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| David Cuykendall Click for Index Page |
Critical success factors are those few things that must go well to ensure success for a manager or an organization, and therefore they represent those managerial or enterprise areas that must be given special and continual attention to bring about high performance.
CSFs include issues vital to an organization's current operating activities and to its future success.
Critical success factors should not be confused with success criteria; those are outcomes of a project or achievements of an organization that are needed to consider the project a success or to esteem the organization successful.
Success criteria are defined with the objectives and may be quantified by key performance indicators.
Relation to Key Performance Indicators
- Critical success factor vs. key performance indicator (KPI): Critical success factors are elements that are vital for a strategy to be successful.
- A critical success factor drives the strategy forward; it makes or breaks the success of the strategy, (hence “critical”).
- Strategists should ask themselves 'Why would customers choose us?'. The answer is typically a critical success factor.
KPIs, on the other hand, are measures that quantify management objectives, along with a target or threshold, and enable the measurement of strategic performance.
An example:
- KPI = Number of new customers. (Measurable, quantifiable) + Threshold = 10 per week (KPI reached if 10 or more new customers, failed if <10)
- CSF = Installation of a call center for providing superior customer service (and indirectly, influencing acquiring new customers through customer satisfaction)
As a definition, critical success factors refer to the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization.
Being Practical about Critical Success Factors
It is important to realize that the specific factors relevant will vary from business to business and industry to industry. The key to using CSFs effectively is to ensure that your definition of a factor of your organizations activity which is central to its future will always apply.
How are CSFs important to your business?
Identifying CSFs are important as it allows firms to focus their efforts on building their capabilities to meet the CSFs, or even allow firms to decide if they have the capability to build the requirements necessary to meet critical success factors.
The idea is very simple:
In any organization certain factors will be critical to the success of that organization, in the sense that, if objectives associated with the factors are not achieved, the organization will fail – perhaps catastrophically so.
The following as an example of generic CSFs:
- New product development
- Good distribution
- Effective advertising
Factors that remains relevant today for many organizations.
There are four basic types of CSFs
They are:
- Industry CSFs resulting from specific industry characteristics
- Strategy CSFs resulting from the chosen competitive strategy of the business
- Environmental CSFs resulting from economic or technological changes
- Temporal CSFs resulting from internal organizational needs and changes
Things that are measured get done more often than things that are not measured.
Each CSF should be measurable and associated with a target goal. You don’t need exact measures to manage. Primary measures that should be listed include critical success levels (such as number of transactions per month) or, in cases where specific measurements are more difficult, general goals should be specified (such as moving up in an industry customer service survey).
Critical success factors can be any of the aspects of a business that are identified as vital for successful targets to be reached and maintained. Critical success factors are normally identified in such areas as production processes, employee and organization skills, functions, techniques, and technologies. The identification and strengthening of such factors may be similar.
Five Key Sources of Critical Success Factors
CSFs are tailored to a firm’s or manager’s particular situation as different situations (e.g. industry, division, individual) lead to different critical success factors. Five key sources of CSFs:
- The industry
- Competitive strategy and industry position
- Environmental factors
- Temporal factors
- Managerial position (if considered from an individual’s point of view).
Each of these factors is explained in greater detail below:
The Industry:
- There are some CSFs common to all companies operating within the same industry. Different industries will have unique, industry-specific CSFs.
- An industry’s set of characteristics define its own CSFs.
- Different industries will thus have different CSFs, for example research into the CSFs for the Call center, manufacturing, retail, business services, health care and education sectors showed each to be different after starting with a hypothesis of all sectors having their CSFs as market orientation, learning orientation, entrepreneurial management style and organizational flexibility.
- In reality each organization has its own unique goals so while thee may be some industry standard – not all firms in one industry will have identical CSFs.
- Some trade associations offer benchmarking across possible common CSFs.
Competitive Strategy and Industry Position:
- The nature of position in the marketplace or the adopted strategy to gain market share gives rise to CSFs Differing strategies and positions have different CSFs.
- Not all firms in an industry will have the same CSFs in a particular industry.
- A firm’s current position in the industry (where it is relative to other competitors in the industry and also the market leader), its strategy, and its resources and capabilities will define its CSFs.
- The values of an organization, its target market etc will all impact the CSFs that are appropriate for it at a given point in time.
Environmental Factors:
- Economic, regulatory, political, and demographic changes create CSFs for an organization.
- These relate to environmental factors that are not in the control of the organization but which an organization must consider in developing CSFs.
- Examples for these are the industry regulation, political development and economic performance of a country, and population trends.
- An example of environmental factors affecting an organization could be a de-merger.
Temporal Factors:
- These relate to short-term situations, often crises. These CSFs may be important, but are usually short-lived.
- Temporal factors are temporary or one-off CSFs resulting from a specific event necessitating their inclusion.
