What is the difference between leading and lagging KPIs?
In performance management, leading and lagging KPIs are commonly used terms. But is their meaning completely understood?
Leading KPIs usually measure things that address what can create future value (e.g. % Employee engagement, # Innovation ideas, # Service lead time), while lagging KPIs look back at past performance (e.g. $ Sales revenue, $ Profits).
However, it is also important to keep in mind that a lagging indicator in one context can become a leading indicator in another context. For example:
- % Employee satisfaction is a lagging KPI in terms of HR policies, processes (including remuneration), but can also be considered a leading KPI for process improvements and financial results;
- $ Profit is a lagging KPI reflecting achieved financial results and a leading KPI for future investment in training.