If you’ve ever developed or worked for an organization that uses the Balanced Scorecard methodology, you probably know about creating measures. You probably also know that you need to cascade your measures down to the different levels of your organization if you want to make progress towards the high level measures. Cascading measures down through your organization ensures that each activity that affects the balanced scorecard measure is monitored. But did you know that not all measures are the same?
Corporate or system-level scorecards consist of lagging measures. Lagging measures are high-level, infrequently (quarterly or annually) reported measures. They usually are reported too late to change the outcome because they are the result of actions in prior weeks, months or quarters. Some examples of lagging measures are market share, operating margin or customer satisfaction scores. Lagging measures are often linked to, and impact one another.
The next level of measure is the dimensional, or location-based, measure. These measures are the first step in breaking a lagging measure down into the parts that influence it. They can help identify where a problem originates. Dimensional measures are measures that would be for different entities within an organization; or they may be similar measures for departments within an organization. An example might be the operating margin for three different arms of an organization.
The third type of measure is the leading measure. These are the measures that roll-up into and drive both the dimensional and lagging measures. Leading measures are what most of the organization uses as they develop goals at the tactical and functional levels. They usually measure processes and activities, so they are useful in pin-pointing the “how” and “why” of a problem. However, leading and lagging measures are relative, so one department’s leading measure may be another department’s lagging measure. A couple examples of leading measures are the percent of premium pay hours or the number of lost charges captured. Both of these leading measures impact the lagging measure that pertains to operating margin.
Keep these definitions in mind as you are finalizing your goals and trying to cascade your measures throughout the organization. Developing goals using leading measures will help you and your staff monitor progress as you implement processes and activities to reach your goals. Using leading measures not only helps you lead, but shows how all of our work is related and how it contributes to the goals of different departments, different entities and the organization.