Critical Success Factors

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Critical success factors can help your business to focus on what really matters.

Critical Success Factors (CSFs) are every bit as important and straightforward as they sound! They are the areas of your business or project that are vital to its success.

They also give your people focus, and ensure that tasks and projects are aligned across teams and departments.

In this article, we explore how to identify your CSFs, how they should relate to your business objectives, and how they differ from Key Performance Indicators (KPIs).

What Are Critical Success Factors?

Essentially, critical success factors or CSFs are the elements of an organization or project that are vital to its success.

The concept of CSFs (also known as Key Results Areas or KRAs) was first developed by management consultant D. Ronald Daniel, in his article, "Management Information Crisis." [1]

John F. Rockart, of MIT's Sloan School of Management, built on and popularized the concept almost two decades later. He 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." [2]

© Quotes reproduced with kind permission of Harvard Business Review.

The Four Main Types of Critical Success Factors

Rockart identified four main types of CSFs that businesses need to consider:

1. Industry factors result from the specific characteristics of your industry. These are the things that you must do to remain competitive within your market. For example, a tech start-up might identify innovation as a CSF.
2. Environmental factors result from macro-environmental influences on your organization. For example, the business climate, the economy, your competitors, and technological advancements. A PEST Analysis   can help you to understand your environmental factors better.
3. Strategic factors result from your organization's specific competitive strategy. They might include the way your organization chooses to position and market itself. For example, whether it's a high-volume, low-cost producer; or a low-volume, high-cost one.
4. Temporal factors result from your organization's internal changes and development, and are usually short-lived. Specific barriers, challenges and influences will determine these CSFs. For example, a rapidly expanding business might have a CSF of increasing its international sales.

Critical Success Factors Versus Key Performance Indicators

The term "Critical Success Factor" is often used interchangeably with the term "Key Performance Indicator." But they are actually very different.

Critical success factors are derived from your organization's mission and objectives. They set out what you need to do to be successful and tend to be universal across organizations. For example, they might include things like:

• Increasing profits.
• Improving employee engagement.
• Improving talent acquisition and retention.
• Becoming more environmentally-friendly.

Once you've identified your CSFs, you can use them to develop more specific Key Performance Indicators (KPIs). These are the specific criteria that managers and organizations use to measure performance, and they often differ from organization to organization.

KPIs provide the data that enable a business to decide whether CSFs have been met, and if goals have been achieved. KPIs can also be used at different levels of a business – they can be used to clarify strategic, business-wide targets, or even to drill down into team and personal objectives.

KPIs are typically more detailed and quantitative than CSFs. For example, the CSF "Increase sales in Asian markets" could generate the KPI "Increase sales revenue in Asian markets by 12 percent year-on-year."

Five Steps to Identify and Develop Your CSFs

To identify and develop CSFs for your organization, follow these five steps:

1. Research Your Mission, Values and Strategy

First, take some time to look through your organization's mission   , values and strategy. What are the challenges and key priorities that your organization needs to be focusing on right now?

If you're unsure, or want to gain some background, do a PEST Analysis   to gain a better understanding of the external market factors that are influencing your organization right now. Follow this up with a SWOT Analysis   to identify how well-equipped you are at dealing with these market challenges, and to assess your organization's strengths and weaknesses. This all-round approach should help you to clarify what improvements need to be made and where.

2. Identify Your Strategic Objectives and Candidate CSFs

Identify your organization's key strategic goals – these are usually linked to your mission and values   . Then, for each objective, ask yourself, "How will we get there?" There may be a number of things that need to happen for you to achieve each of your strategic objectives. These are your "candidate" CSFs.

For example, if one of your strategic goals is to "reduce waste over the next year," you will likely need a number of critical success factors to help you to achieve this, such as:

• Reducing carbon emissions.
• Investing more in renewable energy sources.
• Improving the efficiency of supply chains.
• Developing "green" offices and processes.

3. Evaluate and Prioritize Your CSFs

Now, work through your candidate CSF's and identify only those that are truly essential to your success.

As you work through each candidate CSF, you may see that some are linked or are interdependent. For example, if have two CSFs – "to increase your share of the market" and "to attract new customers," the latter would take priority, as it is only by attracting new customers that you will likely increase your market share.

Prioritizing your candidate CSFs in this way will enable you to really focus in on the areas that your business must succeed in. You may find that some candidate CSFs are not a priority at all, in which you case you can cross them off your list.

4. Communicate Your CSFs to Key Stakeholders

Once you've identified your key CSFs, you now need to think about who is best placed to help you to achieve them. What departments or people will need to be accountable for them? What activities or operations will be key in helping you to achieve your CSFs? Do any activities or roles need to be changed or developed to do this?

Once you've done this, communicate your key CSFs to the relevant people. Make sure that everyone is clear on what they are, why you need to achieve them and how you hope to succeed. Get feedback   from these key stakeholders, too – they are often best placed to identify any roadblocks or issues that may need to be overcome to achieve success. They may also be able to offer some great ideas of their own about how to meet your CSFs.

5. Monitor and Measure Your Progress

Think about how you will monitor and measure each of your CSFs. This can be tricky as CSFs are often very broad and may require input from several different departments and stakeholders across the business.

One way to effectively monitor and measure your progress is by setting a number of different KPIs against each of your Critical Success Factors. For example, if one of your CSFs is to reduce your carbon emissions, you might create a KPI to fill in some detail, such as "Reduce carbon emissions by 30 percent by 2035."

It's also a good idea to put in place monitoring systems to keep track of your progress. This might mean assigning accountability for this task to a specific person or department. This person will be responsible for gathering data and regularly monitoring the organization's progress toward specific CSFs and KPIs.

So, you would need to think about how this person would gather data on your organization's carbon emissions going forward, where they should store that data, and how regularly they would need to update it.

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Critical Success Factors Example

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 the company's product range to attract more customers.
• Have enough space to house the range of products that customers want.

Using these objectives, Freshest Farm can begin to brainstorm   some candidate CSFs, as shown in the table below.

Once Fresh Farms has a list of its candidate CSFs, it can start to consider which ones are the most essential to its success.

The first candidate CSF that Freshest Farm identifies from the list above is to attract new customers. Without new customers, the store will be unable to increase its market share.

The second candidate is to maintain and develop relationships with local suppliers. This is vital to ensure freshness and to source new products.

And the third candidate 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 same immediate and crucial impact, so they're not critical success factors.