Lagging Indicators – No way to lead

There is an old war story that pops up in business-school classroom discussions regularly that goes something like this: In the early days of World War I, combat planes would go out on missions in the morning and most would come back later in the day. Of those that made it back, many would be sporting bullet holes from enemy fire.

As the mechanics worked to put the planes back into fighting shape for the next day, they eventually started to “reinforce” the planes in those areas where they would typically see damage. The mechanics reasoned that while adding the extra weight of the reinforcement material would sacrifice a little range and maneuverability, it would make the planes safer, and would lead to fewer repairs next time.

Not knowing the original source of the story, I hope it is a fable, since the “real lesson” to be learned from the bullet holes is the exact opposite of what the conventional wisdom was.  The only bullet damage the mechanics ever saw was the non-lethal kind, so by definition, the mechanics should have been more concerned with reinforcing those parts of the plane where they had never seen damage.

Taken a step further, since reducing combat flight casualties was at least in part dependent on better dog-fighting, then the added weight of the plane modifications might have actually made the problems worse.

The story is instructive in many ways – it illustrates the danger of relying on certain types of “common sense” and more broadly it illustrates the inherent limitations of internal data collection. For companies with performance problems for example, often the best source of feedback aren’t your customers at all, but rather those who should be your customers but aren’t. Then again, customer feedback is a “leading indicator” and most companies tend to define performance problems in terms of lagging indicators like revenue or net income.

The airplane example is representative of a greater lesson of WWI – as the first large-scale conflict of the industrial age, it illustrated in gruesome and tragic fashion how competitive strategy and tactics that had served for generations could be rendered instantly, and irrevocably obsolete by the new technologies of the ererging industrial age.

The increasing interest that middle-market companies are showing in all things strategic reminds me that as we move farther along in this transition to the information age, executives are quickly realizing that the tactical views that have served them well in the past are not just outdated, they might even be dangerous.

Add comment November 8th, 2006