Rethinking KPIs Through Lagging and Leading Indicators
One observation I've consistently noted throughout my professional experience — with both former employers and current clients — is that KPI goal setting tends to satisfy the SMART model or fit neatly into the company's appraisal process. What it often misses, however, is the question that matters most: does this KPI actually drive the outcome the business is paying for?
Consider a familiar example: Attain 16 training hours by the end of 2026.
It looks tidy on paper. It is specific, measurable, time-bound. But pause for a moment — what is this KPI really measuring? Logged hours? Or genuine capability built? And more importantly: is the business paying for the hours, or for what those hours produce?
Lagging vs. Leading Indicators
Most KPIs fall into one of two camps, and most performance systems confuse the two.
Lagging indicators tell you what already happened. They are outcome metrics — revenue achieved, turnover rate, customer satisfaction score, project margin. They confirm results, but cannot influence them after the fact. By the time a lagging indicator moves, the work that produced it is already done.
Leading indicators tell you what is likely to happen. They are input metrics — the behaviours and conditions that, when sustained, produce the lagging result. Sales conversations held, succession plans completed, defects caught before release.
A balanced scorecard needs both. Lagging indicators keep you honest about results; leading indicators give you something to influence today.
But here is where most organisations stop — and where the real problem begins.
Companies Pay for Action, Not Activity
Here is the principle I keep returning to with clients:
The business pays for action. It only tolerates activity.
A salesperson who makes 100 calls and closes nothing is busy. A salesperson who makes 30 deliberate calls and closes five has acted. An employee who attends 16 hours of training and changes nothing in their work is active. An employee who attends 12 hours of training and ships two improvements that lift team productivity has acted.
When KPIs reward activity, you get more activity. When KPIs reward action, you get results — because people optimise for whatever the scoreboard counts.
Reframing the Training KPI
Watch how the same intent transforms when we shift from activity to action.
Activity-based version (weak):
Attain 16 hours of leadership training by end of 2026.
Action-based version (strong):
Complete at least 16 hours of leadership training and implement at least two initiatives derived from that learning, resulting in a 15% increase in team productivity or a 20% reduction in process turnaround time.
Notice what changed. The training hours are still there — they remain a useful leading indicator of input. But the KPI now ties learning to action, and action to a lagging outcome the business actually values. The employee is no longer rewarded for occupying a seat in a classroom. They are rewarded for converting that learning into measurable change.
This is what a well-designed KPI looks like: a leading-action component that drives a lagging-outcome component, both measured side by side.
Designing Performance Goals That Pay for Action
Four principles I use when designing or auditing KPIs with clients:
1. Define the purpose, not just the metric. Ask: what lagging outcome is this leading indicator meant to drive? If you cannot answer that in one sentence, the KPI is decorative.
2. Replace activity verbs with action verbs. "Attend," "submit," "log," and "complete" are activity verbs. "Implement," "deliver," "convert," "resolve," and "improve" are action verbs. The verb you choose is the behaviour you will get.
3. Pair every leading KPI with a lagging anchor. Training hours alone is activity. Training hours plus productivity gain is action tied to outcome. The pairing is what makes the goal pay.
4. Build in feedback and flexibility. Action-based KPIs are harder to set and require recalibration. Quarterly check-ins are not optional — they are how you keep the action-outcome link honest as conditions change.
A Five-Tier Rating Aligned to Action
Once a KPI is action-based, the rating scale becomes far more meaningful. Using the reframed training KPI:
Outstanding (5/5) — Completed more than 19 hours (>120% of target) of leadership training and implemented 3 or more initiatives delivering greater than 18% productivity gain or greater than 24% turnaround reduction.
Exceeds (4/5) — Completed 16 to 19 hours (100%–120%) of training and implemented 2 or more initiatives delivering 15%–18% productivity gain or 20%–24% turnaround reduction.
Delivers (3/5) — Completed 14.4 to 16 hours (90%–100%) of training and implemented 2 initiatives delivering 13.5%–15% productivity gain or 18%–20% turnaround reduction.
Developing (2/5) — Completed 11.2 to 14.4 hours (70%–90%) of training and implemented 1 to 2 initiatives delivering 10.5%–13.5% productivity gain or 14%–18% turnaround reduction.
Unsatisfactory (1/5) — Completed fewer than 11.2 hours (<70%) of training, or implemented fewer than 2 initiatives, or delivered less than 10.5% productivity gain or less than 14% turnaround reduction.
Notice that every rating tier evaluates both the activity input and the action outcome. A high training count alone cannot rescue weak implementation, and strong implementation cannot fully compensate for absent learning. The two move together — which is the point.
Closing Thought
KPI design is not a numbers exercise. It is a strategy exercise dressed up as one. Every KPI is a quiet instruction to the workforce about what the business will pay for. Set it as activity, and you will be paying for hours, attendance, and motion. Set it as action, and you will be paying for change, improvement, and value created.
The next time you draft a performance goal, ask one question before you sign it off:
If an employee hits this target perfectly, will the business actually be better off?
If the honest answer is "not necessarily" — you have written an activity KPI. Rewrite it as an action one.
