Lag and lead indicators PDF

Preview

Summary

lad and lead...

Description

Explain the concept of lag and lead indicators using examples from the balanced scorecard you have developed. Lag indicators are the measures used to evaluate success with regard to the outcome of addressing defined objectives. In the BSC above we can see that the lag indicators used to evaluate the achievement of ‘Improve profitability’ are the ROI and the EPS, and the lag indicators selected to evaluate success with regard to meeting customer needs and having satisfied customers are the market share and a customer satisfaction survey. A feature of lag indicators is that they are often not directly manageable and are the result of many initiatives. The final measure is also likely to be available intermittently, and is thus not timely enough for most decisions (hence the term lag indicator). We therefore need other indicators that can be measured on an ongoing basis. This makes them timely for decision-making but, in addition to being timely, they must also be actionable—they must directly link operations and decisions and provide a suitable representation of what is happening in operations. They are used as feedback on past decisions and feed-forward to present decisions (remember, current decisions are about the future!). These indicators are measures of things that drive outcomes (the lag indicators) and are called lead indicators. We can see above that the lead indicators for the overall profitability measures are the numbers of new customers, the number of new accounts, the retention rate of customers and the profitability of products. We could also break these down further to keep a closer eye on costs. It is possible to see how managers can closely monitor customer retention, new business, product profitability and costs as a way of checking the likely achievement of the financial objectives. Similarly we can see that customer complaints can be categorised into causes and monitored to check whether the final customer satisfaction survey is likely to be favourable, whether processes are too cumbersome to understand and/or time-consuming for staff or customers, and whether the current range of products meets customer needs. An exit survey of customers closing all accounts would be a check on the way in which this bank’s products fail to meet their needs. A useful discussion with students could focus on the fact that staff training described above is designed to meet certain needs. In this case IT, product development and customer service needs were to be met. This focus on meeting training needs makes it easier to identify vital lead indicators. Attention could then go back to the strategy map to relate these measures to the achievement of objectives in other perspectives...