We struggle to understand the actual relationship between our leading and lagging indicators. How do we test and verify that our leading scorecard metrics actually predict our lagging financial results instead of just guessing?

Question

Tyler Smith · Accepted Answer

Many leadership teams select leading indicators based on assumptions rather than reality. To verify that your leading metrics actually predict your lagging results, you must perform a correlation check using your historical scorecard data. Start by selecting a critical lagging financial indicator, such as monthly closed revenue. Then, identify the leading activity metrics you believe drive that result, such as discovery calls completed or proposals delivered. Look at the data over a twelve-week period. If your discovery calls spiked in week two, did your closed revenue spike in week six or eight? If there is no corresponding movement in your lagging numbers after the typical duration of your sales cycle, you are tracking the wrong leading indicators. Do not let this become an academic research project. You do not need complex statistical software. Simply plot the two metrics on a basic timeline or review them side-by-side during a quarterly session. If the relationship is not visible, adjust your leading metrics. You might find that proposal volume is a weak predictor, but technical demonstrations completed has a near-perfect correlation with closed deals. Once you identify the true predictive relationships, double down on those metrics and ruthlessly cut the vanity activities that do not move the needle.