Strangely enough, I found myself thinking a great deal last week about leading and lagging indicators. A leading indicator predicts a future event; a lagging indicator is only measurable after an event has taken place. Leading and lagging indicators originated from the world of finance. But the concept and detail manifest in most of our day to day lives.
A simple example would be a personal goal of losing weight. The relevant ‘lagging indicator’ is obvious and easy – we step on our bathroom scales and we have our answer. But what would be good, or relevant, leading indicators? Two obvious options would be calorie in-take and calories burned. But as with many ‘leading’ indicators although both can appear easy to influence…both are hard to measure accurately and – unfortunately – neither are guarantees of successful outcome.
Leading and lagging indicators appear everywhere – unemployment figures are a lagging indicator for economic strength…and stock prices are a common leading indicator. In medicine and health – which is why I was thinking leading and lagging indicators in the first place – cholesterol level is a leading indicator of heart disease…and pain is a pretty impressive lagging indicator for many sorts of injury (including my bad back).
What about our industry – pharmaceutical R&D where a key ‘event’ is Regulatory approval of a New Drug Application (NDA)? What leading indicators do we have for NDA delivery in any year? Dollars spent? Clinical trails run? Unfortunately, there isn’t anything with high predictive value. It is research after all…which by definition is unpredictable
What about a service industry? An industry where revenue and profit are key outcomes? Sales performance – necessary but not enough. There is a inherent dependency on cycle time between sales and revenue. For a grocery store…this is rapid. In advertising – where a commercial can be booked months in advance – this can be slow. And in either case, the connection between sales and profit can range from direct to tortuous.
It feels – either on a personal (health) or professional (business) basis – essential to have or develop leading indicators with high predictive value. The best answer seems to be detailed analysis of historical data looking for trends and themes, experiments and opportunities, cause and effects, success and failures.
Most industries and businesses generate massive amounts of data on performance all the time. And companies seek to predict the future (and thereby ensure their future success) all the time. Where do we invest in technology (or not)…where do we recruit more talent (or not)…where do we need new solution offerings (or not)…where do we seek new customers (or not)? Are our existing customers or talent happy (or not)…our existing technology or solutions successful (or not)?
But leading indicators are never easy. High predictive value is difficult to achieve. Consider how often we talk about instinct or intuition – both of which imply a lack of quality predictive data. But equally consider how much time and effort we can spend on disputing or correcting data that are created (or the conclusions based on those data).
And of course we need clarity over the outcome we are after for our organisations – is it better for a business to be extremely profitable…or exceptionally valuable? Or for ourselves – is it better for me to be superbly healthy…or supremely happy?
The size of the challenge we face to identify quality leading indicators then, is also indicative of the size of the opportunity available. A good quality, easy to measure (crucial), straightforward to influence (as crucial), confidence instilling, sufficiently predicative, leading indicator is intricate to achieve, but invaluable to have.
Professionally or personally…
p.s. Thank you for all your care, support and friendship last week. I am so grateful.