Lead indicators in business: A lesson from the wide world of sport
In my last post, we looked at data analytics and how SMEs can use it for the benefit of their businesses.
On a similar theme, data analytics helps us measure the right things in our businesses. It’s something that we’re very passionate about – the need to focus on lead indicators in business as a way of measuring performance.
And again, it’s useful to use some sporting analogies (as we regularly do on our website).
Lead vs. lag indicators: a lesson from sport
I have grown up watching sport, looking at the stats (the nerd in me) and analysing them to see why teams got the results they achieved.
An easy one to understand, for example, is possession percentage: obviously, the more you have the ball the better chance you have of scoring points.
Missed tackles is another obvious one: it’s not hard to work out that the more missed tackles, the greater the points will be scored against you.
Note that I have not spoken about the scoreboard. The final score is, of course, important – just like your financials are; but really, both are the outcome of all the things you’ve done.
I call the final score or your profit and loss statement the ‘lag indicator’ after all your efforts have been put into the game.
The problem is that business owners too often react to the scoreboard without actually looking at the actions that cause the result.
Focus on the lead indicators in your business
Good coaches spend more time on making sure the ‘lead indicators’ rather than the ‘lag indicators’ are worked on in training.
After all, you can’t work on the scoreline but you can work on keeping possession.
Think about a rugby coach: tackling practice is vitally important. Why? If we miss fewer tackles during the game, chances are that fewer points will be scored against us.
A good coach knows that the lag indicators look after themselves if you get the lead indicators right.
And so it is with your business. If you monitor your sales people and ensure they are hitting the numbers with appointments and sales activity, you know that this will be reflected in good sales figures at some point further down the line.
So the lead indicators are what we need to monitor and work on all the time: they will drive the ‘final score’ or financial results.
Help your team work on the lead indicators in your business
Once you work out what the important lead indicators are for your business, it is your job as the business owner or coach to ensure that your team understands them; and then to ensure that they have all the tools they need to help improve these indicators.
One of the most common one I use for time-based businesses is labour recoverable rate. Why is this important? It is a great measure of productivity.
What we often find is that businesses don’t charge for all of the work they do or don’t record their time well enough.
The frustrating thing is that we know that the more productive they are, the more they will invoice, which obviously has a positive impact on their profitability of their business.
I’ve only covered one or two lead indicators in business here. There are many. If you’d like to know more about measuring the lead indicators in your business, get in touch here.