Lagging, leading, and balancing KPIs: how to measure any business area

Executive overview

Most companies track outcomes but miss the metrics that predict and protect them. Every area of concern — finance, operations, people — needs all three KPI types: lagging (outcomes), leading (activity), and balancing (what can go wrong).

Track all three or your focus will create the problem you didn't see coming.

The three KPI types

• Lagging KPIs are outcomes: profit, cash, sales — the end result of a process
• Leading KPIs are activity-based: the inputs that drive those outcomes (e.g. dollars booked vs. dollars collected)
• Balancing KPIs flag the most likely failure mode when you optimise hard in one direction

Balancing KPIs in practice

• Driving down cost of goods? The balancing metric is quality or defect rate
• Pushing employee productivity high? The balancing metric is burnout or dissatisfaction
• One main balancing metric per focus area is usually enough
• Ignore it and the thing you didn't watch will become the expensive problem

A real mistake: over-indexing on leading sales metrics

• Heavy focus on advanced bookings and winning deals obscured what was happening in purchasing and production
• New people and new systems were making unnoticed errors
• Purchasing bought years' worth of materials that weren't needed
• Result: a multi-million dollar mistake caused by watching the wrong metrics