Lead & Lag KPIs Simplified
TOPP Tactical Intelligence Ltd
No-code out-of-the-box platform to build, deploy and scale your operational excellence program
A QUICK REFRESHER ON WHAT IS THE DIFFERENCE AND WHY YOU SHOULD CARE
In recent years the subject of performance governance has exploded both in business as well as academia. With technology consistently making information available in real time, business leaders are challenged with restructuring their performance governance programs to make use of the fruits that digital transformation has to offer.
Being in the field of digital performance governance since 2016, we have seen our fair share of strategy deployment plans launched only to fizzle out when management realises that they had underestimated effort and their level of problem solving know-how.
When asked to assist clients in modelling their KPI portfolio, one of the first topics that we put on the table is lead and lag KPIs and how they are correlated. This preliminary exercise helps us convince senior management that their KPI portfolio is often more complex than originally perceived and that proper analysis should be invested up front to ensure the most streamlined, sustainable, go-forward KPI governance plan.
Furthermore, this exercise is critical to ensure that senior management clearly understands and agrees that the KPI portfolio at each layer of the organisation should be governed with different cadences and that red flags of underperformance are addressed in real time using a standard remediation decision tree.
Without this, your company poses a big risk in loss of morale as team leaders will continue to create management reports without the proper decision-making leadership in place to use them.
LEAD & LAG KPIs IN A NUTSHELL
Leading KPIs are used to predict changes or trends, as well as forward looking and help to manage the performance of a system or process. They are the cause of your success. They are often referred to as process metrics, antecedent KPIs and key activity indicators.
Lagging KPIs measure performance after the business or process follow a pattern or trend and are used to confirm long-term trends. They are the effect of your actions. Lag KPIs are also referred to as resultant KPIs and result metrics.
Take a moment to have a look at the six examples in the diagram below. Note how neglecting to invest in daily dedication to each lead KPI will most likely have a negative impact on its corresponding lag KPI.
Taking into consideration the strong correlation between lead KPIs and their lags is the first step to assist senior management in making the investment to strategically model their KPI portfolio to ensure reporting efforts are optimised.
THE QUARTERLY SHOT CLOCK: HOW TO REPORT LEAD & LAG KPIs AT EACH LAYER OF MANAGEMENT
It is no secret that most companies are pressured by a semi-annual or quarterly shot clock where their Board of Directors review a set of lag KPIs which are mostly financially-focused.
Rolled-up into this short meeting are the thousands of events that have taken place over the course of the fiscal period which represent the good, the bad and the ugly of how the company's management team made use of company resources.
If the Board of Directors is satisfied with the KPIs they review, management will continue to lead as they have been doing. In periods of underperformance however, management is expected to put in place an action plan that will remedy the situation. It is here where each layer of management is called to the table to?review where their lag KPIs fell short and what lead KPIs could help them understand why.
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DISCOVERY-BASED DECISION MAKING
Tactical corrective actions can be initiated with greater speed and agility when management discovers why their presence as decision makers is necessary and urgent.?
Your KPI portfolio will help them understand this with greater speed & certainty.
When your lead KPIs don’t give you all the required insight into the behaviour of your lag KPI portfolio, you are most likely missing a critical-to-quality element and it is time to conduct further analyses often indicating a need for R&D.
Example of a KPI corrective action cadence model for a mid-size manufacturing company
As your management team continues to follow a KPI governance discipline, they will become better at discovering together where lead KPIs can unlock better performance and where knowledge gaps are holding you back as well as where R&D is required to break through performance obstacles.
SUMMING IT UP
KPI management is an ongoing process which should be constantly critiqued and fine-tuned to support the ever-changing needs of its stakeholders.
Although there is no one-size-fits all KPI solution, it is crucial that senior management understands the necessity to building a solid KPI governance foundation and understands completely the relationship between lead and lag KPIs before deploying company-scale KPI reporting activities.
In the operational world, business leaders know that KPI governance cannot be simplified into a short list of numbers that only a few people will monitor. They know it is a team effort with a critical dependency on how well their KPI portfolio has been tied to the management team's long-term vision.
Management knows that there is a much more robust set of indicators that team leaders are tracking on a daily basis which collectively contribute and feed-up to the small handful of KPIs that their Board of Directors review.
About the Author
Andrew Lenti?has been working with multinational organisations involved in business transformation initiatives since 1999. In that time he has been based in 6 different European countries as well as the United States. He has rich experiences working with business leaders at all levels of the organisational hierarchy and has spent vast amounts of time working with shared services and outsourcing centres of excellences on lean management and business restructuring implementation projects. He is one of the co-founders of?TOPP Tactical Intelligence Ltd, a European operational excellence software provider and is one of the original architects of?PRESTO P-D-C-A, the all-in-one continuous improvement business management system for growth-oriented companies and consulting firms looking to put work, strategy deployment and process improvement on autopilot.
To learn more about PRESTO P-D-C-A, read case studies and client testimonials, visit?www.toppti.com?or contact Andrew directly on?LinkedIn.