When managing a business there are a range of ways to know if we are being successful.
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Some people try to reduce it to one: profit. This a one-dimensional approach as there are many other useful indicators that show if a business is successful.
Measurement in business is fraught with decisions. What do we measure? How do we measure it? What do we want it to tell us? What is it telling us?
All these elements are important considerations in measuring. There are some indicators we choose to measure that are lead indicators and some that are lag indicators.
Profit is simply a lag indicator, one that we can measure after the fact to tell us if we are on the right track.
Our effectiveness as a business can dramatically increase when we begin to measure lead indicators, those things that in a real time measurement or even a predicted future measurement can demonstrate whether we are on the road to success.
A lead indicator is predictive. For example, the percentage of people wearing hard hats on a site is a leading safety indicator.
A lag indicator is an output measure. For example, the number of accidents on a building site. The difference between the two is a lead indicator can influence change, a lag indicator can record what has already occurred.
Some lead indicators in business include:
Our effectiveness at communication. Are we sending and receiving the right messages in the most effective way across our business?
Customer relationships. Are they positive and long term with lots of repeat business?
Employee satisfaction. How engaged and committed are your employees and how much discretionary effort do you receive from them?
Trust. What is the level of trust between all your stakeholders within and across your organisation?
Project management capacity. How able are your internal people to manage multiple projects on time and budget and respond to external customer demands?
When making the highly strategic decisions about what to measure in your business and why, I would encourage you to be as holistic as possible and incorporate a wide variety of lead indicators that give you the opportunity to course-correct as you are measuring.
Michelle Crawford is the founder of Newcastle-based human resources firm Being More Human