Lagging Indicators vs. Leading Drivers

Business leaders today find themselves at a crossroads, a crucial moment where their choices will determine the fate of their organizations. Should they cling to the familiarity of lagging indicators, those rearview mirror metrics that offer a glimpse of past performance? Or, given the hyperspeed of disruptive technologies, the ongoing war for exceptional talent, and the need to quickly pivot your go-to-market strategies, should they courageously recognize the power of leading drivers—those forward-looking indicators that can indicate the path to future success?

The answer is clear: true triumph lies not in dwelling on the past but in anticipating change and adapting proactively.

The Comfort of Lagging Indicators

Lagging indicators are the tried-and-true metrics that organizations have relied on for decades. They include measures like revenue growth, lifetime value, net revenue retention, customer referral rates, and customer acquisition costs.

Think about last month’s sales reports or last quarter’s performance metrics. These data points are crucial for understanding the outcomes of previous skills, knowledge, behaviors, and individual and team actions. They are concrete, tangible, and easy to grasp. They provide a sense of security because they are based on actual, historical data; however, they offer limited utility for current or anticipated future decision-making.

We can’t change what happened last month, today. Therefore, while lagging indicators provide valuable historical context, they should only form one part of a strategic decision-making framework.

Key lagging indicators include:

• Revenue Growth: Monitors the increase or decrease in total sales over a specific period, reflecting a relationship's financial performance.

• Lifetime Value (LTV): Estimates the total revenue forecast from an account, indicating the long-term value of the relationship.

• Net Revenue Retention (NRR): Measures an account’s propensity to continue spending year over year, reflecting customer satisfaction and the relationship’s relevance.

• Customer Referral Rate: This shows the percentage of customers who proactively refer or recommend your services, which serves as a vote of confidence in the relationship.

• Customer Acquisition Cost (CAC): Calculates the sales, general, and administrative expenses associated with acquiring and retaining each account, where stronger relationships ensure the lifetime value exceeds the CAC.

While these metrics are invaluable for understanding past performance, they offer little guidance for future actions. It’s like driving a car while looking only in the rearview mirror—useful for understanding where you’ve been but not for navigating the road ahead.

The Power of Leading Drivers

In contrast, leading drivers are proactive inputs that predict future trends and outcomes. These indicators are invaluable for anticipating changes and adjusting strategies accordingly. For instance, consider a client in the elevator and escalator business: when building permits are filed, they signal potential future business. This is a classic example of a leading driver—an early indicator of future demand.

Leading drivers enable organizations to anticipate economic shifts and adapt their relationship strategies in advance. They offer a forward-looking perspective, allowing businesses to identify opportunities and mitigate risks before they fully materialize.

Key leading drivers include:

• Customer Engagement: A composite metric of enterprise-wide consumption of products and services.

• Net Promoter Score (NPS) + Sentiment Analysis: Gauges loyalty and contextual preferences, particularly in their experiences.

• Customer Health Index: A dynamic score of engagement data, product usage statistics, support ticket frequency and resolution times, and feedback scores, providing a real-time snapshot of the relationship’s health.

• Pipeline Growth: Development of new opportunities.

• Touch Cadence: Frequency of interactions with key stakeholders within the customer organization, indicating strong, evolving relationships.

• Innovation Adoption Rate: How quickly and extensively new products or features are adopted within the customer’s operations, indicating high trust and reliance in the relationship.

Implementing a Balanced Approach

Organizations need a balanced approach that incorporates the strengths of both lagging indicators and leading drivers to leverage the full potential of each.

With their concrete and reliable nature, lagging indicators are excellent for assessing the effectiveness of past business decisions. They provide a clear, retrospective view of what worked and what didn’t. However, these metrics may not necessarily guide future actions. For instance, generating revenue from a relationship in the past doesn’t guarantee continued revenue from that relationship moving forward. They are, essentially, performance validations but offer limited foresight.

Conversely, leading drivers, though inherently more uncertain, forecast future conditions. While no one has a crystal ball, these metrics are crucial for strategic planning and dynamic decision-making. They offer a proactive stance, guiding leaders to become more intentional about the relationships they choose to invest in, making preemptive adjustments as needed.

Consider the example of a partner whose reaction to crises or emergencies you’ve observed. This observation, a leading driver, can influence whether you choose to go to market with that partner in the future. Leading drivers help anticipate potential issues and opportunities, allowing for strategic adjustments before these factors manifest fully.

To implement this balanced approach effectively, tools like the Relationship Signature Index (RSI)™ and the Rich Relationship Vue™ (RRV) we’re incorporating into the Avnir Relationship Bank™ platform will be invaluable. These tools provide a comprehensive view of relationships, combining historical data with predictive insights to guide strategic decisions.

Rich Relationship Vue™ (RRV)

The RRV is a visualization tool designed to map and prioritize individual relationships within an organization’s strategic framework. It clearly represents relationship dynamics, helping leaders focus their efforts effectively.

The RRV offers:

• Visual Mapping: Displays the depth and breadth of relationships in a strategic relationship map.

• Prioritization: Highlights critical relationships, aiding leaders in resource allocation.

• Comprehensive Insights: Combines lagging indicators and leading drivers for a holistic view.

Relationship Signature Index (RSI)™

The RSI quantitatively measures the health and relevance of relationships by assessing 12 relationship-centric attributes over time. It provides detailed insights into relationship performance.

The RSI Measures:

• Attributes Measured: Evaluates factors like trust, communication frequency, mutual value, and strategic alignment.

• Temporal Analysis: Tracks trends over time, providing early warnings of potential issues or opportunities.

• Actionable Data: Converts relationship dynamics into insights for strategic adjustments.

By integrating RRV and RSI, organizations can enhance decision-making, support proactive management, and ensure strategic resource allocation. These tools help build stronger, more resilient relationships, positioning businesses to navigate future challenges with confidence.

Leading Drivers for Future Success with Avnir

It’s clear that relying solely on lagging indicators is no longer sufficient. While these metrics provide valuable insights into past performance, the strategic advantage comes from leveraging leading drivers forecasting future conditions.

At Avnir, we understand the immense value of your network. Our Composite AI platform, set for release in mid-2024, harnesses decades of Relationship Economics® insights to help professionals organize, activate, and monetize both known and hidden relationships. Two key data points that we're building into Avnir are the Relationship Signature Index (RSI)™ and the Rich Relationship Vue™ (RRV), which we care a lot about and believe are critical to your success.

Join our waitlist to see a demo and gain early access to our innovative platform. Explore how AI-driven solutions can drive growth and value for your organization. Together, let’s turn your network into your greatest asset.

David Nour is the author of 12 books translated into eight languages, including best-sellers Relationship Economics®, Co-Create, and Curve Benders. He regularly speaks at corporate meetings, industry association conferences, and academic forums on the intentional, quantifiable, and strategic value of business relationships.
Learn more at NourGroup.com/About.