How to use leading and lagging indicators to provide futuristic insight should be an organizational desire. However, if one were to read the results from a Google search on the topic, the conclusion that would probably be made is that a measurement is either a leading indicator or a lagging indicator and much cannot be done about it. However, this is not true.
This cannot-be-done thinking arises from the general consensus that a leading indicator is to provide insight that drives or has a correlation with future performance, while a lagging indicator uses historical data for quantifying past performance. From this definition, one could conclude that sales and shipments are lagging indicators, while orders and new products could be considered as leading indicators.
However, could traditional historical data be presented so that it provides insight to what might be expected in the future? The answer to this question is yes.
How Business Lagging Indicators can Provide Futuristic Insight
With an Integrated Enterprise Excellence (IEE) business system approach, statements can be made from a process point of view relative to how one could expect processes to perform in the future if nothing were to change. With this approach, one addresses the topic: how business lagging indicators can provide futuristic insight.
Key Performance Indicators (KPIs), scorecards, and dashboards in an organization are typically presented as a stop-light scorecard, numbers in a table, a time series chart, or some other variation of these reporting methodologies. In all these reports, metrics are lagging; however, what an organization would like to make is a futuristic statement relative to these measurements. If that is the case, then one need to create a scorecard or dashboard that is presented differently.
Whenever an undesirable statement is made relative to a futuristic statement from historical data, something needs to be done differently to make the response desirable. In other words, one needs to improve the process, if a process response is stable and undesirable.
A methodology to report-out metrics so that a futuristic statement could be made for many types of historical data is 30,000-foot-level reporting. Eight scorecards or dashboards have been used to illustrate this conversion for predictive reporting of lagging indicators for this high-level reporting format.
How to Determine Which Lagging Operational Metrics to Examine and Transition to make a Predictive Statement
Often executives in an organization select and then report KPI’s and other operational metrics. However, this selection process is typically not tied to the processes that are important to the achievement of satisfactory performance for the organization’s financial lagging indicators. An organization benefits when the selection of tracked metrics are linked to its IEE value chain.
Through the Enterprise Performance Reporting System (EPRS) software , the IEE value chain can provide up-to-date clickable information relative to processes and their associated documentation. In addition, the EPRS can provide an automatically updated predictive 30,000-foot-level reporting format for leading indicators, lagging indicators, KPIs, and other operational performance metrics.
How Leading Indicators can be Determined and Improved
The IEE approach also provides a system for determining which processes need to be improved so that the enterprise as a whole benefits; i.e., improving the leading indicator processes so that the lagging indicator financials benefit.
In step 6 of the IEE business management system, an Enterprise Improvement Plan (EIP) can be undertaken so that the financial lagging indicators are positively impacted by improvement efforts. That is, this methodology provides the determination and improvement of the leading indicators for the organization which are most beneficial for enterprise success.
Additional Information on how Business Lagging Indicators can provide Futuristic Insight and more
Details about the IEE business management system are described in an IEE five-book series.
Contact Us to set up a time to discuss with Forrest Breyfogle how your organization might gain much from an Integrated Enterprise Excellence (IEE) on how to use leading and lagging indicators to create predictive statements.