January 31, 2008
News & Opinion: New Excerpt - from Beat the Odds
Here's a brief excerpt:
The Hackett Group points out that the use of key performance indicators is not a choice between focusing on effectiveness and focusing on efficiency. The strategic advisory firm's research shows that "world-class firms use efficiency as a means to free up funds to invest in high-impact people and technology--not as an end unto itself."3 To say it another way, they use efficiency gains to fund adding additional resources to those activities (e.g., strategic themes), which can then drive fundamental business performance.
Performance metrics are either leading indicators or lagging indicators of performance. Examples of leading indicators include the following:
- Customer satisfaction
- Employee satisfaction and commitment
- Adherence to core values
- 360-degree feedback on leadership practices
- The number of supply chain alliances designed and implemented
Following are some conventional lagging indicators:
- Last quarter's net income
- Last year's return on assets
- Last year's cash flow
- The number of purchase orders processed per employee
- The average cost to process an invoice
Leading indicators give a clue to the likely future success of the organization. They indicate whether or not you are "building for the future," and can provide an early warning signal of future problems. For instance, persistent indications of customer dissatisfaction are an alarm bell about future order rates and revenues. Employee dissatisfaction can be a leading indicator of future key employee departures. Customer and employee indicators are among the strongest leading indicators of future performance. Lagging indicators are like looking in the rearview mirror. It's useful information about where you've been, but it's dangerous to steer by it. Financial performance, by its nature historical, is typically a lagging indicator.
Here's a direct link to the excerpt: http://800ceoread.com/excerpts/archives/007619.html
About Dylan Schleicher
Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.