Definition
Lagging measures are performance indicators that provide data about past performance. These metrics are usually outcome-based and reflect results of actions and strategies that have been implemented previously. They are essential for evaluating the effectiveness of past decisions and strategic initiatives, and are often used in the Balanced Scorecard framework to assess outcomes in key business areas, such as finance, customer satisfaction, internal processes, and growth.
Common examples of lagging measures include:
- Revenue growth
- Profit margins
- Customer satisfaction scores
- Market share
- Quarterly sales results
- Annual employee turnover rate
Examples
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Revenue Growth: Reflects the increase or decrease in a company’s sales over a specific period.
Example:
- “The company reported a 10% increase in revenue growth in Q2 of 2023 compared to the same period in the previous year.”
-
Profit Margins: Shows the ratio of net income to revenue, indicating the profitability of the company.
Example:
- “The gross profit margin was 40% in the last fiscal year, down from 45% the year prior.”
-
Customer Satisfaction Scores: Measures customers’ perceptions of how well the company meets their expectations.
Example:
- “Customer satisfaction scores improved to 88% in the latest survey, up from 82% last quarter.”
-
Market Share: Represents the percentage of an industry’s sales that a particular company controls.
Example:
- “The company’s market share in the smartphone sector increased to 25% over the past year.”
-
Employee Turnover Rate: Indicates the rate at which employees leave the company over a specific period.
Example:
- “The annual employee turnover rate dropped to 12% from 15%, indicating better employee retention.”
Frequently Asked Questions (FAQs)
What is the difference between leading and lagging measures?
Leading measures predict future performance and can be influenced to achieve desired outcomes, whereas lagging measures reflect past performance and outcomes that have already occurred.
Why are lagging measures important?
Lagging measures are crucial for evaluating the effectiveness of past strategies and decisions. They provide insights into whether the company’s actions are yielding the desired results and help in making informed decisions for future planning.
Can lagging measures be used for goal setting?
Yes, lagging measures can be used to set realistic performance benchmarks and goals based on historical data. However, for actionable objectives and proactive management, leading measures are also necessary.
How do lagging measures fit within the Balanced Scorecard framework?
In the Balanced Scorecard framework, lagging measures typically align with the financial and customer perspectives, as they provide a snapshot of past performance in these areas.
Are lagging measures industry-specific?
While some lagging measures can be industry-specific, such as patient recovery rates in healthcare, many are common across industries, such as revenue, profit margins, and customer satisfaction scores.
Related Terms
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Balanced Scorecard: A strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.
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Key Performance Indicators (KPIs): Quantifiable measures used to evaluate the success of an organization in achieving its objectives for performance.
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Leading Measures: Performance indicators that predict future performance and are actionable steps that can influence desired outcomes.
Online References
- Investopedia: Performance Metrics
- Harvard Business Review: Using the Balanced Scorecard as a Strategic Management System
- Professional Accountants Guide to Performance Management
Suggested Books for Further Studies
- The Balanced Scorecard: Translating Strategy into Action by Robert S. Kaplan and David P. Norton
- Performance Measurement and Control Systems for Implementing Strategy: Text and Cases by Robert Simons
- Key Performance Indicators: Developing, Implementing, and Using Winning KPIs by David Parmenter
Accounting Basics: “Lagging Measures” Fundamentals Quiz
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