The Importance of Leading (versus lagging) Indicators

Most of us who follow the economics scene are familiar with the term “leading economic indicators”. These are indicators that are likely (with reasonably high probability) to correlate with future movements in the overall economy. Things like unemployment, durable goods orders, and housing starts can help economists predict future movements in GDP, for example.

The importance of leading indicators in performance management cannot be overstated. But they are only valuable if you are able to influence the outcome, or better manage risks by knowing things sooner rather than later. Perhaps a better analogy for the importance of leading indicators are the early warning signals relied upon by pilots in a modern aircraft. If an alert goes off, pilots are trained to react- first in a diagnostic manner, with further action initiated should the diagnostic validate the early indicators.

All to often businesses rely on outcome measures without much emphasis on these types of early earning signs. You can do a great job at measuring performance, but unless those measures can help you MANAGE performance, you’re on your way to wasting a lot of valuable time.

Yesterday and today, I played 54 holes of golf with my 89 year old uncle, on the front end of a business trib out west. It was a rather humbling experience for me (not unlike every other time we’ve played), both because of his uncanny ability to make great shots, as well as my own incompetence with the golf club. Why I let this man torture me through 54 holes is probably a discussion for another day, but suffice it to say that good friendship and the game of golf, when combined, can make you do foolish things- like play 54 holes of golf when you’re shooting poorly. Anyway- I digress. Back to the point.

During the 1st round, I noticed that ,despite my good performance with my driver and irons, only 25% of my greenside chips were executed well. I also noticed that I missed 13 putts inside 7 feet during our first round. From there, I pretty much concluded I was on my way to a bad round- well into 3 figures if I didn’t do something different. But instead, I corrected and ended up with an embarrassing but somewhat respectable 99. But those two leading indicators gave me the foresight I needed to make big changes in my next two rounds… a focus, if you will that helped me immensely. By focusing on the leading indicators, I managed to squeak out a 92 and 86 in my subsequent 2 rounds. I still lost by 3 strokes overall, which is a subject for another day. But without the help of my leading indicators, I’m confident it would have been much worse.

So, the message for today is to not focus simply on outcomes. By the time you know the result, it may be too late!

-b

Author: Bob Champagne is Managing Partner of onVector Consulting Group, a privately held international management consulting organization specializing in the design and deployment of Performance Management tools, systems, and solutions. Bob has over 25 years of Performance Management experience and has consulted with hundreds of companies across numerous industries and geographies. Bob can be contacted at bob.champagne@onvectorconsulting.com


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