Leading and Lagging Indicators

Metrics are important to your understanding of what’s happening in your organization – even imperfect metrics. They’re indicators of underlying process results – and every organization is perfectly designed to give you the results you’re getting. If you don’t like the results, change the system. Key metrics are your guide to know if your change efforts are being successful.

Metrics are important to your understanding of what’s happening in your organization. Share on X

The most common metrics in organizations are actually lagging indicators – they tell us about the past, and do not explicitly predict the future. We tend to monitor lagging indicators in organizations because they’re easier to understand and measure. Cash flow, inventory balance, and profit are lagging indicators of a business operation. Membership and customer counts are lagging indicators of earlier marketing and sales efforts. Sick day frequency may be a lagging indicator of chronic stress on employees.

The natural world holds many insights for leaders. Mushrooms are lagging indicators of a decay process that began weeks earlier. A heart attack is a lagging indicator of atherosclerosis. Fish harvests are a lagging indicator of spawning that occurred years ago.

Leaders crave leading indicators because they’re more valuable for predicting the future and supporting decisions about what to do next.

One key: Learn to see a lagging indicator as a part of a leading indicator metric. Rainfall is a lagging indicator of water cycle events that occurred earlier and in a different place – but is a leading indicator of soil moisture that contributes to good crops. Couple a lagging indicator with other information to create a predictive leading indicator. Some examples:

• Customer engagement metrics for the past are clues to what will be successful in the future, when coupled with seasonal buying patterns or expected product launches.
• Equipment performance metrics plus data about maintenance schedules helps you predict expenses in the future.
• Carryover inventory plus a sales strategy and tax timing could be an indicator of future sales and adjustments to your tax report.

Look at your organization and outcomes. Review the processes which produce those outcomes. What are some lagging indicators that you can use to create more predictive indicators? Tackle this challenge with other sharp people, too. You’ll be surprised at how many dull lagging indicators can be useful for leading into the future.