Three types of KPIs keep a business on track: lagging KPIs measure outcomes like profit and sales, leading KPIs track activities like bookings that drive results, and balancing KPIs catch what goes wrong when you over-focus on one metric. A multimillion-dollar mistake shows what happens when you chase bookings and ignore production.
Hey there. Whether you're trying to manage the financial performance, the operations, the people, the processes of your company, right? People, ops and the finances. Really, those three big areas, there are three kinds of KPIs to think about and you actually need all three around any area of concern, any topic, what are they? So it seems a little counterintuitive, but lagging is the first and most important one. Lagging, what does that mean? That means comes after. So lagging KPIs are the outcomes, the things that come at the end of a particular process. So profit and cash are very lagging. Sales is fairly lagging. Most of your financial measures are lagging metrics and we want to start with the outcomes first. So Stephen Covey said it start with the end in mind. What are the outcomes that we're looking for? What's the end state of any particular processor area or function? Those are lagging KPIs. Key performance indicators, kept promise indicators like whatever, however you want to use that. The metrics. Metrics, KPIs, it's all the same, different terms. It's unfortunate we have so many different terms, but that's what we're talking about, metrics and KPIs. So lagging is the outcome. Most financial metrics are lagging now. So what's leading? Leading are the ones that come before that let us know how the lagging is going to end up. So leading are often action oriented. The easiest, most common kinds of leading metrics are where we can see activity. So we're going to measure some activity, then we're going to produce some outcomes. So activity produces outcomes and that does the kind of simplistic way the other one would be it could be financial in nature, but it comes before. It's like an earlier state. So dollars booked is actually a measure of an activity, of bookings. Right. But it's expressed in dollars. The actual sales that are shipped invoiced or whatever is more of a lagging thing. Dollars collected in the bank or euros or whatever your currency is, that's the ultimate lagging thing, Right? So we, we want to think about leading after we think about the lagging. And the last one is balancing. So we've got the outcome, then we got the activity. Right, the lagging, the leading outcome and activity. And then. So what's balancing? Well, balancing is about what's most likely to go wrong. You can have a couple of balancing metrics, but there's probably one main one. So if you put all your focus on cost of goods and you are really trying to drive down cost of goods. What's most likely to go wrong? That's the balancing metric. So what's most likely to go wrong is like quality or defects, right? Where if we go really really cheap on the cost of our goods or service then and we're really driving that down, then other people are going to drive things down. We may have errors, we may have complaints, we may have returns, things like that. So that would be another one if we drove employee productivity till it was super, super high and we were just like super productive people. It could be people feel ground down, burnt out and unappreciated. So then employee productivity as an outcome one we might have or employee efficiency ratio, labor efficiency ratio. There are number of sort of outcome oriented things you might think about there. The balancing one then is employee burnout or dissatisfaction and then ultimate you'd find yourself with a lot of churn. So what's most likely to go wrong with whatever you're putting on? I put a lot of focus once on advanced sales and bookings and best items and things like it was very sales oriented and I took for granted purchasing and production in a company. But a lot of other things were going on in a period of growth. There were new people, there were new systems, things like that. Anyway, long story short, we made some mistakes, multimillion dollar mistakes. We had all our attention on the advanced bookings, the winning items, things like that that I didn't pay attention to, how much was in purchase and production and they bought years of goods and materials that we didn't need, wouldn't need for years to come. That's money out of my pocket. That's a multi, multimillion dollar mistake and hopefully provide some wisdom for you. So think about the outcome, the lagging first, the leading, the activity oriented and and then the balancing. What will keep you from making any mistakes along the way? Three big kinds of key KPIs or metrics and the general categories. You ought to have them around any area of concern. Hope that's helpful. We'll talk to you again next time. Keep scaling.
