Last week we discussed Plan, Do, Review.
In the review phase, this is where you measure the key metrics, get feedback and make any necessary adjustments.
Think about how you talk to your buddies about the big football game, most people only care about the final score, who won – they want to know the result, but for the coaches it is different. At halftime, the coach and the coaching staff are doing their own review of the first half and making necessary adjustment; the last thing they care about is the score. They want to know how is the offense playing – how many first downs have we had, what is the time of possession ratio, what plays have been successful and what plays have not been successful, and they want to know how is the defense playing – how many first downs have they allowed, what schemes have been successful, what schemes have not been successful, and with all of this information they make adjustments for the second half. All of this is designed to achieve their goal of winning the game. If they are ahead at halftime they do not just rest on their laurels and expect the second half to work out the same way as the first, they review their progress and make adjustments to get better.
In the measurement process, there are two groups of metrics that you want to know about, lead and lag indicators.
Lead indicators measure the actions or activity required to achieve your desired outcome or result, they “lead” the way and measure the activities that come before you see results. Lag indicators measure the outcome or result, they “lag” behind the critical activities. The measurements you are most familiar with are lag indicators – the score of the game, quarterly earnings from the stock you own or monthly sales in your own business, these are all lag indicators. They are important, they keep score, and they tell everyone around how things are proceeding, but if lag indicators do not look good – you lose the game, earnings are below projections or monthly sales fell short of expectations, and you do not know why. That is what lead indicators are for.
Unfortunately, unless you are prepared, lead indicators are often not measured or recognized for the success that they bring. They measure the meat and potatoes of getting something done but are often overshadowed by the results. Lead indicators are the stats that an astute coach wants to know at halftime, they are the numbers discussed at weekly check-ups with your team and are the ultimate drivers of your business.
If you want to lose weight, your lead indicators are calorie intake and calorie burn.
If you want to increase sales, look at the number of sales calls made.
If you want to control operations cost, you have to look at the number of man hours, the cost of goods sold and the cost of repairs and maintenance.
In the end, you care the most about results, that’s why you measure them; but the lead indicators will tell you whether or not you will get there – they will predict the future.
