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Lagging and leading indicators are metrics that have been used by businesses for many years. Each plays a different role, either tracking what progress has already occurred, or pointing to what future direction the business is heading. Today, advanced technologies and predictive analytics have introduced a new level of innovation and productivity gains that are now possible with these metrics. Those businesses that take advantage of this new intelligence and better understand lagging and leading indicators have an opportunity to out-perform their peers.
What is a Lagging or Leading Indicator?
The best description I have heard is that a leading indicator is an input that will impact and influence an output. Outputs can then be measured “after the fact,” so become the basis for a lagging indicator. For example, if you sell ice cream on the beach in the summertime, then an increasing temperature coupled with the fog burning off is a great leading indicator that you will sell more ice cream. The changing input, a higher temperature, and sunnier weather led to the output of more sales.
Continuing further with this example, if in the morning you were provided advance notification that the weather would be better later in the day, then you would be confident sales would increase. It is easy to see there is quite a bit of value in identifying an accurate leading indicator, capturing that knowledge, and then taking advantage of it. In this case, you could call a friend or co-worker to help you manage the anticipated increase in demand.
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