Use the Right Performance Indicators
Posted on 23rd May 2022 at 16:04
There are two types of performance indicators you need to think about – leading and lagging. Our research found that business leaders do not focus enough on measuring the behaviours that will lead to the results we want.
The majority (89%) of reported indicators turned out to be 'lagging' KPIs - in other words look at the result after the 'event' rather than 'leading' indicators looking at the actions/ behaviours that should lead to the desired results.
Running your business by solely focusing on lagging indicators has been likened to driving your car forward by looking behind you through the rear view mirror!
Lagging KPIs are results you measure looking back over the previous period – for example your annual accounts or monthly sales figures. They have already happened and we use them for reporting and analysing to make sure we are in control and things don’t slip. However, it is an indicator of past performance and it is too late to change it.
Leading KPIs are more about behavioural indicators that we hope or know will lead to the results we want to see – they will effectively lead to our lagging KPIs. Leading KPIs are indicators of performance (actions and behaviours typically) that might predict future success.
So if we are driving a car around a race track trying to get faster and faster, the lagging KPIs might be our lap times, sector times, corner speeds etc. Even if we can monitor them when we are out on track, they are still after we have driven the lap or a particular sector or corner. So they are lagging. The overall objective is a fast lap time and we can analyse and look for where we might be losing time – and perhaps identify a particular corner where we are losing most time. This helps us know where to look/ where to focus and we might conclude that we are braking too early and not taking the best line – perhaps we are clipping the apex too early leading to us running wide on the exit.
All business owners would benefit from introducing more people focused KPIs. Not only would this move the needle on recurring difficulties around staff management but will also have a direct impact on growth, enabling more business owners to buck the 96% trend and scale to 7-figures.
Despite this, most respondents fail to create and measure themselves against people related KPIs
and only focus on financial indicators, as demonstrated by the following.
43% of the top 5 reported metrics were financial KPIs
Despite accepted wisdom on the importance of people, only 4% of metrics related to staff KPIs such as team engagement and satisfaction
In addition, only 10% related to customer engagement and satisfaction
Just 4% of the top 5 KPIs related directly to resilience, stability and value
Is your business one of the few benefiting from using Leading KPIs rather than Lagging KPIs?
For help on making sure your business is measuring the right idicators get in touch with us here.
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