The Power of Leading Indicators – As Important As Ever
In the Performance Management and Balanced Scorecard worlds, we often highlight the value of leading indicators of success. An effective system should contain a mix of lagging and leading measures if the organization wishes to get a true gauge of performance. The so-called ‘leading indicators’ are measures you feel hold predictive power and have the ability to drive or lead to the success of longer-term lagging indicators. For example, tracking the number of hours spent with prospects could be a leading indicator of future revenue, a classic lagging measure. Market share, an important, but ‘lagging’, an indicator for many businesses is often driven by the leading indicator brand awareness.
Recently I came across a novel, but entirely relevant and modern, application of leading indicators in the television advertising industry. Historically the popularity of TV shows has been measured by simply counting viewers, with the venerable Nielsen ratings constituting the industry measurement standard. Advertisers with the means would naturally gravitate towards the programs with the highest number of viewers.
However, in today’s buoyant market advertisers looking to seize value have turned to new metrics in order to evaluate which programs are actually the most popular with viewers. One key metric, which we could easily categorize as a leading indicator, is social media buzz attached to a program. Sophisticated tracking devices allow advertisers to count mentions on Facebook, Twitter, and other social media venues, providing a more sophisticated assessment of a program’s current popularity and future potential.
The findings are often enlightening in an industry where billions of dollars are in play each year. For example, the ultra-popular “Glee” is ranked number 55 by a number of viewers, but when social media activity the show generates is taken into account it rockets to number 2. Antony Young, the President of an ad-buying firm Optimedia notes that “Mentions of programs on Facebook and Twitter increasingly spur people to watch them (the shows).” In other words, social media buzz is a leading indicator of future viewers. This information is vital to advertisers who naturally wish to ensure their products and messages are associated with the most relevant and popular programs.
A performance management system that contains the only end of the period, or lagging metrics is missing the crucial element of how we expect to drive future value, the predictive measures we feel are vital in generating strategic success.
Thus, an important question to ask when creating a performance management system, or in assessing its value, is: What are the leading indicators we believe will propel our future success? None of us possess a magical crystal ball that allows us to see the future with perfect clarity, but the exercise of critically examining your business and hypothesizing about which activities are key to driving future value demands a richer assessment of your situation and will generate benefits in enhanced knowledge, and often, enhanced results.
Emily Steele, “New Tools for Picking Hits,” Wall Street Journal, May 23, 2011.