- Theoretically these would include a firm which “lost executives as a result of a plane crash requiring a critical success factor of rebuilding the executive group."
- Practically, with the evolution and integration of markets globally, one could argue that temporal factors are not temporal anymore as they could exist regularly in organizations.
- For example, a firm aggressively building its business internationally would have a need for a core group of executives in its new markets.
- Thus, it would have the CSF of “building the executive group in a specific market” and it could have this every year for different markets.
Managerial Position:
- An individual role may generate CSFs as performance in a specific manager’s area of responsibility may be deemed critical to the success of an organization.
- Managerial position. This is important if CSFs are considered from an individual’s point of view.
- For example, manufacturing managers who would typically have the following CSFs: product quality, inventory control and cash control.
- In organizations with departments focused on customer relationships, a CSF for managers in these departments may be customer relationship management.
In an attempt to write good CSFs, a number of principles could help to guide writers. These principles are:
- Ensure a good understanding of the environment, the industry and the company – It has been shown that CSFs have five primary sources, and it is important to have a good understanding of the environment, the industry and the company in order to be able to write them well. These factors are customized for companies and individuals and the customization results from the uniqueness of the organization.
- Build knowledge of competitors in the industry –While this principle can be encompassed in the previous one, it is worth highlighting separately as it is critical to have a good understanding of competitors as well in identifying an organization’s CSFs. Knowing where competitors are positioned, what their resources and capabilities are, and what strategies they will pursue can have an impact on an organization’s strategy and also resulting CSFs.
- Develop CSFs which result in observable differences – A key impetus for the development of CSFs was the notion that factors which get measured are more likely to be achieved versus factors which are not measured. Thus, it is important to write CSFs which are observable or possibly measurable in certain respects such that it would be easier to focus on these factors. These don’t have to be factors that are measured quantitatively as this would mimic key performance indicators; however, writing CSFs in observable terms would be helpful.
- Develop CSFs that have a large impact on an organization’s performance – By definition, CSFs are the “most critical” factors for organizations or individuals. However, due care should be exercised in identifying them due to the largely qualitative approach to identification, leaving many possible options for the factors and potentially results in discussions and debate. In order to truly have the impact as envisioned when CSFs were developed, it is important to thus identify the actual CSFs, i.e. the ones which would have the largest impact on an organization’s (or individual’s) performance.
CSF as an activity statement:
Examples: “monitor customer needs and future trends”
CSF as a requirement:
After having developed a hierarchy of goals and their success factors, further analysis will lead to concrete requirements at the lowest level of detail.
CSF as a key influence factor:
- Some CSFs might influence other CSFs or factors such as markets, technologies, etc.
- Such CSFs could be rephrased into “key influence factors” For example: “physical size” or “trained staff”.
A Critical Success Factor Method
Start with a vision:
- Mission statement
- Develop 5-6 high level goals
- Develop hierarchy of goals and their success factors
- Lists of requirements, problems, and assumptions
Examples of Critical Success Factors
- Training and education
- Quality data and reporting
- Management commitment, customer satisfaction
- Staff orientation
- Role of the quality department
- Communication to improve quality
- Continuous improvement
The Critical Success Factors are captured in the mnemonic PRIMO-F:
- People – availability, skills and attitude
- Resources – people, equipment, etc.
- Innovation – ideas and development
- Marketing – supplier relation, customer satisfaction, etc.
- Operations – continuous improvement, quality
- Finance – cash flow, available investment etc.
Following is a sample list of the more common success factors:
The factors are grouped into three categories of organizational competency; you will use your own differentiators.
Examples of Success Factors
Understanding of Market:
- Sensitivity to changing market needs
- Understanding of how and why customers buy
- Innovative response to customer needs
- Consumer loyalty
- Linkage of technology to market demand
- Link marketing to production
- Investment in growth markets
- Knowing when to shift resources from old to new products
- Long-term view of market-development and resources
- Ability to target and reach segments of market
- Identify and exploit global market
- Product-line coverage
- Short time to market for new products
- Lack of product-line overlap
- Identification and positioning to fulfill customer needs
- Unique positioning advantage
- Strong brand image and awareness
- Understanding of competitors’ capabilities and decision rules
- Sensitivity to cues for co-operation
- Prevention of price wars
- Aggressive commitment when required
- Willingness to form intercompany coalitions
- Maximizing payback from marketing response to resources
Marketing Variables:
- Distribution coverage, delivery speed, and prominence
- Co-operative trade relations
- Advertising budget and copy effectiveness
- Promotion magnitude and impact
- Sales force size and productivity
- Customer service and feedback
- High product quality
- Patent protection
- Low product cost
- Ability to deliver high value to user
- Large marketing resource budget
Decision making:
- Marketing research quality
- Information system power
- Analytic support capability
- Develop human resources
- Attract the best personnel
- Managerial ability and experience
- Quick decision and action capability
- Organizational effectiveness
