Leading Indicators – An Advantage of the Few?
Updated: May 11, 2021
I've been reflecting on how rare it is that enterprises enjoy the benefit of good leading indicators. Seems obvious that everyone would benefit from identifying and tracking performance drivers.
It's not a new idea. Game theory – first published by mathematicians in the 1940's – calls for measuring how you know you're winning early in the game - long before the final score. The Balanced Scorecard was developed in the mid-90s at Harvard Business School. It calls for the mix of leading and lagging metrics in the diagram above, emphasizing the drivers of performance in Organizational Capacity (culture, leadership, the right competencies – that pesky soft stuff) and Operations.
The right leading metrics are both performance drivers and early warning signs: illuminating the actions and systems that generate value. Tracking them enables leaders to make timely adjustments to enhance performance.
Yet most boards and executives continue to focus on outcomes - lagging indicators - visible after the fact, like the final score of a game. Finance and Customer Satisfaction are among those outcomes. Much easier to identify and measure than leading indicators, certainly, but they don't drive stellar performance.
By contrast, Warby Parker is a highly-respected fast-growing company whose founders go out of their way to share what works for them. They launched their company powering customer service with “intelligent native speakers who are empowered to act” rather than spending on marketing. They thought that would be a good leading indicator. Bulls eye: they hit their first year's sales goals in the first three weeks of operation.
Why wouldn't execs invest in identifying what will drive performance in their enterprise? What's in the way of reaping the advantage of leading indicators? The best ones are enterprise-specific and proprietary, so we don't hear about them much. Plus, organizational capacity is a key performance driver, and it involves ‘soft' variables such as culture and leadership practices. Perhaps more importantly, identifying enterprise performance indicators requires a clear, compelling strategic core. What I call Core Promise: what do stakeholders in your ecosystem rely on you for (and what do you want them to rely on you for?)
Here's how I do it. And here are a couple of examples of performance drivers/leading indicators:
One of my favorites was designed by a team of scientists; it changed the culture of the research division of a Fortune 100 company and drove the performance the CEO was looking for. They moved from a cultural norm of “Get your project funded as long as possible” (a legacy from grad school) to measuring how quickly they could eliminate projects.
Another is research-based: tracking the term of donor and volunteer commitment drives a high-performance non-profit culture. Rather than dollars raised, measuring the number of five and ten year commitments transforms staff and Board behavior, messaging, events, and generates the kind of donor experience that makes a difference.
I'm collecting examples. Feel like sharing?