What are Lagging & Leading Indicators? How are they related? Why are they important?

David Barber is CFO of Omni Industries in Baton Rouge, Louisiana.  David and the rest of the senior executive team at Omni are leading a lean transformation. He wrote this article for Omni’s company newsletter to help people at all levels of the organization understand how metrics help process owners more deeply understand the current state of business operations.

Leading vs. Lagging Indicators

Leading indicators are easier to understand when we contrast Leading Indicators with Lagging Indicators. We see Lagging Indicators every day in the form of the scores from yesterday’s football or basketball games.  We see Lagging Indicators when we step on a scale.   We see lagging indicators when we look at our credit card balances or the balance in our savings account.  Business leaders see Lagging Indicators when they look at Profit and Loss Statements or units (volume) of product produced or sold.  At Omni, we measure Gallons Produced and Gallons Sold and compare these numbers year over year, to measure growth performance.

Lagging Indicators are easy to focus on, as they make the headlines.  Lagging Indicators, in many ways, are how we measure success and how we compare one team or company to the next.   We might even compare this year’s scores or profits to last year’s company performance.  We use Lagging Indicators to rank sport teams and company stocks, creating elite groupings, assigning awards.  Lagging Indicators are important and deserve some spotlight.

Measuring Success

At Omni, do you know what Lagging Indicators are used to measure the success of your department or team?  Are these Lagging Indicators posted for all your Omni team members to see?  Where does your team look to see the score board?

While Lagging Indicators are very important, sometimes there is a tendency to hyper-focus on Lagging Indicators, as Lagging Indicators represent HISTORY.  Lagging Indicators represent effects of the past, which we cannot influence or change.   While Lagging Indicators can be motivating and can encourage change or build confidence, Lagging Indicators are NOT the best indicator of tomorrow’s success or failures.   Leading Indicators are the best indicators of FUTURE results.

Lagging Indicators = Historical Results

Leading Indicators = Future Results

Leading Indicators “Lead to” Lagging Indicators

Our primary, everyday (in-the-game), focus should be on the Leading Indicators, not the Lagging Indicators.  If we focus on the Leading Indicators, the Lagging Indicators will take care of themselves.

Leading Indicators in Every Day Life

Sporting Events

If you are a sports fan watching a ball game, you see Leading Indicators or in-game stats while the game is in progress.  Ball possession is a Leading Indicator, as the team that possesses the ball scores higher and teams that defend more tire and weaken, making it easier for offenses to score.  During the football game we monitor Time of Possession and Turnovers, as this is an indication of scoring opportunity.

In basketball, we monitor Rebounds, both offensive and defensive rebounds, as this increases the number of possessions.   In football games we look for first downs and even 3^rd down conversions, as these are indications of time of possession and scoring opportunities.  During the basketball game, we look at the number of Assists, as teams that get more players involved are harder to defend and tend to score higher.

In all sports, successful coaches and successful sporting programs focus on Strength & Conditioning especially in the off season, because they understand that better strength & conditioning is an indicator of future scoring and future success.  Strength, Conditioning, Possessions and Assists are not points scored, but they all increase the opportunity to score more points.  When measured and tracked, these are excellent leading indicators.

What are the Leading Indicators in YOUR everyday life?  Are you measuring and tracking these leading indicators? What are you Leading Indicators at Omni?

Academic Achievement

As former students and parents of current students, we understand leading indicators related to Academic performance.   Complete homework assignments and longer study times lead to better test scores, and better test scores lead to better quarterly report cards, and ultimately, higher GPA’s.  If we wait to focus on our grades, or our children’s grades, on report card day, we are too late.   The key is to focus on and measure DAILY homework assignments and quality study times, not to focus daily on the GPA or the Report Card.

Health & Wellness

If we have a personal goal to gain weight and get stronger or lose weight and fit into those old clothes, we need to focus and measure daily food and drink intake by documenting calories or the types of food and drink consumed.  We should document and track our time spent being active and the time spent sitting down.  If we focus on these numbers, calories and how we spend our time, the numbers on the scale will take care of themselves.   Focusing on the number on the scale, throughout the day, gets us nowhere.

Leading Indicators in your Omni team

What are your team’s leading indicators at Omni?  What are the leading indicators that will help you and your team to improve tomorrow’s lagging indicators?  Is there an “In Game” stat sheet on the current Leading Indicators?  If not, how can you help to develop these Leading Indicators?

 

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