-PART 1:

Read "Chapter 2 - KPI-BSCs (Summer House Journey)"

Discuss the Lead and Lag indicator mentioned in the reading.

Lag Indicators:

Impact on Setting KPI: Lag indicators provide the historical data used to
establish the baseline for the KPI. In this case, the lag indicator is the "actual
number of miles driven." By looking at past trips (if any), we can estimate the
average time it takes to cover the 60-mile distance. This historical data becomes
the benchmark for the target miles driven at any given point in the current trip
(represented by the budget line on the dashboard).

Impact on Monitoring KPI: Lag indicators are continuously monitored during

the trip. The actual distance covered is constantly measured and compared to
the target distance (budget line) set using historical data. This allows for real-
time monitoring of the KPI, which is the ratio of actual miles driven to budgeted
miles driven.

Lag Indicators are historical data used to monitor and control ongoing business
processes.
are used to assess how well a business process is performing against its targets.
In the summerhouse example, the lag indicator is the actual number of miles
driven.
Lag information is typically stored in tables in the business's data warehouse
and is used for analyses to create a learning loop back to the strategy.

Lag Information: This refers to historical data collected while a process is

happening. In the example, lag information includes the actual miles driven at
any given time. It helps monitor the ongoing process and identify if it meets
objectives. Lag information cannot be used to change the current process itself,
but it can be used for adjustments during the process, like driving faster to
make up for lost time.

Lead Indicators:
Impact on Improving KPI: While lag indicators help us understand current
performance, lead indicators provide insights to improve future performance.
By analyzing historical lag data (past trip durations), we can identify patterns
and potential roadblocks. In this case, a lead indicator could be the discovery of
a correlation between the start time of the journey and the likelihood of
encountering traffic. This information can't be directly measured during the
current trip, but it helps us plan for future trips.
Combined Impact on KPI:

KPI Optimization: By understanding both historical lag data and the potential
impact of lead indicators, we can continuously optimize the KPI. For instance,
knowing that starting the trip before 2 PM or after 7 PM helps avoid traffic jams
(lead indicator) allows us to adjust the departure time in future trips (optimizing
the KPI). This way, the KPI becomes a more dynamic measure of success,
reflecting not just current performance against a historical benchmark but also
the potential for improvement based on insights from lead indicators.

Lead Indicators are forward-looking information used to improve or initiate

business processes and are derived from analyzing lag information and can help
predict future performance.

In the summerhouse example, lead information could be the statistically

significant correlation between the value of the KPI and the start time of the
journey, which can be used to optimize the departure time in future trips.
Lead information is typically not stored in tables but serves as a result of an
analytical process on historical data.

Lead Information: This is knowledge used to initiate or improve a process. It's

forward-looking and helps predict future outcomes. In the trip example, if it's
your first time going, you'd use lead information like directions or past
experiences with similar trips to plan your route and estimated travel time. Lead
information can also be derived from analyzing lag information. For instance,
after multiple trips you can analyze past travel times (lag information) to see
how traffic patterns affect travel duration (lead information). This can then be
used to decide the departure time for future trips (another example of lead
information).
Here's a table summarizing the key points:

Information Type Purpose Example (Summer

House Trip)

Lag Information Monitors ongoing Actual miles driven at

process, helps assess if a specific time
objectives are met

Lead Information Initiates or improves a Directions used for the

process, helps predict first trip, choosing
future outcomes departure time based
on past traffic patterns

Key Points

 Both lead and lag indicators are important for performance management.
 Lag indicators help monitor current performance, while lead indicators
help improve future performance.
 By analyzing lag information, businesses can gain insights that can be
used to develop lead indicators.
 Lead indicators can then be used to optimize business processes and
achieve strategic objectives.

PART 2
Lead and Lag Indicators for Bibica's Balanced Scorecard (Financial Dimension)
 Lead Indicators:
o Sales funnel metrics: Number of website visitors, leads generated,
conversion rates (e.g., conversion from website visitors to online
purchasers).
o Inventory turnover: Measures how efficiently Bibica manages its
inventory levels. A faster turnover indicates better cash flow and less risk
of obsolescence.
o Production efficiency: Measures output per unit of input (e.g., labor
hours, machine hours). Improved efficiency can lead to cost savings and
higher profitability.
o New product development: Number of new product ideas in
development, time to market for new products. A robust pipeline of
innovative products can drive future sales growth.
o Customer satisfaction: High customer satisfaction can lead to repeat
business and positive word-of-mouth marketing, ultimately impacting
future revenue.
 Lag Indicators:
o Return on Investment (ROI): Measures the profitability of investments,
including the new facilities or marketing campaigns.
o Profit margin: Tracks the percentage of revenue remaining after all
expenses are paid. An increasing profit margin indicates better cost
management and pricing strategies.
o Cash flow: Measures the movement of cash in and out of the company.
Positive cash flow is essential for maintaining financial stability and
growth.
o Debt-to-equity ratio: Analyzes the balance between Bibica's debt and
equity financing. A healthy ratio indicates a company's ability to manage
its debt obligations.
o Market share: Tracks Bibica's position compared to competitors in the
confectionery market.