In business and economics, there are two types of indicators that help to measure the health and success of an organization: leading indicators and lagging indicators. Leading indicators are predictive in nature, providing insights into a businesses potential future performance, while lagging indicators are reflective, showing the past performance of a business. Understanding the differences between these two types of indicators can help businesses make more informed decisions.
Leading indicators
Leading indicators are metrics that help predict future performance. They’re a bit like a crystal ball, just not as mystical; and they won’t tell you who’s going to win the next Super Bowl.
Leading indicators are often used to guide business decisions as they can give an early indication of where a business is heading, and help identify potential problems before they become major issues. They can also be used to measure progress towards specific goals and help businesses adjust their strategies as needed. Common examples of leading indicators include new product development, employee training, and customer engagement metrics.
The key benefit of leading indicators is giving businesses the opportunity to take action before a problem arises. For example, if a business notices that their customer engagement metrics are dropping, they can take steps to identify and address core concerns, or rethink marketing strategies to re-connect with their customers. Working with leading indicators lets businesses take a more proactive approach to managing their operations.
Lagging indicators
On the opposite side of the fence, we have lagging indicators. These are the metrics we gather and use to reflect on our past performance. But while, like yesterday’s milk, they may still be okay, it’s not a good idea to rely on them too far into the business’s future. Lagging indicators are often used to measure how effective a business strategy has been, or the success of a specific project. Lagging indicators measure points in time; they’re things like revenue, profit margins, and customer retention rates.
While lagging indicators may not be as useful in predicting the future, they do provide valuable information about the effectiveness of a business strategy, and what areas a business might be able to adjust or improve on going forward. For example, if a business’s revenue reports show as declining, then it may indicate time to review pricing strategies, consider productivity enhancements, or increase marketing efforts.
Choosing the right indicators
Choosing the right indicators is a bit like choosing toppings for your pizza — it depends on what you’re in the mood for and what your goals are.
To get a complete picture of a business’s performance, it’s important to consider leading and lagging indicators that are right for your organization.
When contemplating which indicators to track, consider your specific goals and objectives. For example, if you’re focused on growth, think about leading indicators like new customer acquisition or product development. If you’re focused on profitability, lagging indicators like revenue and profit margins may be more helpful.
(Just don’t pick the ‘anchovy retention rate’ indicator, that one’s a bit fishy. ? )
Safety leading indicators
If you’re not tracking leading indicators for safety, it’s a bit like driving blindfolded — you might get lucky, but you’re probably going to crash into something eventually. And no, wearing a blindfold while driving is not a leading indicator for safety.
Leading indicators for safety management systems are metrics that predict future safety performance and provide insight into potential hazards or risks in the workplace. By tracking leading indicators for safety, businesses can take proactive steps to prevent accidents, injuries, and other safety-related issues. Here are some examples of leading indicators for safety.
- Safety training The number of employees who’ve completed safety training courses can be a leading indicator for safety. If employees are properly trained in safety procedures and protocols, they’re more likely to follow safe work practices and avoid accidents or injuries.
- Near-miss incidents These are events that could have resulted in an injury or accident, but did not. Tracking the number of near-miss incidents can be a leading indicator for safety, as it can help identify potential hazards before they result in actual accidents or injuries.
- Safety audits and inspections Conducting regular safety audits and inspections can also help identify potential hazards and risks in the workplace. By tracking the number of safety audits and inspections, and their results, businesses can identify areas that need to be improved, then take proactive steps to address them.
- Employee engagement Employee engagement in safety programs and activities can be a leading indicator for safety. Engaged employees are more likely to follow safe work practices and report safety hazards or concerns.
- Using personal protective equipment (PPE) Tracking how and when employees use PPE like hard hats, high-visibility clothing, safety glasses and so on can be a leading indicator for safety. Employees who consistently use PPE are more likely to avoid accidents and injuries in the workplace.
By tracking these types of leading indicators for safety, businesses can take proactive steps to prevent accidents, injuries, and other safety-related issues. Implementing safety initiatives and programs based on leading indicators can help create a safer work environment and protect employees from harm.
Quality management leading indicators
Tracking leading indicators for quality management is like going to the gym — you might not see results right away, but if you stick with it, you’ll eventually be able to impress your colleagues with your super-strong metrics. (Just remember to stretch first, or you might pull a quality muscle.)
Leading indicators for quality management systems are metrics that predict future quality performance and provide insight into how effective current quality management strategies and processes are. By tracking leading indicators for quality management, businesses can identify areas for improvement, make necessary changes to improve performance, and keep things on track for future success. Here are some examples of quality management leading indicators.
- Defect rate The indicator is the percentage of products or services that don’t meet the required quality standards. Monitoring the defect rate can provide insight into the effectiveness of quality management processes and help identify areas for improvement.
- Customer complaints Like defect rates, monitoring the feedback from customers about issues with products or services can provide help businesses understand how they’re perceived and get new insights into what they can do differently.
- Inspection results Results from quality inspections can shed light on production and service delivery processes, and again provide insights into areas for improvement.
- Quality training This is the amount of training a business gives its employees to ensure they understand quality standards and processes. Feedback from staff combined with inspection results can help a business understand how effective its quality training is and make adjustments to suit.
- Process cycle time This is the time it takes a process to run from start to finish. Monitoring this can help a business identify how efficient its quality management processes are and where it can refine them.
Tracking leading indicators for quality management can help businesses make better-informed decisions about their quality management strategies and processes. These kinds of leading indicators can help businesses identify potential issues before they have an impact, and make any necessary changes to assure their future success.
There’s no one-size-fits-all solution
Remember, when it comes to choosing leading indicators, there’s no one-size-fits-all solution. Just like picking a hairstyle, you need to choose what works for you and what makes you feel confident that your business is performing the way it should. And just like a bad haircut, picking the wrong leading indicators can be a real pain in the neck (or even totally embarrassing).
But you don’t have to work it out on your own. Reach out to Way We Do’s customer success team for help working out the best leading indicators for your business.
