Leading Indicators: Predicting the Future by Measuring the Everyday.
We live in a world of information overload where almost everything is measured and managed. To make sense of this data we often use indicators, these can be "leading" or "lagging". But what do these mean and can technology help us to make sense of them?
What are indicators?
Lagging indicators are usually results from past activities that can be measured but are often hard to improve. Leading indicators are input based and are not so easily managed but have greater scope for improvement.
To explain, I'll use improving fitness as an example. Most days I ride to the Lucidity office, it’s the fastest, least polluting way to get here, but I also do it to try and stay fit. Recently I've been tempted to measure this pursuit in some meaningful way using indicators. The simplest lagging indicator is to measure how quickly the commute takes. I have a quick look at my phone (the de facto clock) when I leave and arrive and I have a basic answer. If this time gets shorter I presume I am getting fitter. It’s easy to measure but not so easy to control, given traffic lights and Melbourne's infamous weather.
We now have a multitude of gadgets that provide "leading" indicators. I've thought about a smart watch to measure more meaningful leading indicators such as heart rate or speed. With the appropriate technology and knowledge of how to use these tools and depending on my effort they can be influenced.
In business there is a similar dilemma. We have many lagging indicators such as revenue and profit. In compliance we have percentage of products in compliance or in safety injuries via Lost Time Injury Frequency Rate. With these, the output is easy to measure but the results are much hard to influence.
At Lucidity we have a range of modules that can help measure lagging indicators, but we are finding more and more clients want to be able to create leading indicators, often customised to their own workplace.
Leading indicators can be used as a measure preceding or indicating a future event used to drive preferred outcomes, like improved quality or less injuries. Leading indicators are focused on future performance and continuous improvement. These measures are proactive in nature and report what employees are doing on a regular basis.
We have found the leading performance indicators should:
Allow you to see small improvements in performance
Measure positive actions not negative outcomes
Provide feedback to stakeholders
Predict desired performance
Support problem solving
Support transparency so it’s clear what needs to be improved
Show results not just intentions
Like the bike ride to work, I'm not so interested that the ride took longer but whether I’m getting fitter, not lagging. Companies don't want to know failure, they want to predict improved performance. At Lucidity our clients are shifting their focus to using leading indicators to drive continuous improvement using our flexible InForm product.
Are leading indicators used by your company?
Lucidity will be writing a more detailed article on leading indicators for Certified Magazine on this topic.