Are your KPIs leading you to success or lagging behind?
You probably already know Key Performance Indicators (often shortened to “KPIs”) are metrics used to measure the success of an organization or the performance of an individual. The real question is: How do you know if you are measuring the right things?
As a strategic planning expert, I meet with small family business owners to Fortune 500 companies, as well as private equity firms, who are all tracking a plethora of KPIs from top to bottom in the organization. Sometimes the report measurements are because “we’ve always done it that way.”
As leaders, we often need to take a step back, evaluate, and take a hard look at the numbers to decide which are necessary and which are not yielding us the right data to make good business decisions.
- If you can’t see the trees for the thick forest of data, you’ll glaze over the good bits.
- If you can’t see the forest-like canopy as a big picture, then how will you work on the business instead of always treading water in the business?
To start, I recommend each functional role at your company have up to three leading indicators of what success looks like for that role every day and every week. Next, each role should also identify two lagging indicators that are critical to the success of that role by the end of each month or each quarter. Let’s dig a little deeper into these terms to clarify how they are different because they can literally define winning for each person in your company.
Leading KPIs are metrics that provide an early indication of future performance. By monitoring these early metrics each day or each week, organizations can identify potential issues before they become major problems and make necessary adjustments to improve performance.
They say it can take up to seven data points before you can see a trend. If you’re looking at the right things daily and weekly, you can see those trends so much faster! Imagine a daily huddle studying the up and down trends of only a handful of the most important leading indicators. You’d identify trends within seven days or seven weeks instead of your competition, who waits until a monthly executive meeting to cover “the numbers.” They won’t see the trends for up to seven months. WOAH, now that’s a big difference!
Leading KPIs are “activity metrics” showing daily and weekly activity that drives toward the final outcome you desire. Think to yourself: How would I judge if I’m having “a killer week” or an amazing day? What could I count that proves it is inevitable that I’ll have an amazing month?
Leading KPI examples might be the number of outbound sales calls per day or the number of first-time appointments you’re generating. Each role in the organization needs to narrow its focus to the Top 3 Leading KPIs of their day-to-day job. Don’t overwhelm people with the forest when just three trees will do.
As a coach, I often use the illustration that Leading KPIs should be when you are personally in the driver’s seat, feeling in control of at least 80% of those leading activities for your role. If you looked out the front windshield of the car today and saw “curve ahead,” you’d know you could apply the brake and slow down.
On the other hand, lagging KPIs would be like looking in the rearview mirror of that car. If you’ve already blown through that stop sign, there’s nothing you can do about it now, can you? Similarly, if you’re judging your job or division of the company solely on lagging metrics, you could feel very out of control because you’re always looking behind you in that mirror when it’s too late to control the outcome.
Lagging KPIs are metrics that measure past performance. These indicators provide a clear picture of how an organization or individual has performed over a specific period of time, such as the month or quarter. Examples of lagging KPIs include financial metrics, such as monthly revenue and quarterly net profits.
It’s important to note that both leading and lagging KPIs are important for measuring performance and making decisions. Leading KPIs provide valuable insights into future performance, while lagging KPIs provide a clear picture of past performance. A balanced approach that combines both types of KPIs is essential for effective decision-making and achieving organizational goals.
In fact, in an ideal world, lagging critical numbers should be the final outcomes showing the monthly/quarterly results of those daily/weekly Leading KPI activities. In other words, when you make all those phone calls and appointments as a sales team, what is the end goal you’re striving for? For sales, of course! Your lagging critical number is most likely your Sales Close Ratio percentage, as well as your Monthly Booked Revenue.
You’ll know you have the right first Critical Number if it answers the question: “What defines consistently WINNING for this role?”
In Scaling Up, our Critical Numbers are best expressed in sets of two, so there’s a Main #1 KPI, as well as a Counterbalancing #2 KPI. Imagine a teeter-totter. When your grandchild sits on one end with all their weight, it goes down. The empty seat goes up.
If an entire company spent 100% of its time, energy, and budget on “Sales dollars closed,” what could go off the rails with an empty teeter-totter seat way up in the sky? Examples might be that Gross Margin or Net Profit could be an appropriate Critical Number counterbalance to ensure the organization doesn’t overspend on marketing, sales commissions, or costs of goods sold to secure those sales. (Professional coach tip: We all wear multiple hats, so oftentimes, the counterbalancing critical number could be the two hats we wear.)
I challenge you to take a look at your many reports this month and genuinely ask yourself: What data do I genuinely need for every role in our company? If you empower and delegate those three Leading KPIs (the windshield of the car) that provide early indications of future performance, plus two Lagging KPIs (the rearview mirror of the car) that measure past performance, you might be amazed at the results. The weight of the world will be off your shoulders as an entrepreneur, and the accountability will be with each person who is in control of those metrics that are the heartbeat of your firm.
Please remember my promise to you: If you choose to read Scaling Up to see how this operational system could streamline your company, I’ll meet with you for one hour, at no charge, to answer any Q&A you have about the book. Reach out anytime at https://www.stacyeads.com. I’m here to help.
It is not a sale pitch. I’m a born and raised Edmondite who ran an Oklahoma software company for a decade, using this book and free online worksheets by themselves. I’m proof you can DIY bootstrap as much as possible with this $20 book. All you need is the willpower to scale up your business and Siri’s directions to your nearest locally-owned bookstore. Good luck!
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About Stacy Eads
Edmond native & UCO Alumna, Stacy Eads, is an award-winning “Most Admired CEO” who scaled her company as a Woman in Tech before becoming an International Scaling Up Business Coach. She now empowers other CEOs from $2M to $200M to embrace their leadership potential through quarterly strategic planning. Her talent is in high demand to CEO Coach, Train Teams, and Speak at Events in both the U.S.A. and Canada.
Stacy Eads’ career affiliations include 50 Women Making a Difference award, Circle of Excellence award, Torch Ethics award, Most Admired CEO award, Edmond Chamber & UCO Mentor, Better Business Bureau of Central Oklahoma Board of Directors, TEDx OKC Speaker Coach, and Ambassador Chairwoman for the Greater OKC Chamber of Commerce.