CHAPTER TWENTY-ONE:

You have some insights. Now, how do you act on them? Well, you need to make decisions based on metrics. Decisions based on intuition, or guessing, will never be confident decisions. Metrics and key performance indicators give you the ability to predict the future with a high level of confidence. It is not guesswork; rather, it is understanding the data, applying your vision and creating strategy from your experience and knowledge.

It is vital to understand your leading and lagging indicators. Simply put: leading indicators influence your future performance. Lagging indicators analyze your past performance. Both are important but, too often, we look to the past because it is in our comfort zone. A leading indicator looks forward at future outcomes and events. A lagging indicator looks back at whether the intended result was achieved.

Apply the concepts of leading and lagging indicators to a car. Leading indicators look forward, through the windshield, at the road ahead. Lagging indicators look backward, through the rear window, at the road you have already traveled.

A financial indicator such as revenue, for example, is a lagging indicator. It tells you what has already happened. Strictly speaking, last year’s revenue does not predict future revenue (although it has been used to do just that by many businesses in the past). But an indicator such as customer satisfaction does point to future revenue. Satisfied customers are more likely to repurchase and tell their friends about your company.

Lagging indicators are typically “output” oriented—easy to measure but hard to improve or influence—while leading indicators are typically input oriented—hard to measure and easy to influence.

A great example is weight loss. The amount you weigh is a clear lagging indicator that is easy to measure. You step on a scale, and you have your answer. But, how do you actually reach your goal? For weight loss, there are two leading indicators: calories taken in and calories burned. These two indicators are easy to influence but hard to measure. You can restrict what you eat and exercise for three hours a day, but when you order lunch in a restaurant, the amount of calories may not be not listed on the menu. In addition, if you are like most people, you have no clue how many calories you burn on a given day.