Leading and Lagging Indicators as a Performance Framework
Which came first, the chicken or the egg?
The answer to this proverbial question is, at its core, unknowable (not to mention a mind-numbing use of valuable time). A better question to ask of your organization would be, “how do I produce more chickens?”
Furthermore, “how do I produce more eggs?”
While I don’t have a background in poultry farming, it stands to reason that a greater number of hens & roosters will produce a greater number of eggs. Successfully hatched eggs that are well cared for will grow into healthy hens & roosters. Subsequently, it should produce more eggs given the right environment in which to do so.
This simple example encapsulates both the power, and the dilemma, in developing and implementing leading and lagging indicators.
You can’t achieve the outcome you hope, without leveraging both activity and results.
Even in times of crises or uncertainty, leading and lagging indicators can help your organization understand how to identify the critical initiatives to drive success.
While both leading and lagging indicators can be leveraged as Key Performance Indicators (KPIs), it’s important to recognize the difference between them. The proper distinction, and creation, will lead to more successful planning and execution.
What is the difference between leading and lagging indicators?
Before you work to measure leading or lagging indicators, it’s important to know the difference.
Simply put, leading indicators define the actions or activities that are essential to achieving success. Leading indicators, taken in aggregate, are predictive of success.
Lagging indicators measure the fruit of those labors looking backward in time. Lagging indicators are easy to measure, but by their retrospective nature, are difficult to impact at the point in time from which you are viewing them.
Franklin Covey discusses the concept of lead and lag measures in their Disciplines of Execution Program. Here’s their definition:
“While a lag measure tells you if you’ve achieved the goal, a lead measure tells you if you are likely to achieve the goal”
Leading indicators are the activities. Lagging indicators are the results.
Successful organizations use leading and lagging indicators as a performance framework to define the success of the organization. While this undoubtedly creates clarity, it also helps create a results-focused culture where everyone understands how they personally impact results.
Choosing Leading Indicators
Many organizations I work with struggle to determine leading indicators. Referring to our chicken vs egg example, it’s easy to get drawn into a circular debate about what actions really drive which results.
The key to cutting through this debate is to ask yourself some essential questions.
What can easily be controlled most immediately?
No matter what you do, you cannot force a chicken to lay an egg (to my knowledge). You can, however, control the number of chickens you have. You can ensure they are well cared for.
In theory, these principles should lead to a greater number of eggs over time. Similarly, if I am a salesperson, I cannot immediately increase my sales numbers. I can, however, increase the number of calls that I make, which should yield more conversations and ultimately greater sales.
What am I measuring now?
It is no secret that today we have access to more data than ever before. Whenever possible, the best course of action is to take the measurements you already have access to and marry those to outcomes you would like to see.
Leveraging Lagging Indicators
In general, lagging indicators tend to be fairly standard. They are easy to measure but difficult to directly impact. For most organizations, lagging indicators are revenue, ROI, customer retention, and more. Individual teams will have ones that support key metrics of their department.
Lagging indicators are the results of a year in review. They therefore should be used to give insight into your leading indicators.
Did your leading indicators match your year-end results?
If so, this means you have the right leading indicators. Carefully refine these moving forward to chart the path to success.
Are your leading and lagging indicators in conflict?
Typically, this means that the leading indicators chosen were not the right ones. That is ok. Now we have a clearer view of what does not work. Moving forward, continue to look critically at what drives success.
Refine, Refine, Refine
The key to the successful use of leading and lagging indicators is to continue to ask critical questions of them as you progress. The more you can distill a leading indicator into the sum of its parts, the more direct control you will have over it.
As you review your lagging indicators, carefully review what the data is telling you. And use that to inform your leading data points.
The combination of the two, used in partnership together, will enable you to develop a cohesive performance framework. This framework guides what you need to be working on today and how those efforts will yield results at the end of the year.
So the next time you create a new strategic plan, create the proper balance of leading and lagging indicators to optimize for success.
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