When running a business, you rely on indicators to tell you how you’re performing. Key indicators can forewarn you of poor performance, drive your team to achieve more and increase your competitiveness. When used in the right way.
Lagging indicators reflect on performance
Many metrics used are known as lagging indicators, in that they measure your outcomes. They can tell you if you’ve accomplished your goals and help you to examine your outputs.
Lagging indicators won’t predict what’s going to happen, but they’re perfect for understanding what has happened. If you do want a gauge for the future, however, you should turn to leading indicators.
Profits, revenue, expenses and customer growth are examples of lagging indicators. To measure employee engagement, the measure of engagement itself is a lagging indicator. As is retention, turnover and even recruitment - which gives wider insight into your company culture and the health of your employer brand.
Leading indicators predict the future
Leading indicators can be thought of as drivers. They make you identify the processes and variables that will help you achieve a goal faster or in a better way. They involve factors that influence an outcome. So, improving these processes will increase the chances of reaching your goal.
These indicators are often used by business leaders to adjust a strategy and determine when a goal is likely to be reached. Through leading indicators, they can proactively mitigate risk and negative impacts, catching problems before they worsen and damage lagging indicators.
In terms of employee engagement, factors that can help you improve it will be your leading indicators. It preempts your outcome, so if you can track employee attendance at company social events (for example) then you have a forewarning of good or poor engagement. Depending, of course, on the proportion of your workforce who turn up.
Leading indicators to consider
Similar metrics can look at your rewards system and whether your team interact with it. Or the number of learning opportunities that your employees sign-up for.
Disengaged workers can be identified through their lack of enthusiasm to go above-and-beyond, pessimism and negative office morale. Leading indicators can quickly identify such individuals, by tracking productivity, for instance.
Studies have also shown a link between employee engagement and person-to-person interaction. As more workers communicate online via messaging apps, email and internal social tools, their engagement decreases. Another metric to track, therefore, is the use of digital tools and the amount of in-person communication that’s occurring.
When to use leading and lagging indicators
Knowing when to use each type of indicator is essential. Broadly, if you have a high degree of confidence in what you need to do to improve employee engagement, then you’ll likely benefit from using leading indicators.
However, if you’re uncertain about the influences on your engagement, then you won’t be able to confidently identify your leading indicators. If you take over a new workforce via an acquisition, for instance, you won’t initially know what motivates them. As every organisation is different, leading indicators that work for one team may not always translate to another.
Conversely, leading indicators can also stifle innovation. Because they tell you what you should be doing, they stop out-of-the-box thinking and experimentation. If you want to try new things to improve your engagement and culture, then it’s best to leave your leading indicators for another time.
Building the right culture
Understanding the use of leading and lagging indicators is easier when seen in action. NIIT Technologies is an Indian company that targets the Fortune 1000 with IT cost-saving services. To remain competitive, the company fosters a positive culture that hinges on its vision of “New Ideas, More Value”.
It needs its employees to constantly think about service improvements for customers. Education, workshops, internal communications and contests are used to achieve this. The engagement with these projects are leading indicators for NIIT.
\ NIIT launched a content called IGNITE to encourage each department to submit new service ideas. Over 2,000 ideas were generated, sparking a second contest that measured the number of new ideas that were implemented. Following this, each department voted on the ideas with the greatest value potential for customers.
Because of the contests and workshops, the number of ‘New Idea’ campaigns have increased by 400% since implementation. The number of new ideas developed by the team (a lagging indicator) has grown from 8% to 20%.
Acting on your indicators
Once you’ve identified leading and lagging indicators to track your employee engagement, you must then act on the insights. If you discover that job satisfaction is falling (through surveys, retention, absenteeism and so forth) you must then look at the influences on this that you can control.
You can look at your workforce’s skills and workload, for example, to understand if they are being over or under-utilised. Management might be another area to consider. Because, as the saying goes, people don’t leave bad jobs, they leave bad bosses.
Assess your work environment and if people regularly complain about certain areas like the kitchen. Do they often work overtime or dislike the set working hours?
Finally, look at your pay and bonus packages, as remuneration ties closely with employee engagement. Ensure you give appropriate raises, performance-based rewards and bonuses.
Striking the right balance
Most organisations will use a mix of lagging and leading indicators at different times and in differing contexts. The ratio of each metric largely depends on each use case and department. Additionally, one department’s lagging indicator might be another one’s leading indicator.
A marketing department might see a new sales lead as proof that their campaign has worked (a lagging indicator for their team). However, the sales team will use this as a leading indicator, working towards closing a deal.
Take your time
It’s worth taking the time to identify your leading and lagging indicators. By measuring both, you’ll gain a holistic view of your entire organisation. You can quantify your employee engagement now, predict it in the future and address the factors that influence it. Giving yourself a goal to achieve, a realistic timeline to get there and waypoints along the way to know you’re on track.