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:
Attributes.
Behaviors.
Results.
The relationship between these three variables is presented in Figure 13.1 in a two-tier model for leading-lagging indicator relationships. The model is as follows:
Staffing Relationships—Attributes to Behaviors.
Management Relationships—Behaviors to Results.
Attributes or human factors are referred to as underlying traits, characteristics, and capabilities. Attributes can be organized into a range of categories, such as:
Sensory—Sight, hearing, touch, smell, taste.
Physical—Capabilities to lift, push, pull, climb, twist.
Cognitive—Reading, math, analysis, mechanical comprehension, reasoning.
Work style—Confidence, out-going, conceptual, conscientious, optimistic.
There are hundreds of discrete human attributes that can be measured with standardized forms of assessments. A test that measures the ability to perform addition calculations with whole numbers is one example. Behaviors are describable, observable, measurable actions of a person. Behaviors are commonly organized into categories as well:
Working with people—Speak, listen, direct, inquire.
Working with things—List, calculate, move, adjust, start, stop.
Working individually—Initiate, complete.
Thousands of observable behaviors are called for in everyday work. Given a chance to compare and contrast, behaviors may be organized into ranges of effectiveness or proficiency, and ranked in terms of importance to job performance. Behavior rating scales can be created that provide a range of effectiveness or frequency of occurrence. This creates a standardized method for rating on-the-job behaviors.
Attributes and behaviors for a job or position are best identified through the process of Job Modeling. There are many approaches to accomplish this. A multi-method approach produces the most meaningful and useful results. This includes: job observation, review of existing job documentation and training materials, competency card sorts, structured questionnaires to define tasks, identification of position-specific and organizational variables as well as repertory grid analysis and documentation of work-related trends affecting those in the position.
Results are the final product or outcome of effort. Desired results vary from job to job and company to company. Organizations have invested significant resources in designing, building, and installing measurement systems to report on these lagging indicators. The output of these systems often drives decision making and action planning. Examples of results measures may include:
Sales, over any unit of time, such as annual sales or sales orders per day.
Parts completed per shift.
Shrinkage (unexplained losses).
Complaints resolved on first contact.
Files retrieved per shift.
Scrap rate as a percentage of materials purchased.
Worker’s compensation claims.
Reduced accounts receivable days outstanding.
To make the two-tier relationship connection, consider a sales manager faced with a goal to expand market share. She may want salespeople who can increase market penetration and increase the value of the average transaction.
For staffing, a leading-lagging indicator relationship might be: What skills and traits or attributes are linked to create effective sales behaviors? For sales management, a leading-lagging indicator relationship might be: What behaviors are linked to creating sales?
Once the job demands for attributes and behaviors have been defined, a sound measurement system can provide the data to explore and determine what relationships exist between these variables and the achievement of business results. When a company knows how to evaluate and select candidates with attributes that have a strong link or relationship to the attainment of job objectives, they create a competitive advantage. The hiring process has moved from trial and error to trial and success.