One session I attended on the Wednesday of the Gartner Symposium concerned the use of leading indicators in business, and enabled specifically by private sector IT departments, presented by Gartner analyst Barbara Gomolski.

In local government we are very familiar with Key Performance Indicators (KPIs) that tell us how well we are doing in comparison with our peers. Socitm services such as Better Connected and the regular annual benchmarking are good examples of these and they are widely and generally well used. However, there are some limitations to these exercises because they are fundamentally backward-looking, and as any stockbroker will tell you,  the past is not necessarily a guide to future performance. They might tell us areas we can improve in, and this might help us concentrate on those areas where we are weak, but how can they help us make strategic decisions or decide which projects to stop doing in times when money is tight?

One way we can bridge this gap is using a different set of indicators – leading indicators. These are measures that predict with some degree of confidence what might happen in the future. The concept is well-known to those in finance and other parts of business:

– sales leads are a good predictor of revenue

– the Baltic Dry index (http://en.wikipedia.org/wiki/Baltic_Dry_Index) is a good predictor of the global economy

– Gartner’s own client renewal rate and client feedback sentiment is a good predictor of their business performance next year

– demographics are a predictor of the demand for adult social care

– economic indicators are a predictor of the use of the highway network

etc.

Leading indicators therefore

–     support executive decision-making

–     improve business performance

–     help manage enterprise risk

–     improve the ability to sense and respond to changes

It is clear that some of these indicators are already being used in local government as predictors of demands on our front-line services. But what about the IT organisation?

Gomolski argued that CIOs are in an ideal position to help the business leverage leading indicators, as new digital sources of information make leading indicators better and more available via both internal systems (like CRM systems) and external sources as well. The search and exploitation of these helps the IT organisation act strategically, putting IT and business on the same team.

However, only a minority of organisations in the private sector use systems to create their own leading indicators, and Gomolski argued that this was because

–     Senior management may view it as a shared responsibility with no clear ownership

–     Finance officers view non-financial metrics as a line of business responsibility

–     Business unit leaders view it as a departmental responsibility

–     Leading indicators may be created but not shared due to lack of co-ordination between line of business functions

–   lagging indicators benefit from accuracy, standardised definitions, comparability and are well understood and unambiguous.

In fact, Gartner research indicates that over 80% of KPI regimes still rely on lagging indicators.

So what indicators might local government IT departments have access to that will help their organisations? Well, internal IT departments generally succeed by adopting a “customer intimacy” strategy – they succeed by having an intimate understanding of their organisations, the people there and their needs and strategies. Adding leading indicators to current business intelligence systems and extending existing metrics, particularly in the finance area, may be a good place to start.

Also, for their own internal operations IT departments can probably apply leading indicators in the following areas:

–       helpdesk (service desk in ITIL environments) gathers data about customer satisfaction. This may be a leading indicator of politicaal problems ahead, which is time-consuming and distracting for the CIO to deal with.

–       project management. There are well known early warning signs of impending doom in projects  which could be used as a signal to the CIO to cut the highest risk projects early, thus saving money.

–       infrastructure. Believe it or not, not all local government IT capacity management is automated. A small rise in helpdesk calls relating to particular systems might be a leading indicator that an upgrade is needed.

Gomolski recommends to use leading indicators firstly in forecasting, then strategy development, business planning, budgeting and incentive compensation – in this order. We also need a feedback loop to improve the accuracy and relevance of the indicators we use.

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