Leading Vs Lagging Metrics
When you drive do you focus more on what is ahead of you, or what's behind you?
That's easy - you focus on what's ahead.
Why? You want to navigate to your final destination safely and effectively.
So, why do so many decision makers rely on lagging metrics and past results to navigate the road ahead?
Yes, it's important to review what you've accomplished, but do you understand the consequences of today's activities on your business tomorrow?
Many decisions makers find themselves *"...drowning in data and thirsting for insight". Your P&L provides you with the lagging results of your cumulative activities and leading metrics are generally not financial in nature but drawn from the daily actions of your teams. The power of leading metrics lies in their predictive nature. Effective leading metric identification provides the insight into the actions taking place now in your business and the future impact those actions may have on your bottom line.
A quick example:
Your sales team has an industry high quote conversion rate of 40%. So, for every 20 quotes generated your team is winning 8. A conversion rate by itself is only telling a portion of the story.
What actions took place in order to achieve the 40% result?
To gain insight into the effectiveness of your sales process what do decision makers need to understand?
Do they know:
- How many customer contacts were made?
- How many contacts were with repeat vs new customers?
- How many of those contacts were converted to quote?
- What was the margin on the sale?
Tracking leading metrics will provide decision makers with information they need to better assess process effectiveness. As their insight grows, meaningful targets can be set, adjustments to their processes can be made, and the effect of those changes can be readily managed.
Think about the processes that drive your business - do you have a handle on the level of daily activities required to maintain healthy growth and long-term success?
*From> The 75 KPIs Every Manager Needs To Know by Bernard Marr