Critical Success Factors or CSFs can be referred to as a tool used by organizations to achieve their objectives. Critical Success Factors are related to the mission of your business or project. CSFs focus only on important areas and get to the heart of what is to be achieved and how to achieve it. CSFs are often known as Key Results, the essential areas of activities that should be performed well. You can create a point of reference that helps you measure the success level of your business. CSFs can help people perform their work in the right direction and right way.
Developing a Critical Success Factor is an effective management tool used by organizations in business community over the years to make sure that they meet their goals. The concept is to define different kinds of CSFs such as – tangible, achievable and measurable around which the important decisions of organization are made. All the important projects are managed on the basis of critical success factors.
The concept of Critical Success Factor was introduced by D. Ronald Daniel in 1961. Later, it was developed as critical success factors by John F. Rockart. Critical Success Factor is applied to many sectors across a variety of domains. Some people argue that critical success factor of business is based truly on identifying the right niche market that will result in growth and development. In short, CSFs are strongly related to the mission and goals of your business.
CSFs are customized as per the requirements of each organization and help the organization fulfill its mission through multiple strategies. Most of the organizations have eight to twelve CSFs that are adjusted as and when the strategies and strategic plans change. Having multiple measures can make it difficult to target things that would achieve results. Similarly, having a few will limit an organization’s ability to move ahead.
Successful organizations know the tactics of tying their CSFs to strategic plans and use their business goals to accomplish them. This can be said as an essential part of well designed performance system. Critical success factors differ from resources and are prerequisites to stay in the market. In this way, critical success factor leads to the success of a business, regardless of its position in the market.
Example of Critical Success Factors (CSFs)
There are a number of things that have to be in place in any business to achieve its ultimate goals. These factors are the Critical Success Factors that help business owners to focus only on the important areas of their business. There is no hard and fast rule of identifying CSFs. It is an iterative process where the CSFs are linked intrinsically and are refined as you develop them. There is no limit to the number of CSFs used.
CSFs can be understood better with the example given below.
We can consider a store ‘Fresh Reach’, which is a store which sells fresh products. The aim of this store is to become the number one store in the Street by selling high quality fruits and vegetables from farm to customers within 24 hours. The key objective is to sell fresh products with 98% customer satisfaction. In order to achieve this objective, the store should –
- Gain a market share of 25%
- Supply products from farm to the customers within 24 hours with a target of minimum 75 products
- Maintain a customer satisfaction rate of 98%
- Have enough storage space
- Expand the product range to attract large number of customers
To identify the possible CSFs, one should examine the objectives and view the areas of business that need attention. This can be done by identifying what might be the critical success factors associated that are known as candidate Critical Success Factors. Once you have prepared the list of candidate CSFs, then it is time to consider what CSFs are essential that result in true success. The following list helps you identify the objectives and related candidate CSFs –
- To gain market share by 25%, you should increase competitiveness versus local stores to grab the attention of new customers. The store will not be able to expand to increase the market share without new customers.
- To maintain a customer satisfaction rate of 98%, you should train the staff in such a way that they will be able to retain customers.
- To expand new product range, you should source new products locally
Critical Success Factor and Key performance Indicator
As said before, there are a number of factors in business that should be in place to help the organization achieve its goals. There can be a number of day to day tasks that need to be completed with perfection. If the CSFs are missing or underperforming, the organization cannot achieve its goals. To know if the CSFs are performing well or not, you need to consider key performance indicators (KPIs) that measure the performance of CSFs.
People often use these terms interchangeably or think that both are same concepts. To understand in an easy way, we can think CSFs as cause of success, whereas KPIs are the elements that are the effects of your actions. The key part of KPI is that they help you limit the amount of data you have make sense to. For example – the gross revenue for every business is almost a KPI, regardless of the business level. There are a number of actions that result in reduced profits. Sometimes, profits are not the right metric to track the success of business.
Critical Success Factors are the areas of the business that are essential for its success. By identifying CSFs, you can make sure that your business is well focused and avoid wastage of time/resources on less priority areas. By making CSFs, you can help your business step towards their ultimate goals.