Keeping Score

In his book Traction: Get a Grip on Your Business, Gino Wickman retells a story of a plane flying over the Atlantic Ocean. He writes that halfway across, the pilot announces that he has good news and bad news.

“The bad news is that the gauges aren’t working. We are hopelessly lost. I have no idea how fast we’re flying or in what direction, and I don’t know how much fuel we have left.”

“The good news is that we’re making great time!”

For many financial advisors and financial planners, much attention is paid to numbers such as Assets Under Management, Revenue and Total Households.

There’s a good reason for this – it’s a clear way to measure success.

However, these metrics are lagging indicators, not leading indicators.

What’s the difference? The book The Four Disciplines of Execution notes that “while a lag measure tells you if you’ve achieved the goal, a lead measure tells you if you are likely to achieve the goal.”

For example, the final score of a baseball game is a lag measure (i.e., it describes who won or lost) while the score during the game is a leading indicator (i.e., it predicts who is likely to win or lose) A homerun is also a lead measure in that it affects the probability of the final outcome. For a much deeper dive on the applications within baseball, Fangraphs has a great explanation of Win Expectancy.

Similarly, a person on a diet would consider weight to be a lagging indicator while calories consumed is a leading indicator.

The proactive advisor knows to focus on the lead measures with a particular emphasis on activities he or she can control. These measures can include:

  • Number of times I promoted referrals with existing clients
  • Number of social events I attended
  • Number of emails sent to prospects
  • Number of review meetings held
  • Number of articles written

The lead measures will vary based on your overall goal. The key is that the lead measure must:

  1. Predict the lagging indicator
  2. Be something within your control

Once you’ve established the leading indicators for your business, the next step is to establish a compelling scorecard. Ever noticed that people play differently when they are keeping score?

A good scorecard should quickly show how are you doing. Are you on track? Are the leading indicators moving in the right direction? Are the leading measures creating the results you want? In other words, are you winning?

If you are struggling to make progress toward your vision, perhaps you need to take a good look at how you are keeping score.

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