Do you have a balance of Leading and Lagging Key Performance Indicators?

‘What gets measured gets done’.

It is an old expression but it still carries a lot of weight in the world of business.

If you can measure something, you can work on it and you can improve it.

The problems come when you measure the wrong thing, which sounds like an amateur mistake but is surprisingly easy to do. Most management information focuses on historic performance.

We often concentrate on revenue, costs and profit as indicators of success. These are easy to establish and used by everyone – but they are historic indicators of past performance. Not many companies make use of ‘leading indicators,’ which provide insight into how we are likely to perform in the future.

When I worked in the nuclear industry, we had these incredible plants that would run for very long periods of time. We measured this and it wasn’t uncommon to see ‘plant online time’ up at 99.99% – pretty impressive!

But it was a lagging indicator of how well we had performed yesterday. Yes it was important but past measures do not predict future performance.

This is why leading indicators are so important. By the time I left the organisation, we had started to focus on leading indicators. These included measures such as:

• How many planned maintenance jobs did we miss last week?
• How many pieces of equipment are performing beyond their expected life expectancy?

When these numbers started to creep up – we knew that we were exposing the ‘plant online’ KPI to more risk. Sometimes this would be acceptable and we’d accept that risk but it was managed because we had visibility of it.

To give you a completely different example, a Royal Marine in Afghanistan cleans his rifle every couple of days. He will clean it more often when he is out on patrol more frequently and less when he is not.

The reason he does this is because he needs that machine to deliver its required performance every single time he uses it. If it fails to fire because it is jammed with dust – the wrong people get killed.

It is part of the ‘Look after your equipment and it will look after you’ ethic that Marines are taught in training.

The same applies in business. If you’re organisation is dependent upon assets or equipment to function correctly – spend some time working out what the ‘leading’ KPIs are and use them to drive your planning and behaviour. Block time out of your diary to go and check on the maintenance schedule. If you believe that it is important, then so will your people.

This example works in all business functions.

An organisation’s revenue is often based upon a sales team’s ability to sell. Targets are created and sales managers are expected to hit them. Targets are not leading KPIs because they are not directly in control of the sales manager.

If the market is contracting, it doesn’t matter how good your sales manager is or how much you pay him. It is going to be harder for him to hit that target. He cannot control all the variables so it is ridiculous to assume that he can.

Sometimes, sales managers do better than expected and outperform their target. So what do we do? We raise the bar assuming that he will be able to do it again. When he doesn’t we reprimand him – often for not ‘working hard enough’.

Instead of targets, these might be some good leading KPIs for a sales manager.

• How many new people in our target market did you meet this week?
• How many networking events/conferences did you attend?
• How many sales training events did you attend this month?
• How many pitches did you make to new clients?
  • Of those pitches – how many generated a polite response versus an immediate desire to buy the product?

These numbers are in his control – and if he focuses on these, he will sell. The difference is that he will not be at the whim of a market that expands and contracts.

Measuring people on things that they cannot control creates stress.

While an element of this is required to perform, most companies over-do it and push people too far towards ‘burn out’ where performance starts to decrease. When this happens, good people leave and the worst leaders will write them off saying that ‘they couldn’t hack the culture’.

You can even create KPIs to see how stressed your organisation is. If you have a higher than average employee turnover or a sickness issue, you might well be pushing too hard.

The point here is that you need to be careful about what you measure – because what you measure will drive how people behave.

For example, if you drive people hard to make money but place no emphasis on values – they’ll make you money, but they might do it immorally/illegally – this is how the LIBOR scandal was created

So, what are your leading KPIs? How are you planning your week to make sure that the important things get done?

Leading KPIs can be developed quickly and they might just revolutionise the performance of your business. We had to use them because the nuclear industry is reliant on world-class performance.

In an increasingly competitive market – can you afford not to be the world-class?

If you’d like some support in creating some leading KPIs, feel free to drop me a line at roderic.yapp@leadershipforces.com