Lagging indicators is a concept used a lot in the economic world. For the digital executive, it is important to know that most business goals are lagging indicators as well. Lagging indicators confirm long-term trends, but they do not predict them. In the economic world, some examples are unemployment, corporate profits and labor cost per unit of output. Interest rates are another good lagging economic indicator; rates change after severe market changes.
In a business sense, increasing revenue, year over year or month over month, is a lagging indicator. In a digital business, increasing the number of unique visitors to your website is a lagging indicator. Goals that are lagging indicators are the result but certainly not a predictor of the result. Well written strategies are usually leading indicators. Lagging indicators always report the outcome but it is too late to do anything about it. Strategy (leading indicators) should predict the goal, i.e. the outcome.
Lagging indicators are metrics that measure end-state objectives or desired outcomes. They include all financial metrics. Nonprofit and public sector enterprises have additional nonfinancial lagging indicators that measure desired outcomes, such as students who graduate, incidence of crime and lives lost to terrorism. Leading indicators are a defined set of metrics that are predictive of financial or other desired outcomes. Source: Gartner
Goals (and SMART goals) should always proceed developing strategy. The clarity of the end result, even though it is a lag indicator, cannot be overstated. Strategy, absent a clear goal, is usually useless. Unfortunately, for leaders building a digital business, it is easy to get distracted with a strategy, without know why it is important. Having a clear goal clarifies why the strategy is important.
It is very important to involve and consult with as many people as you can in framing and understanding the goal. At the end of the day, however, it is leadership’s responsibility to make the final decision on what the goals are and to inform the relevant people the decision.
Goals can be set at all levels. Certain goals set at the department or location level should tie out to overall digital business goals. Others may be specific to a department or location and may not tie out. It is important to not focus on too many goals at one time.
Goals should be specific and using the SMART goal framework helps give the goal the focus that is much needed so that a goal doesn’t sound like a vague generality. Inspirational but not effective. If the goal can’t become SMART it may be more like a vision or mission statement.
Here are the key ideas:
- Most goals are lagging indicators.
- Use the SMART goal framework to make sure the goal is focused on clear outcomes.
- Gaining consensus is helpful but make a decision as a leader.
As a bonus, here is a great video on execution (and lag goals).