom that was to follow.   As economic growth, and global trade, as slowly repaired (to some degree) so the Index has risen.

Well, it was a little unnerving to read a report in the printed edition of the Economist the other week, (July 17^th to 23^rd), that the Baltic Dry Index has fallen 60% in its longest streak of consecutive declines for nine years.  See Baltic Dries Up.  On the face of it this looked like worse news than that which had preceded the collapse of world trade.  Did I need to sell my stocks and bonds ahead of a giant crash?  Before I ran out to instruct my broker accordingly, I read the rest of the article. 

In another story, some months ago, the economist had reported that the making of these very large capacity carriers takes years.  Order for these ships have to be placed years in advance.  Due to the long, slow, but relentless growth cycle the global economy had been on (up until 2007/2008), orders for these shipping behemoths stretched out into the long distant future.  These orders were being converted as ships were launched.  It so happens that the largest quantity of capacity was being added to the global supply at the same time as global demand was leveling off.   Demand was flat, but capacity was increasing at a dramatic rate.  The result was a crash in prices. 

So the apparent crash in the Baltic Dry Index, as a stand-alone KPI, was not an effective read on pending changes to global trade.  A “capacitated BDI” is what was needed.  If the Index had been normalized in some way to take account of “average available capacity” then the price would not have fallen in such dramatic terms.  The economist article went on to show how actual transportation volumes remain health (in a slow economy) despite the collapse in price.

Bottom Line: A KPI is only as good as the interpretation placed upon it.

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Category: Analytics     Tags: Analytics, KPI, Pattern-Based Strategy

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