Leading and Lag Indicators

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In the balanced scorecard measurement, there are leading and lag (lagging) indicators. Leading indicators predict future conditions, while the leading indicators evaluate the current state of business and both indicators are helpful to track changes and understand business trends. The balanced scorecard is helpful to support strategic and tactical decision-making and it has four perspectives the financial, customer, internal process, and learning and growth. The balanced scoreboard methodology is a common framework used to help monitor strategy execution and performance. The balanced scorecard supports performance management and strategic decision-making based on the analysis of various performance measures with customer satisfaction being one of the important measures for customers. Improvements in leading indicators often non-financial tend to result in better financial performance.
Financial performance metrics are common lag indicators that focus on past financial outcomes and lag strategic indicators to improve business performance. The financial performance metrics and sales revenue volumes are some of the common quantitative indicators. Since the financial indicators reflect the financial situation based on the financial statements companies should analyze the non-financial indicators affecting an organization’s financial wellbeing. Increasing revenue is necessary to improve competitiveness, but firms should also prioritize hiring and retaining top-performing staff members (Sheehan, 2009).
Financial indicators are commonly used to report data historical performance of the organization, but data from the financial indicators is also useful to forecast the future. The measurement of performance indicators provides insights on whether the implementation and execution of the strategy improve competitiveness and allows the company to grow (Raucci & Tarquinio, 2020). The financial performance indicators seek to measure whether the firms meet their financial objectives such as achieving their desired financial outcomes in a financial period and maintain liquidity and financial solvency (Omran, et al., 2021). These types of functions support the decision-making process. The use of financial indicators within a performance measurement system is essential when analyzing the company’s performance over time and in comparison to the industry where the company operates. An organization’s financial indicators are compared to competitors operating in the same industry or sector and there is an analysis of performance in specific areas.
Typically, managers prioritize maintaining and expanding the customer base to make the businesses more competitive and increase revenues. The customer level indicators typically include customer satisfaction, customer acquisition, customer retention customer profitability, and the target market share. Typically, when there are customer retention and repeat customers, it is more likely that the firm will increase its revenue and market share. The managers adopt customer and market strategies that improve competitiveness and financial performance (Ahmad & Zabri, 2016). However, firms may have a large market s...