5 MIN READ
Critical Success Factors
Identifying What Really Matters for Success
Sometimes it can be hard to get everyone in your team to focus on what really matters. That's where Critical Success Factors (CSFs) can help.
Identifying Critical Success Factors enable you to track and measure your progress toward achieving strategic goals - and, ultimately, to fulfilling your organization's mission.
They also provide a common point of reference so that everyone knows exactly what's most important, ensuring that tasks and projects are aligned across teams and departments.
In this article, we explore how you can identify your CSFs, how they relate to your business objectives, and how they differ from Key Performance Indicators (KPIs).
CSFs and Management Information
The concept of CSFs (also known as Key Results Areas, or KRAs) was first developed by D. Ronald Daniel, in his article "Management Information Crisis" (Harvard Business Review, September-October 1961). John F. Rockart, of MIT's Sloan School of Management, built on and popularized the idea almost two decades later.
Rockart defined CSFs as: "The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization's efforts for the period will be less than desired."
Rockart also concluded that CSFs are "areas of activity that should receive constant and careful attention from management."
The CSF concept has evolved over time, and you may have seen it implemented in different ways. This article provides a clear definition and approach.
Although there's no absolute rule, it's a good idea to limit the number of CSFs to five or fewer. This helps to ensure that each CSF has maximum impact and gives clear direction on priorities to other elements of your business.
Four Types of CSFs
Rockart identified four main types of CSFs. Each of the CSFs that you establish in your organization will likely fall into, and have been defined by, one of these groups.
- Industry factors result from the specific characteristics of your industry. These are the things that you must do to remain competitive within your sector. For example, a tech start-up might identify innovation as a CSF.
- Environmental factors result from macro-environmental influences on your organization: the business climate, the economy, your competitors, and technological advancements, for example. A PEST Analysis can help you to understand environmental factors better.
- Strategic factors result from the specific competitive strategy that your organization follows. This could include the way your organization chooses to position and market itself, and whether it's a high-volume, low-cost producer, or a low-volume, high-cost one.
- Temporal factors result from the organization's internal changes and growth and are usually short-lived. Specific barriers, challenges, directions, and influences will determine these CSFs. For example, a rapidly expanding business might have a CSF of increasing its international sales.
CSFs, KPIs and Strategic Goals
Critical Success Factors are derived from your organization's mission and strategic goals. CSFs "drill down" into these objectives to get to the heart of what you need to achieve, and how you will achieve it.
Once you've identified your CSFs, you can also develop Key Performance Indicators (KPIs). KPIs are the specific, measurable criteria that managers use to assess performance. They provide the data that enable organizations to decide whether CSFs have been met, and if goals have been achieved.
KPIs are typically more detailed and quantitative than CSFs. For example, the CSF "Substantially increase sales volume in Asian markets" could generate the KPI "Increase sales revenue in Asian markets by 12 percent against previous year, by year end."
See our article, Performance Management and KPIs, for more on this.
Six Steps to Identify and Develop Your CSFs
To identify and develop CSFs for your organization, follow these six steps:
- Establish your organization's mission and strategic goals.
- For each strategic goal, ask yourself, "Success in what area of business or project activity is essential to achieve this goal?" The answers to the question are your potential (or "candidate") CSFs.
- Evaluate your list of candidate CSFs to identify the ones that are truly essential for achieving your goals – these are your Critical Success Factors. As you identify and evaluate candidate CSFs, you may uncover some new strategic objectives, or refine existing ones. So, you may need to redefine your goals and CSFs as you go along.
- Work out how you will monitor and measure each of your CSFs.
- Clearly communicate your CSFs to those responsible for delivering them and to rest of the business.
- Continually monitor and reassess your CSFs to make sure that you stay on track toward your goals. Although CSFs can be less tangible than measurable targets or KPIs, monitor each one as specifically as possible.
Let's look at the example of a theoretical company, Freshest Farm Produce. Their mission is "to become the No 1 produce store in Main Street, by selling the highest quality, freshest farm produce to our customers." The company's strategic objectives are to:
- Gain local market share of 25 percent.
- Fulfill the "farm to customer in 24 hours for 75 percent of products" promise.
- Sustain a customer satisfaction rate of 98 percent.
- Expand its product range to attract more customers.
- Have enough space to house the range of products that customers want.
Using these objectives, the Freshest Farm planners start by brainstorming the candidate CSFs, as shown in the table below.
Candidate Critical Success Factors
Gain market share locally of 25 percent
Increase competitiveness vs other local stores
Attract new customers
Keep the "farm to customer in 24 hours for 75 percent of products" promise
Maintain and develop successful relationships with local suppliers
Sustain a customer satisfaction rate of 98 percent
Retain staff and keep up customer-focused training
Expand product range to attract more customers
Source new products locally
Extend store space to accommodate new products and customers
Secure financing for expansion
Manage building work and any disruption to the business
Once they have a list of candidate CSFs, they consider which ones are the most important.
The first CSF that Freshest Farm identify from the list is to attract new customers. Without new customers, the store will be unable to increase its market share.
The second CSF is to maintain and develop relationships with local suppliers. This is vital to ensure freshness and to source new products.
And the third CSF is to secure financing for expansion. The store cannot meet its objectives without the funds to invest in expanding its store space.
The other factors, such as retaining and training staff, are important, but don't have the immediate critical impact of the CSFs.
Critical Success Factors, also known as Key Results Areas, are the areas of your business or project that are vital to its success.
Identifying and communicating CSFs within your organization helps to ensure that your business or project is focused on its aims and objectives. That avoids wasting effort and resources on less important areas.
To identify and use CSFs, follow these six steps:
- Establish your organization's mission and goals.
- Identify your "candidate" CSFs.
- Evaluate each candidate CSF to determine which ones are the most important – these are your Critical Success Factors.
- Work out how you will assess the progress of each of your CSFs.
- Clearly communicate your CSFs to those responsible for delivering them and to the wider organization.
- Monitor your CSFs to make sure that you stay on target.
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