Lagging Indicators Vs. Leading Indicators (No Eye Candy Metrics)

One of the most common problems we hear from businesses researching dashboard and reporting software is that they don’t know exactly what they should be measuring.

As a result, they become easy prey for business intelligence vendors looking to seduce new customers. They’ll be shown flashy demos, slick presentations and what we call “eye candy” metrics—vanity metrics such as total yearly sales or average monthly social media followers.

Why are these metrics, which we consider lagging indicators, called “eye candy?” Because you don’t receive anything more than what the underlying data source is already giving you. If you’re connected to an existing marketing or sales tools, such as Facebook, Twitter or Google Analytics, then all you’re getting from “eye candy” metrics is a repackaged version of the data found on those sites.

The only benefit is that now the data is in one place, rather than spread across each platform.

BI vendors utilize “eye candy” to make a quick sale. The numbers are large and attractive and look great in a PowerPoint. But those metrics miss the point; instead, BI vendors should help you find your leading indicators, the measurable qualities of a company that directly influence the success of a business.

Click here to download “Business Intelligence Buyers Guide (Part 1)”

The Difference Between Lagging Indicators and Leading Indicators

Lagging indicators, while visually attractive, represent things that have already happened. Because they happened in the past, lagging indicators can’t be acted on.

Take social media for instance. Reporting the weekly Facebook likes or website visits one receives is considered a classic lagging indicator. There’s nothing you can do to increase the total number of likes or retweets after they’ve occurred, just as there’s nothing you can do to change the outcome of your total monthly sales at the end of the month.

Continue this trend for too long and over time you’ll have a dashboard with nothing but lagging indicators. After a month or two of looking at them and not seeing much value or ROI, you’ll stop logging into your dashboard. What started as a smart investment will essentially become shelfware.

Instead, you need to find your leading indicators.

Leading indicators are the things that happen early on in a process, allowing you to take corrective action and see operations as they occur in the moment.

Leading indicators cause lagging indicators.

Let’s use weight loss as an example. When you look at a scale you’ll see a lagging indicator because you can’t immediately or drastically change your weight—it is what it is at that moment. Disappointment sets in if our weight didn’t change the way we expected, and there’s a chance we’ll get off track from whatever diet or exercise regimen we had in place.

On the other hand, a good leading indicator would be to track how many days you exercised in a week, or how many calories you consumed per day. Both metrics affect what’s shown on the scale if they’re measured properly. Exceeding your calorie intake might result in gaining weight while decreasing the number of calories you consume can lead to weight loss.

Examples of Leading Indicators Versus Lagging Indicators

Lagging and leading indicators are present in any business operation. Here are just a few examples.

In a sales department, the number of deals closed or money made at the end of the month would be your lagging indicators. There’s nothing you can do to change the outcome of your monthly sales, and there’s little insight available in the report that you can glean to adjust your sales for the next month.

Instead, you should look at the individual factors that cause your revenue: the number of demos given, phone calls made or proposals sent. If on a weekly basis you have a target to send out X number of proposals, and you know that each proposal will trigger X amount of revenue, then you’re tracking a leading indicator. If you don’t hit that target number of proposals, then you can take corrective action and send more proposals next week.

Consider a service-oriented business. These businesses generally look at the percentage billable versus unbillable, but again, that’s a lagging indicator. Instead, they should look at the number of open positions and current job postings. How many seats are not filled in their organization? If they lose some people within the company it will likely trigger a decrease in revenue down the road. That’s a really early leading indicator that they can measure.

We can apply this to customer service and support as well. Most companies want to measure customer satisfaction. But measuring customer satisfaction means you’re learning whether they were upset or satisfied with their service after the fact—a lagging indicator. The leading indicator would be what’s triggering their satisfaction (or dissatisfaction) in the first place. Perhaps they’re upset because their ticket wasn’t resolved on the first touch. You can look at the percentage of tickets you’re closing on the first touch as a good indication of satisfaction, and adjust your support accordingly.

Beware “Eye Candy” Metrics

Investing in software to monitor specific metrics means you want it to drive your business. You don’t just want “eye candy”—essentially another thing for executives and managers to look at. You want to make smart decisions that will result in more business.

But unfortunately, in the realm of BI software, “eye candy” occurs all too often. Vendors like to give fancy demos with practices and metrics that don’t apply to your business.  Those numbers might look appealing, but they aren’t actually giving you information that you can learn from or take action on. It’s all rearview mirror stuff.

Beware “eye candy” metrics. Ask for demos or examples that utilize your leading indicators. Doing so will help you find the appropriate dashboard and BI vendor for your needs.

Reach out to us and let’s discuss how properly implemented Business Intelligence can help your business and how a solution like Yurbi can make the communication of real-time display of your leading indicators possible.

Click here to download “Business Intelligence Buyers Guide (Part 1)”

Posted By
Tagged
,

Business Intelligence For Companies Ready To Grow