They say what gets measured gets managed and you can’t improve what you don’t measure.
Because business is all about setting targets, creating projections, pulling some bigger imaginary numbers out of thin air for everyone to chase, just because…. why not? We will inevitably run into metrics, KPIs, OKRs, and all the sexy abbreviations. Then you will inevitably hear about lagging and leading indicators.
I despise big empty vocabs (don’t get me started on “top line” and “bottom line”), but hear me out: these are not just silly biz speak.
Knowing these concepts has helped me think more clearly and critically about other areas in my life. It’s a useful mental model that I can use to assess, analyse, then set personal goals.
Let’s get started shall we?
Lagging indicators are output oriented, easy to measure but hard to improve or influence.
Leading indicators are input oriented, hard to measure and easy to influence.
|Revenue, lead conversion rate, project margin||lead / turnaround time, quality of leads, processes being followed|
|the number of accidents on a building site||the percentage of people wearing hard hats on a building site|
|improved bottom line||more sales calls, more marketing campaigns|
A leading indicator is a predictive measurement. A lagging indicator is an output measurement.
A leading indicator can influence change and a lagging indicator can only record what has happened.
What do we want to achieve: lagging indicators. What can we do to influence it: leading indicators.
|customer satisfaction||satisfied and motivated employees|
|cost efficiency||robust trainings, appropriate toolings, high-performing processes|
|team throughput||% of incidents not worked on for 2 hours, % of open incidents older then 1 day|
A lag indicator without a lead indicator will give no indication as to how a result will be achieved and provide no early warnings about tracking towards a strategic goal.
A lead indicator without a lag indicator may make you feel good about keeping busy with a lot of activities but it will not provide confirmation that a business result has been achieved.
Sometimes organizations treat leading indicators as the goal and measure of success. But really the objectives are the lagging indicators. The goal for leading indicators is to improve them over time, to positively impact the lagging indicator.
That’s as simple as I can make it. Hope you find that useful!
Also published on Medium.