leading-indicator-vs-lagging-indicator

Leading Indicator Vs. Lagging Indicator

Business / By / January 28, 2023

Leading indicators are also called inputs because they define what actions are necessary to achieve a measurable outcome. Lagging indicators are outputs that measure the performance of leading indicators (inputs). Therefore, a leading indicator is forward-looking (driving change), whereas a lagging indicator is primarily backward-looking (recording the past).

What is a leading indicator and a lagging indicator?

A leading indicator looks forward to future outcomes or events. Conversely, a lagging indicator looks back at whether the desired result was achieved.

Understanding a leading indicator vs. a lagging indicator

Leading and lagging indicators have become standard terms in performance management and measurement. 

However, some businesses have trouble distinguishing between the two because many indicators have both leading and lagging characteristics at the same time.

Let’s look at both types in more detail to clarify the differences:

  • Leading indicators are indicators of performance that may predict future success. They are predictive measurements. For example, a certain percentage of workers wearing hard hats on a construction site is a leading safety indicator.
  • Lagging indicators are indicators of past performance that measure how a business has performed. They are output measurements. For example, the number of accidents on a construction site is a lagging safety indicator.

No matter the industry, there is one key difference between the two indicators.

A leading indicator has the power to influence change, but a lagging indicator can only record what has happened.

What’s the right mix between leading and lagging indicators?

Ultimately, the most successful businesses use lagging and leading indicators to determine if outcomes were met or to identify new trends.

They also use lagging indicators to create leading indicators that will accelerate growth.

For instance, motivated employees are a proven lead indicator of customer satisfaction.

High-performing processes are a lead indicator of cost-efficiency. 

Key takeaways:

  • A leading indicator looks forward to future events and their outcomes. Conversely, a lagging indicator looks at past performance and whether the desired outcome was achieved.
  • Leading indicators are predictive measurements that have the power to cause change. Lagging indicators are output measurements that only record what has happened.
  • The most successful businesses will use a combination of leading and lagging indicators to measure outcomes, identify trends, and accelerate growth strategies.

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About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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