Nobody likes to miss a goal, and your response to missed goals will define you as a leader. Are you thoughtful before you respond, or do you regularly punish and criticize people for missing goals, regardless of the situation? Do you treat everyone equally, or do you have favorites? Do you consider how people achieved their goals and address people who underachieved? Do you evaluate the initial assumptions that caused you to arrive at particular goals and compare them to actual circumstances? Leaders who consistently handle this issue poorly eventually lose others’ respect, reduce motivation, and hold back the company.
A leader prevents the organization from learning by not monitoring the achievement of goals or failing to address gaps. Moreover, that leader will not learn the issues and possibilities and who the real performers are.
Goals are meant to be a means to an end—not to be an end in themselves. No one enjoys failing to achieve a goal. Your progress is determined by how you respond. In the end, a nonresponse encourages mediocrity or apathy toward your goals.
If you are like most leaders, the primary metrics you use to set goals and manage your business come from your income statement and balance sheet. Examples most often discussed are sales, cost of goods sold, gross margin, overhead, labor costs, profit, receivables, inventory, work in process, payables, and cash. While these are measures you need to monitor, they are all lagging indicators. They are results from decisions and actions taken in the past, the scorecard you use to measure the success of those actions and decisions. The problem with using those measurements to manage the business is that they are after the fact.
While there is some benefit to using lagging information, it does not tell you why your results are the way they are. It is also too late to change the outcome. It is the equivalent of trying to drive your car forward by watching your rearview mirror.
Leading vs. Lagging Indicators
Your primary focus should be geared to key performance indicators, the leading measures that influence the end results. By choosing the right leading indicators, you can help your team improve the lagging indicators. There are, however, three things you should consider when selecting your leading indicators.
First, while all numbers on your balance sheet and income statement are lagging indicators, other measures can be leading or lagging depending on your use.
For example, the percentage of employees performing can be a lagging indicator when measuring recruiting and onboarding processes, leadership effectiveness, and how well an employee is performing. However, it is a leading indicator of customer loyalty, employee engagement, profitability, and other such measures.
So it is essential to isolate what you are trying to improve.
Evaluating the Most Important Leading Indicators
The second issue is how to figure out which measures require the most attention.
Every business is a compilation of processes composed of various inputs, outputs, and decision points. At each point, when something occurs or does not occur, it influences future outcomes, and potential for measurement occurs. If your company is like many other businesses, your processes may not be well-defined. You also may not be clear on how each point in the process affects the overall organization.
For example, we recently consulted with the CEO of a company that manufactures products for the construction industry. He was very focused on building up his sales and marketing team. Sales in the company had been hovering around $10 million for the last three years. Upon digging a little deeper, we learned that his company had proposed over $150 million in deals during the previous 12 months. When asked if this was a recurring problem, the answer was yes. So his close ratio had consistently been less than 7%.
Our next question to the CEO was why he lost those deals. He was not entirely sure, but it sounded like their products were not meeting the marketplace’s requirements. So, how was increasing the sales force’s size and improving the marketing department going to address that? He needed to focus on the close-ratio and understand what it would take to increase it before doubling his sales force and spending money on marketing.
Measuring Leading Indicators
The third issue is the measurement itself.
While there are usually systems and processes to compile your financial statements, many small- and mid-market companies do not have process measurements in place. As a result, there is uncertainty regarding how to get the information you need and whether it will be accurate.
The bottom line is that what gets measured gets done. You do not want to measure too many things. If you cannot automate, it is essential to have the people responsible for the outcome or the steps to report on the measure daily. If you do not measure it, it will not improve. Many of our clients collect information in Google Docs. While this is less than ideal, it works.
So, prioritizing your leading indicators will help you send the right message to your team and prevent the waste of time and resources. Most organizations either fail to have a good understanding of their numbers or monitor too many. Again, less is more. Having a good handle on what to track daily, weekly, and monthly will help you focus on the business. There will be specific key performance indicators the executive team will monitor. Subject matter and functional experts have their role-specific indicators to watch to know whether they had a good day or good week—all of which will lead to achieving more goals than not.
Need guidance in making sure you’re measuring the right things and improving on hitting company goals? Let us help! Schedule a FREE 30-MINUTE CONSULTATION now with one of our Activate Group experts, and we will get you headed in the right direction.