I’ve always thought of the key performance indicators ( KPI ) I put in place for my initiatives as good enough to measure success till one day, my CEO opened my eyes to see my ignorance. I was running almost 90% of all initiatives on lagging indicators and this was bad news for my appraisal. Really bad news. And to rub it in, he pointed me to the fact that most of these lagging indicators weren’t really going to show up the “harvest” until the next 3 quarters! When I asked him for a workaround to help me get more predictive on my analysis, he said that I needed to look for leading indicators to measure success. So what IS a leading indicator? A bit more explanation from him got me going around in circles, somewhat like this
This is a good bare-bones approach to identifying the leading and lagging indicators at each stage, but often we find it difficult to decipher either the milestones or performance metrics that add up to the final objective.
For eg: Let’s try to measure the objective of “reduce time-to-closure for a sales deal”. The sub-objectives or milestones that lead up to this event could be – reduce time to generate lead, reduce time to touch base with lead contact, reduce time to move lead to opportunity and reduce time to closure. In this case, it’s quite easy to find out the milestones and their respective measures, called lagging indicators, give some predictability on “deal closure”.
Let’s now measure the objective of “productivity improvement”. What would be the milestones leading to this event? We’ll have a hard time guessing this. Most executives are comfortable just measuring “productivity improvement” with a loosely connected metric such as “no. of billable hours” or “earned value”, but these are just lagging indicators for this event, and these do not ensure that the improvement is already happening
We need a better way to nail down leading and lagging indicators.
It’s at this time that Po- the supposed epitome of “awesomeness”, popularly known as the Kungfu Panda came to my aid.
If you’ve seen the movie Kungfu Panda you cannot help but feel amused and awestruck at the same time that a Panda his size could do the splits. I mean, look at him! His very size defiles the word “flexibility”. Ok, let me cut to the chase instead of this rambling over his “awesomeness”. In the movie Po’s taken through a strict regime by master Shifu. At first, there are these “milestones” that he needs to get through – the blades, the rings, the fire, the tumbling cistern, walking up the dragon temple, etc. but Po finds himself unsuccessful at every step. Going by our earlier sequence diagram, the performance metrics for each milestone is somewhat like the leading indicators for his becoming the Dragon Warrior, but each milestone’s success or failure is a lagging indicator for that milestone.
These are sequential steps that are supposed to lead up to making Po the Dragon Warrior. However, we notice that the choice of these leading indicators don’t help Po persevere towards the goal. There’s something about these milestones and indicators that obstructs Po from getting where he ought to get. With time, there is an interesting insight which master Shifu gains which is our key to understanding good leading indicators.
Po’s greatest stumbling block for becoming the Dragon Warrior is his body weight and over-eating habits. Most of them in the field of kungfu had exceptional flexibility of bones and muscles and Po was the odd one out. One day Po finds a bowl of momos that are located in a precarious place up the shelf. What is amazing is that in order to get his hands on the bowl of momos, Po does a center split perfectly balancing his entire weight with just his heels.
Shifu uses this “carrot” to teach him kungfu and he successfully trains Po to incorporate these skills into a makeshift yet effective kungfu style.
Po’s penchant for food is what is called a driver to the targeted goal. Po’s way of achieving the results is not via sequential, progressive milestones but by effective drivers. So in this case, the leading indicator would be the no. of times Po gets to eat the food from master Shifu’s bowl. The better this indicator the more close he is to becoming the Dragon Warrior.
So then a good leading indicator is not just the metric for the previous milestone event, but is the metric for the driver for the next milestone or objective.
In my next post, I’ll take up a real case and help you see the leading, lagging and coincident indicators through that example.