Leading vs. Lagging Metrics

Metrics are an important tool to measure results and drive the right behaviors in a business. The best businesses utilize metrics to improve results and involve staff at all levels in the reporting of these results. However, one mistake that business owners often make is looking only at lagging metrics. In order for metrics to be useful in driving performance results, the business needs to look at leading metrics. The earlier the business can catch issues and problems, the better off the business will be, as it’s easier and less expensive to solve issues earlier rather than later.

For tangible examples, here are two often-used metrics that are often used to measure results that are detrimental to a business. By taking a closer look at the inputs to these metrics, the business owner can see which behaviors and processes are influential and measure them separately, so as to drive better results.

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Scrap/Yield

Scrap and yield losses are critical business metrics to measure. However, once the business reaches the point of scrapping a product, the loss has already occurred. The business owner needs to go upstream and measure behaviors that drive better yield and scrap results. For example, a business owner could measure vendor quality at receiving/inspection. Metrics such as PPM (parts per million, or defect rates from the vendor) effectively show whether the parts that are received from the vendor meet the desired quality specifications. If quality can be measured at the vendor level, then there is a higher chance that the final product yields will be higher and scrap will be lower.

Employee Turnover/Retention

Voluntary turnover is an important measure for HR. But by the time the business reaches the point of measuring turnover, the employee has already gone. By measuring certain behaviors, the business owner can identify issues before a good employee leaves the company. One problem might stem from reviews and raises not being delivered on time. If HR begins measuring the delivery of reviews each month, with the goal set at 100% on-time reviews. This could make employees feel more valued by the company and lead to a reduction in employee turnover.

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When used effectively, business metrics are an invaluable tool to measure a company’s results and drive the right behavior and actions among employees. But a business owner shouldn’t only look at the metrics used to measure the business. He or she should also question whether the metric is a leading or lagging indicator, and consider the flow of data for that metric. The more outcomes the business owner can measure upstream, the easier it is to find and correct problems and issues before they become unfavorable results.