“What is measured improves.” – Peter Drucker
As a leader, you may not know it, and nobody may have told you, but you are paid to predict the future.
Banks, shareholders, bosses, contributors, investors and even your employees are all expecting you to do it. They all want to know what you are going to accomplish next.
Leading indicators are your secret weapon in this cause. Let’s look at some examples.
Weight Loss
Let’s start with a non-business example that most of us have dealt with. We’d like to lose a few pounds so we go out and buy a fancy new digital scale, new workout gear and get a membership to the gym that guarantees results. We get on the scale to start the process and see our first lagging indicator – our weight.
Why is your weight a lagging indicator? It is a result. It is the outcome of your eating and exercise habits. Like all lagging indicators, you cannot move directly. Focus and scream at the scale all you want, it will not budge – like your financial statements. To move it, you must focus on the leading indicators of how many calories you burn and the number of calories you consume.
If you control these leading indicators and create a 3,500-calorie deficit, voila, you have lost 1 pound of body fat. By controlling the leading indicators, you have made the lagging indicator do what you want it to do.
Sales
A sales funnel is a classic example of leading indicators at work. The lagging indicator at the bottom of your funnel is sales. Pouring into the top of your funnel are all the ways you can get the attention of your target market. These would include marketing, cold calling, referrals, etc. At the next level could be sales calls, followed by sales meetings, followed by actual sales. At each level of the funnel, a certain percentage of your prospects make it through to the next level.
Over time these numbers normalize and can be used to predict how many prospects make it from the top of the funnel all the way down to become actual sales. Then the game is to increase the number of prospects at the top of the funnel and increase any of the percentages along the way. The funnel is different for every business. Define yours and know your numbers, then you can begin to predict sales like a pro!
Customers & Employees
A great leading indicator for the customer and employee segments of your business is the Net Promoter Score. It asks how likely your customers or employees are to recommend your product/service/place of work to their friends and family. From their response, you create a score. Drive the score higher and you can organically increase the flow of great customers and employees to your business.
These are three of the many outcomes you desire from your business that are driven by leading indicators. Last week, you determined what your #1 and #2 most important goals were. Find the leading indicators that you must track and move to reach those goals.
By the way, I’ve seen this discipline work beautifully in businesses and in personal lives. Want to increase the romance in your marriage? Try a weekly date night. The practice of the date night will increase your focus on your spouse, which will lead to the romance. A perfect leading indicator (& a great reminder for me!).
Next week, we’ll discuss discipline #3 – Keep A Compelling Scorecard.
As always, you can reach me at 229.244.1559 if I can help in any way.
Curt Fowler is President of Fowler & Company (http://valuesdrivenresults.com/) and Director at Fowler, Holley, Rambo & Stalvey (http://valdostacpa.com/). He is dedicated to helping leaders create and achieve a compelling vision for their organizations. Curt is a syndicated business writer and keynote speaker. He has an MBA in Strategy and Entrepreneurship from the Kellogg School, is a CPA, and a pretty good guy as defined by his wife and four children.
Have a business growth topic you’d like me to cover? Send suggestions to cfowler@valuesdrivenresults.com.
