Are you on track to hit your goals this quarter? If you’re not sure, it’s time to get better metrics. Key performance indicators (KPIs) are a powerful way to understand how you and your team are doing when it comes to your business priorities.
We recently talked KPIs with Kim Latko, who is an entrepreneur, coach, and facilitator for our 6-Month Manager Development Course. She shared the best practices she uses herself and teaches to managers as they learn how to measure what matters.
For any leader, the crucial first step is to get clear about priorities. What are the most important things your team needs to achieve this year? And what are they for the quarter? Narrow it down to three to five goals and write them down.
Next, what needs to happen to achieve these goals? Break down each one into specific milestones with deadlines. This approach turns ambitious goals into manageable steps.
Finally, select KPIs to measure progress. What does good look like? And how will you measure it?
For best results, you need a mix of three different kinds of KPIs: leading, lagging, and counterbalance. Let’s explore this trio using the example of a company with a goal to decrease shipping time from 3 days to 24 hours in the next 90 days.
Leading KPIs Measure Action
A Leading KPI is predictive and forward-looking. Leading indicators help you understand if things are running as expected. They let adjust midstream and impact results in real time.
The best leading indicators are incremental and can be influenced by individual contributors. You can select a leading KPI by asking questions like: What are the activities must happen to hit our target? What are the bottlenecks? What could get in the way that we need to keep tabs on?
In our example, the shipping department might measure daily adequate inventory or labor hours available as a leading KPI. Measuring these numbers will help the team understand if they’re on track. Not enough inventory in stock? Short handed? It’s going to be hard to get everything out of the door promptly.
With leading KPIs, you communicate which actions are most important. Team members are empowered to improve performance and efficiency related to those activities because they have quick feedback loop.
Lagging KPIs Reflect on Performance
Next up are Lagging KPIs, which look back at what has happened and measure an outcome. You either hit the target or you didn’t. Lagging incidcators include metrics like sales growth, profitability, customer satisfaction, or churn rate.
You can’t change anything about what has already taken place, so you use lagging indicators to evaluate the effectiveness of past actions and strategies.You can determine if you need to change behaviors going forward to produce different and better results.
At our example company, the Lagging KPI could be the average shipping time. This reflects how close they are to their 24-hour goal.
Counterbalance KPIs Prevent Unintended Consequences
The third and often overlooked type is the Counterbalance KPI. When you’re pushing on something, think ahead: What could I break? What might slip?
In our practical example, faster shipping means accuracy could break. It doesn’t do any good to ship in 24 hours if everyone’s getting the wrong thing. The Counterbalance KPI could be the rate of returns due to shipment error.
Make Metrics Visible
One final tip is to keep track of your KPIs in a very visual place. Share them with wider group. Teams that work adjacent to each other may be able to support each other. Managers can share wins and help each other when a team is off track. Everyone has more clarity about where you’re headed and how they contribute.
Leading, Lagging, and Counterbalance KPIs provide a complete picture so that you can guide your team towards success.