Critical Success Factors (CSF)
CSFs, also known as Key Results Areas (KRAs), are the
essential areas of activity that must be performed well if you are to achieve
the mission, objectives or goals for your business or project. By
identifying your Critical Success Factors, you can create a common point of
reference to help you direct and measure the success of your business or
project.
As a common point of reference, CSFs help everyone in the
team to know exactly what's most important. And this helps people perform their
own work in the right context and so pull together towards the same overall
aims.
About CSFs
The idea of CSFs was first presented by D. Ronald Daniel
in the 1960s. It was then built on and popularized a decade later by John F.
Rockart, of MIT's Sloan School of Management, and has since been used
extensively to help businesses implement their strategies and projects.
Inevitably, the CSF concept has evolved, and you may have
seen it implemented in different ways. This article provides a simple
definition and approach based on Rockart's original ideas.
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."
He also concluded that
CSFs are "areas of
activity that should receive constant and careful attention from
management."
Critical Success Factors are strongly related to the
mission and strategic goals of your business or project. Whereas the mission
and goals focus on the aims and what is to be achieved, Critical Success
Factors focus on the most important areas and get to the very heart of both
what is to be achieved and how you will achieve it.
Using the Tool: An Example
CSFs are best understood by example. Consider a produce
store "Farm Fresh Produce", whose mission is:
"To become the number one produce store in Main
Street by selling the highest quality, freshest farm produce, from farm to
customer in less than 24 hours on 75% of our range and with 98% customer
satisfaction."
(For more on this
example, and how to develop your mission statement, see our article on Vision Statements and Mission Statements.)
The strategic objectives of Farm Fresh are to:
·
Gain market share locally of 25%.
·
Achieve fresh supplies of "farm to customer" in
24 hours for 75% of products.
·
Sustain a customer satisfaction rate of 98%.
·
Expand product range to attract more customers.
·
Have sufficient store space to accommodate the range of
products that customers want.
In order to identify possible CSFs, we must examine the
mission and objectives and see which areas of the business need attention so
that they can be achieved. We can start by brainstorming what the Critical
Success Factors might be (these are the "Candidate" CSFs.)
Objective
|
Candidate Critical Success Factors
|
Gain market share locally of 25%
|
Increase competitiveness versus other local stores
Attract new customers
|
Achieve fresh supplies of “farm to customer” in 24 hours for 75% of
products
|
Sustain successful relationships with local suppliers
|
Sustain a customer satisfaction rate of 98%
|
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 you have a list of Candidate CSFs, it's time to
consider what is absolutely essential and so identify the truly Critical
Success Factors.
And this is certainly the case for Farm Fresh Produce.
The first CSF that we identify from the candidate list is relationships with
local suppliers". This is absolutely essential to ensure freshness and to
source new products.
Another CSF is to attract new customers. Without new
customers, the store will be unable to expand to increase market share.
A third CSF is financing for expansion. The store's
objectives cannot be met without the funds to invest in expanding the store
space.
Figure 1:
Critical Success Factors, Missions and Goals for "Farm Fresh Produce"
Tip: How Many
CSFs?
Whilst there is no hard and fast rule, it's useful to limit
the number of CSFs to five or fewer absolute essentials. This helps your CSFs
have maximum impact, and so give good direction and prioritization to other
elements of your business or project strategy.
Using the Tool: Summary Steps
In reality, identifying your CSFs is a very iterative
process. Your mission, strategic goals and CSFs are intrinsically linked and
each will be refined as you develop them.
Here are the summary steps that, used alliteratively, will
help you identify the CSFs for your business or project:
Step One: Establish your
business's or project's mission and strategic goals.
Step Two: For each
strategic goal, ask yourself "what area of business or project activity is
essential to achieve this goal?" The answers to the question are your
candidate CSFs.
Tip:
To make sure you consider
all types of possible CSFs, you can use Rockart's CSF types as a checklist.
·
Industry – these factors result
from specific industry characteristics. These are the things that the
organization must do to remain competitive.
·
Environmental – these factors result
from macro-environmental influences on an organization. Things like the
business climate, the economy, competitors, and technological advancements are
included in this category.
·
Strategic – these factors result
from the specific competitive strategy chosen by the organization. The way in
which the company chooses to position themselves, market themselves, whether
they are high volume low cost or low volume high cost producers, etc.
·
Temporal – these factors result
from the organization's internal forces. Specific barriers, challenges,
directions, and influences will determine these CSFs.
Step Three: Evaluate the list
of candidate CSFs to find the absolute essential elements for achieving success
– these are your Criticial Success Factors.
As you identify and evaluate candidate CSFs, you may
uncover some new strategic objectives or more detailed objectives. So you may
need to define your mission, objectives and CSFs iteratively.
Step Four: Identify how you will monitor and
measure each of the CSFs
Step
Five: Communicate
your CSFs along with the other important elements of your business or project's
strategy.
Step
Six: Keep
monitoring and reevaluating your CSFs to ensure you keep progressing towards
your aims. Indeed, whilst CSFs are sometimes less tangible than measurable
goals, it is useful to identify as specifically as possible how you can measure
or monitor each one.
critical success factors in business are those keywords that are used to identify the positive and impactful outcome of a business strategy.
ReplyDeleteIt sounds very complicated, but it is straightforward to understand.