Ultimate Performance: Measuring Human Resources at Work

Leading-Lagging Indicator Relationships

Businesses measure processes and outcomes as a gauge of performance. Gross Sales, Costs of Goods, Inventory, and Expenses are common examples. These are often called lagging indicators, as they measure the results of people’s efforts. In contrast, individual behaviors can be considered leading indicators, because they contribute to or produce the results.

In retail terms, the marketing department may argue that store traffic might be a leading indicator connected to the lagging indicator of sales. The training department may assert that the lagging indicator of sales is driven by the leading indicator of the percentage of employees completing a sales training course. The recruiting team may insist that better talent at the time of hire is the leading indicator driving sales. The individual attributes (that were screened for at the time of hire) can be considered leading indicators, those which contribute to or produce the desired behaviors.

In reality, these are all variables in the value creation chain. In the above examples, the leading indicator for one measure may be the lagging indicator of another. The better the understanding of the leading-lagging relationships, the better prepared an organization is for taking actions that can impact business results.

There are three sets of measurable components regarding human factors:

1. Attributes.

2. Behaviors.

3. Results.

The relationship between these three variables is presented in Figure 13.1 in a ...