Too often management focuses on lagging rather than leading indicators. Lagging indicators are revenue, profits and other measures that you find on your income statement and balance sheet. While it is important to keep track of lagging indicators, it is more productive to understand which leading indicators drive those lagging indicators. By identifying and focusing on leading indicators, management can control its own destiny.
Sales is the easiest area to provide an example. Let’s say you have a sales goal of $5 million dollars, and an individual salesperson is supposed to drive $1 million of that goal. You need to break that number down into the average sale. After you have figured that out, you want to manage your salesperson’s number of phone calls connected, meetings held, and proposals presented. After a while, you will see that there is fairly predictive pattern of how many connected phone calls lead to a meeting, how many meetings lead to a proposal, and how many proposals lead to a closed sale. These numbers will vary by salesperson because not all salespeople are created equal. By managing these leading indicators, you will be able to predict whether or not your salesperson will achieve that $1 million goal and determine which people need training and coaching and which ones are not capable of doing the job.
You can find leading indicators for every line item on your income statement. You must break down the end numbers into the activities that produce the results and place the ideal measurements that cause the results that you want. These leading indicators are what you want to measure and improve.
The mistake leaders make is spending too much time looking at the lagging indicators and failing to recognize cause and effect. By inspecting and improving the items that cause the desired results, one can make business more predictive and successful.
Howard Shore is a business growth expert who works with companies that want to maximize their growth potential by improving strategy, enhancing their knowledge, and improving motivation. To learn more about him or his firm please contact Howard Shore at (305) 722-7213 or [email protected].