Critical Success Factors
This article offers a practical explanation of Critical Success Factors (CSF). After reading, you’ll understand the basics of this powerful strategy tool.
What are Critical Success Factors?
Critical Success Factors, or CSFs, are indicators for opportunities, activities or conditions required to achieve an objective within a project or mission. Critical Success Factors (CSF) differ per organisation and reflect current and future objectives.
Whether it concerns a bar, an insurance agency or contractor, it’s essential that the course of action is coordinated with those aspects that help the organisation fulfil its mission. These key variables often have a huge impact on the degree to which a company is successful and effective in reaching strategic goals within the mission and are crucial in gaining a competitive advantage.
Critical Success Factors (CSF) are therefore of vital importance for the success of an organisation. They can be created for a specific department within the organisation, for the organisation as a whole, but they are always directly linked to the company’s strategy and are created by higher management.
The concept of CSFs was developed and introduced by D. Ronald Daniel, on behalf of McKinsey & Co, in 1961. A decade later, John F. Rockart refined and popularised the concept. Ever since then, the concept has been widely applied to guide organisations in developing and implementing strategies and projects.
Relationship Critical Success Factors (CSF) and Strategic Planning
John F. Rockart emphasised that CSFs are intended to expose critical points in the organisation, particularly with regard to management. He believed that CSFs improve an organisation’s development and increase the value of procedures by revealing criteria that can hinder the achievement or failure of a specific organisational goal.
Rockart also recognised that CSFs are essential in the strategic planning process. According to him, it’s important that a company’s characteristics are marked to gain a competitive advantage.
Despite the fact that CSFs don’t provide a concrete contribution to the strategy’s progress, they do provide a significant contribution to the planning procedure of the strategy. When the CSFs are combined with a complete strategic planning method, they function as elements that are vital to an organisation’s success.
Sources Critical Success Factors (CSF)
Critical Success Factors (CSF) arise from five important sources or areas that influence an organisation. These areas differ from each other, given that different situations lead to different CSFs. Rockart and Bullen have written about the following five most important sources of CSF:
Industry Critical Success Factors (CSF)
These factors are dependent upon the specific industry characteristics. It’s important that the organisation continues to monitor these factors to be able to compete in the market. For instance, a chemical company demands specific technology and a clothing producer absolutely requires cotton. These Critical Success Factors (CSF) may influence all competitors within a specific industry, but could also affect individual organisations.
Competitive Strategy and Industry Position CSF
Not all companies in a specific industry have the same Critical Success Factors (CSF). The current position and development phase impact which Critical Success Factors (CSF) are created, as well as the available means and capacities. In addition to an organisation’s total value, the demographic and other factors, each management will create different Critical Success Factors (CSF).
Environmental Factors Critical Success Factors (CSF)
The external environment of an organisation largely determines the design of the Critical Success Factors (CSF). A PEST analysis can be used to analyse this external environment. These political, economic, social and technological factors create CSFs for every company. The organisation isn’t always able to influence these macro-environmental factors, but these must certainly be considered. Managers who work in production, for instance, must be able to guarantee quality and keep sufficient stock.
Management Critical Success Factors (CSF)
Individual or relatively small aspects within organisations may also lead to new CSFs. When certain responsibilities within a management position are considered to be crucial for an organisation’s performance as a whole, this must be closely monitored and measured.
Temporary Factors Critical Success Factors (CSF)
Temporary factors are linked to short-term situations. Although these factors can be important, they are usually not long-lasting. Temporary or one-time factors are often the result of a certain event. When an organisation expands into a new market, for instance on another continent, the CSF may concern expanding and recruiting new capable management.
Things that are measured are carried out more often than things that aren’t measured. Each Critical Success Factor (CSF) must be measurable and linked, or be related to a specific company goal.
Developing and Measuring Critical Success Factors (CSF)
There are several factors and principles that help in developing CSFs.
First, the organisation and its environment must be visualised. This may be done after the five primary sources of CSFs have been analysed, as described above. Knowledge of the competition and their strategy is a key factor in this process. Sources for analysing the external environment include: news articles, trade associations, information on buyers and suppliers, analyst reports and analyses of the financial overviews.
Subsequently, develop critical success factors that can be measured with observable differences. It’s not absolutely necessary that these are measured quantitatively; writing CSFs in observable terms is sufficient.
A good CSF starts with an action verb and describes what’s important in as few words as possible. Examples of action verbs include: inspecting, monitoring, analysing, determining, etc. An example of a CSF that starts with an action verb is: ‘monitor supply and demand and future trends’. Such CSFs are presented as an activity.
CSFs can also be presented as a requirement, for instance: ‘after the sales target of product A has been achieved, further analysis will lead to concrete requirements in the development of product B’.
Subsequently, determine a way to measure whether the Critical Success Factors (CSF) are achieved. When the CSFs are fulfilled, chances are that the general strategy will be successful. Take the right precautions to ensure that projects are carefully measured. Let’s say that the general strategy is to double the size of the organisation.
A related CSF is then growth within the current customer base. If this CSF doesn’t perform well, the strategic goal is compromised. Regularly follow and monitor each CSF.
The frequency of this depends on the strategy. A CSF linked to the budget or revenue can be kept track of each quarter. In case of a CSF connected to recruiting and hiring of new personnel, monitoring twice a year is enough.
Critical Success Factors examples
Below are several examples of Critical Success Factors (CSF). Some might be irrelevant in certain industries, whereas other industries additional CSFs should be added.
- Increase customer loyalty
- Prevent price wars
- Invest in rising markets
- Respond to changing customer needs and wishes
- Analyse and understand the capacity, potency and strategy of the competition
- Develop new technological tools to boost the production process
Now it’s your turn
What do you think? Are you familiar with the explanation of Critical Success Factors (CSF)? How do you think you can apply CSFs within your organisation or do you already use them? What do you think are essential critical success factors within the industry you’re interested in?
Share your experience and knowledge in the comments box below.
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- Rockart, J. F. (1979). Chief executives define their own data needs. Harvard business review, 57(2), 81-93.
- Hong, K. K., & Kim, Y. G. (2002). The critical success factors for ERP implementation: an organizational fit perspective. Information & management, 40(1), 25-40.
- Leidecker, J. K., & Bruno, A. V. (1984). Identifying and using critical success factors. Long range planning, 17(1), 23-32.
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