Leading Indicators Set Your Business Up for Success

Sometimes looking at data feels like reading the tea leaves to determine how to improve business outcomes.

How do you know whether the choices you are making today will help or hinder the performance of your business in the future?

Leading indicators are the answer: data that can help set you up for long-term business success.

As a business you have to do three key things well. You have to grow your customer base, deliver well for those customers, and guarantee your future ability to continue doing those two things.

Grow your customer base

More customers and customer dollars are top-line performance indicators that are key components of success.

Deliver well for your customers

Depending on your market, customers will have different expectations and needs. A custom manufacturing company provides quality service by working with their customers’ specific wants and needs. A retailer provides quality service through the customer experience and by having good product availability. A doctor provides quality service by accurately identifying the cause of patient issues.

Delivering well for your customers is a composite metric that depends both on managing your costs (operational performance companies are used to tracking) and measuring the often-hidden costs of unsatisfied customers who won’t come back next time.

Guarantee your future capabilities

Continuing to grow and serve your customers well generally comes down to planning for the future. Maybe it means R&D to meet customer desires better in the future. Or perhaps your focus is on retaining and training your employees, so you are better able to serve customers in the future.

Whatever your industry, guaranteeing your future capabilities is about being resilient to future changes that could otherwise erode your customer base or delivery to your customers.

Making the Shift to Leading Indicators

Since leading indicators are about assessing and driving actions today, they have to be designed in a very reactive way. But watch out! Design them poorly and you could overreact to the normal ebb and flow of business.

Good leading indicators balance the need to adjust today while still taking the long view of business performance.

Let’s take a short example from retail. A good leading indicator might be the number of products which are out of stock. If customers walk through the stores and see their desired products are out of stock, they might not come back. It’s clearly a leading indicator that you could take action on today. It also (by itself) doesn’t lead to an overreaction – you need to make sure that you don’t interpret a short-term out of stock as needing to massively over-order. Avoid that gotcha and you have a good leading indicator.

A bad leading indicator will fail at the goal in some way. For example, just measuring the number of products that are overstocked is a bad leading indicator because it is a reflection of either bad choices in the past or changing demand. What action would you take to fix it? There’s a somewhat tenuous relationship between excess stock and customer satisfaction or the business’s future performance. But it’s not clear what you would do today to fix it.

The trick to designing a good leading indicator is to identify what data from today will cause outcomes you care about in the future. How do your actions improve that future? And are there any risks of overreacting that you should build into your system?

As business leaders we are always looking for clues that our organization is thriving. Whether you’re comparing to your competition, or just against your own company last year, the goal is to ensure current and future success.

Leading indicators are just one tool that tells you if you’re making the right choices today to help your business tomorrow.