Think of the data that makes up your Business Intelligence as being made up of cause and effect factors.
Those two factors are lagging indicators and leading indicators.
The difference between them isn’t complicated, but it is critical.
Lagging Indicators = Effect
These are made up of accounting and historic measures.
In other words, these are the financial ratios you build based on the income statement.
Leading Indicators = Cause
These are also historic but look at internal processes and external events that occur prior to revenue.
Some examples of what they are include the number of qualified sales leads, time to market, conversion ratios, employee satisfaction, etc.
These are the indicators you should focus on if you want to improve results.
Why the big difference?
According to Gartner, 80% of current Business Intelligence content is made up of lagging indicators.
However, all of that current Business Intelligence content should actually be made up of leading indicators.
Why the big difference? One word: value.
Lagging indicators are valuable if you only want to look at current conditions, but it’s important to look at future projections to better guide your company toward greater success.
Leading indicators give retailers the ability to “look into the crystal ball” and take proactive instead of reactive action, which can save both time and money.
So what can leading indicators do for the bottom line?
When you have the right information and understand what truly impacts success and failure in your business, the investment brings dividends quickly and abundantly.
Leading indicators are truly valuable for businesses of any size because they:
- Define what is critical for your business
- Direct where investment is needed
- Direct where focus is needed
- Act as a big data filter to help you focus on what matters
- Point you to relevant, company-specific data sources
Business Intelligence and analytics is what a particular clothing retail company uses to closely monitor what’s hot and what’s not in stores throughout Europe.
The precise control of inventory, turnover, and production has delivered improvements to the company’s bottom line by an estimated 30 percent.
The old adage “you have to spend money to make money” couldn’t be more true when it comes to investing in Business Intelligence and analytics.
This blog is an excerpt from the Retail Pro Decisions whitepaper, From KPIs to Profit: Understanding Your Leading Indicators for Better Retail Results. Get this whitepaper today to read more.