Why “Lead Measures” Are the Most Important Part of Your Scorecard—and What You’re Missing If You’re Not Including Them
Frequently, my EOS clients tell me, “We’re struggling with the difference between lead and lag measures. Why is it important to track both on our scorecards?”
To track execution and achieve your annual goals and/or quarterly Rocks, your team(s) must track lead as well as lag measures—and know the difference.
Most organizations have an abundance of lag measures—revenue earned, contracts won, products shipped. “Lags” measure goal achievement after the fact, but they are hard to influence. For instance, a construction company we’re working with set an annual goal to improve safety because workers were getting hurt and insurance rates were skyrocketing. The lag measure was the incident report. Unfortunately, you can’t act on an incident report. It’s too late. The damage is done.
The lead measure, on the other hand, tracks activities that are most predictive of achieving your goals. Because “leads” are behavioral, they are easier to influence. For example, our construction client focused on eight safety standards as the lead measure for their safety goal. Site supervisors put these standards on a checklist: Is everyone onsite wearing the right hard hats, gloves, shoes, and goggles? Is there a brace on the roof to keep tools from sliding off? As soon as they began measuring compliance, they found wide variations among crews. The lower-scoring crews immediately shaped up.
Their lead measure went up (compliance to standards), and the lag measure went down (the number and severity of accidents).
One caution: Lead measures are often tough to develop—and can be challenging to measure. The site supervisors had never used a safety checklist, and they had never done inspections before. It was a new routine, and many perceived it as extra work. Nevertheless, because the executive team deemed these lead measures “wildly important,” they did it. The result? Safety improved dramatically across the organization. One site went 18 months with a twisted knee as the only lost-time injury.
The key to success on achieving a goal like this is to focus more on the lead measures than on the lag measures. Note the contrast between the two kinds of measures:
- Measure goal achievement
- Is harder to influence
- Is easier to measure
- Predicts goal achievement
- Is easier to influence
- Is harder to measure
Coming up with the right lead measures is really about engaging your team in dialogue about what can be done better or differently in order to achieve the goal.
Case Study: How Lead Measures Closed a Revenue Gap
I’d like to share a remarkable example from the sales department at a mid-sized industrial manufacturing company we’re working with. Their annual goal was to close a serious revenue gap. Before they adopted EOS, the sales manager’s strategy revolved around exhorting sales people to "go out there and sell more." At the end of the quarter, the manager would then demand to know why their sales people hadn’t sold more.
Everything changed when they started acting on lead measures. After engaging with their team, the executives agreed on three key actions:
- Increase their number of contacts with new customers—potential original equipment manufacturers (OEMs) who had not done business with the company before,
- Reactivate customers who hadn’t purchased from the company for six months or more, and
- Upsell to their existing customers–finding ways to add value to their business by making their manufacturing processes more efficient and effective.
In practice, the plan broke down to simple lead measures:
- How many calls each sales person would make.
- Individuals reporting week to week in their Level 10 meetings as a part of the process.
- People committed to hit a certain number of new-customer contacts, reactivation calls and up-sell offers.
The result? The company has closed their revenue gap and shot past their sales goals for the year. Acting consistently on the right lead measures made it all possible.
- Lag measures provide an historical look at past performance and tell you if you have achieved your goals.
- Lead measures provide indicators that are predictive of future results and tell you if you are likely to achieve your goals.
- A strong scorecard will have a mix of both lag and lead measures.
- Act on lead measures as the best predictors of achieving your goals.
- Lag measures are ultimately the most important things you are trying to accomplish, but lead measures will get you to lag measures.
If you have any questions about how to implement lead and lag measures in your business’s scorecard, reach out to me at kmcardle@McArdleBusinessAdvisors.com. I’d be happy to help you develop the lead measures that will help you predict—and achieve—your company’s goals.