Beyond Lagging Indicators: Why Leaders Need to Switch to Lead Indicators

Too often, what got a company to where it is today won’t get it to where it needs to be tomorrow. Established organisations frequently fall into the trap of repeating the same habits, failing to realise that these routines no longer translate into future success. Over time, focus shifts from managing potential opportunities to managing risk. The result? A slow slide into brand oblivion.

Why Success Can Be a Barrier to Disruptive Innovation

From taxis missing the rise of Uber to traditional coffee brands overlooking the pod revolution, the story is the same: incumbents feel satisfied with their existing models. As Jim Collins notes in Good to Great, leaders often assume past success entitles them to future wins. They focus on incremental process gains rather than the bold changes required to survive disruption.

Shifting Focus to Measurable Business Outcomes

For decades, the prevailing belief was that business is solely a "numbers game." Leaders spend vast amounts of energy tracking external outputs: sales, ROI, cash flow, and share price. While this data is necessary, these are lagging indicators—by-products of past performance that offer limited insight into future potential.

Focusing exclusively on these figures is like looking in a rearview mirror while trying to drive a car. They hide the most revealing aspect of an organisation: the daily activities people perform to support growth. Numbers don’t run businesses; people do. To thrive, leadership must pivot from measuring external outputs to defining measurable business outcomes.

Take Apple.   Critics are quick to lampoon them when their revenue remains static.   Tim Cook, the CEO of Apple, knows too well the folly of market commentators who have judged Apple recently on their financials, rather than appreciate the deep R&D process that is hidden in the background.

“When we were idling from a revenue point of view – it was like $6 billion every year – those were some incredibly good years because you could begin to feel the pipeline getting better and better, and you could see it internally.  Externally, people couldn’t see it…Over the long haul, you just have to have faith that the strategy itself leads to financial results and not get distracted and focus on them.  Because focusing on them doesn’t really do anything.  It probably makes the results worse because you take your eye off what really matters.”

Tim Cook, CEO, Apple, Interview from Fast Company, April 2018

For Cook,  business is about people and products.  What’s most important is how people are pulling together in Apple to create products customers will love, in order to create future best sellers.

“Stock price is a result, not an achievement by itself.  For me, it’s about products and people.  Did we make the best product, and did we enrich people’s lives?  If you’re doing both of those things – and obviously those things are incredibly connected because one leads to the other – then you have a good year.”

Tim Cook, CEO, Apple, Interview from Fast Company, April 2018

Measuring the "Soft Side" for Measurable Business Outcomes

While most organisations measure employee engagement, as a generalisation, few companies are really good at measuring the "soft side" of things—or doing anything about it. Talk to most leaders about improving culture or building trust, and they often find it too “airy-fairy” to grasp. It is frequently perceived as something that cannot be properly measured or provide a serious return on investment.

However, organisations that want to alter how people behave internally must turn their attention to measurable business outcomes. Everything is measurable if we are clever enough to see what needs measuring. To truly predict how an organisation will perform in the future, you must track lead indicators that are just as vital as any hard numbers.

The hidden gem within soft measurements is that achieving them often triggers "unintended" side benefits. For example, if a leader records how many times they ask for input rather than cutting people off in meetings, they become more aware of enabling others. This lead indicator often results in a surge of successfully implemented ideas and higher overall engagement—side benefits that deceptively delight CEOs and boards.

Moving to Lead Indicators: The Future of Growth

As Marshall Goldsmith says in What Got You Here, Won’t Get You There, interpersonal behaviour is the bedrock—the difference between being great and near-great. To remain viable, organisations must take an honest look at their habits and what is being rewarded. This means:

• Pruning Habits: Cutting out behaviors that protect against risk but stifle opportunity.
• Strategic Alignment: Measuring behaviors based on the needs of your strategic plan and brand promise.
• Behavioral Feedback: Using tools and support to make interpersonal growth motivational rather than a chore.

In today’s low-trust environment, organizational growth demands that internal interactions evolve. The right answer is the ideal balance of both leading and lagging indicators. This combination provides a clear view of past performance alongside a roadmap for the future, ensuring the organisation keeps reinventing itself to delight the customer.

Lead Indicators vs. Lagging Indicators in the Future of Work

In the industrial age, work was about "outputs" - how many widgets a factory could produce. Today, work involves highly educated teams solving complex, non-linear problems. Consequently, the way we measure success must evolve.

• Lagging Indicators: These are the results. They tell you what happened (e.g., total sales last quarter). They are easy to measure but impossible to change once they occur.
• Lead Indicators: These are the predictive inputs. They measure the behaviors and activities that drive future results (e.g., the quality of team collaboration or R&D milestones).

While checking off a task list is addictive, the most important business outcomes are often the hardest to quantify. It’s not about how many tasks a team finished, but how effectively they worked together to solve a customer pain point. These lead indicators require leaders to trade micromanagement for trust.

Moving Away from a "Bottom Line" Mentality

When managers are pressured to reach rigid targets, they often impose excessive control. This "bottom-line" obsession can destroy the very relationships and autonomy needed for innovation.

A study by Zenger and Folkman researched 400,000 360-degree surveys. They found that the most successful leaders possessed a powerful combination of competencies. Sixty-six percent (66%) of leaders in the top quartile possessed both a focus on results and interpersonal skills. Meanwhile, only 13% of leaders who focused on results alone and only 9% of leaders who focused on interpersonal skills alone reached the 90% percentile. In other words, being focused on results AND interpersonal competencies equalled top leadership performance. Just being skilled in achieving results alone or even interpersonal skills alone aren’t enough.

True progress isn't a straight line from A to B; it's a messy process of pivoting through C, D, and E. Leaders must resist the temptation to control the chaos and instead empower their teams to find the right path.

It demands leaders who can avoid the natural temptation to control the situation. This entails realising something isn’t working and changing direction on the fly. Rather than deciding it’s time to cut your losses because it’s not going to work (or keep going, doing the same process). It’s acknowledging that no matter how many unexpected obstacles get thrown, that it’s time to pivot and create a new way of measuring progress. We can’t change our circumstances, but we can change how we think and respond to it.

Overcoming the "Addiction to Numbers"

Walk into any startup, and you’ll likely see a dashboard of real-time results. Often, these dashboards track the process, not the people. When rules and metrics are designed solely to reduce error through conformity, they engineer the meaning out of work.

To truly predict future performance, organisations must turn their attention to lead indicators within the "soft side" of business—culture, trust, and behaviour. These are not "airy-fairy" concepts; they are the bedrock of a viable organisation.

Finding the Right Balance for Long-Term Growth

To remain relevant, an organisation must take an honest look at its habits. Are you measuring behaviours that open new opportunities, or simply those that protect you from risk?

The most successful companies find an ideal balance between lead and lagging indicators. While lagging indicators provide a report card of where you’ve been, lead indicators provide a roadmap of where you are going. By focusing on the right measurable business outcomes, you ensure your organisation is on track to keep reinventing itself and delighting the customer.