Critical success factors (CSFs) have been used significantly to present or identify a few key factors that organisations should focus on to be successful. As a definition, critical success factors refer to "the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, ororganisation” (Rockart and Bullen, 1981). Identifying CSFs is important as it allows firms to focus their efforts on building their capabilities to meet the CSFs, or even allow firms to decide if they have the capability to build the requirements necessary to meet critical success factors (CSFs).
Success factors were already being used as a term in management when Rockart and Bullen reintroduced the concept to provide greater understanding of the concept and, at the same time, give greater clarity of how CSFs can be identified.
MAIN ASPECTS OF CSFs
CSFs are tailored to a firm's or manager's particular situation as different situations (e.g. industry, division, individual) lead to different critical success factors. Rockart and Bullen presented five key sources of CSFs: the industry, competitive strategy and industry position, environmental factors, temporal factors, and managerial position (if considered from an individual's point of view). Each of these factors is explained in greater detail below.
The Industry
An industry's set of characteristics define its own CSFs. Different industries will thus have different CSFs, for example research into the CSFs for the business services, health care and education sectors showed each to be different after starting with a hypothesis of all sectors having their CSFs as market orientation, learning orientation, entrepreneurial management style and organisational flexibility (Barrett, Balloun and Weinstein, 2005).
Competitive Strategy and Industry Position
Not all firms in an industry will have the same CSFs in a particular industry. A firm's current position in the industry (where it is relative to other competitors in the industry and also the market leader), its strategy, and its resources and capabilities will define its CSFs. For example, in 2005 Caterpillar defined a new strategy to aggressively grow revenues over the long term. As part of that new strategy, Caterpillar defined several CSFs specific to the firm which were (Gordon, 2005):
Organisational culture: "creating a culture that engaged employees, while focusing on safety and diversity"
Quality control: "accelerating the pace of quality improvement for its products, while focusing on improving new product introduction and continuous product improvement processes"
Cost focus: "implementing processes to become the highest-quality, lowest cost producer of our high-volume products in each hemispheric currency zone"
Other firms in Caterpillar's industry may or may not have the same CSFs, and are unlikely to have the same complete set.
Environmental Factors
These relate to environmental factors that are not in the control of the organisation but which an organisation must consider in developing CSFs. Examples for these are the industry regulation, political development and economic performance of a country, and population trends. For example, Ladbrokes, a UK bookmaker, will be establishing an international business in Italy where it has just acquired a business license, a requirement for foreign sports betting firms prior to establishing a business in the country (Citywire, 2007).
Another example of environmental factors affecting an organisation was the de-merger of Mondi, a paper and packaging firm, from its parent Anglo-American, a global mining firm. As Mondi had substantial assets in South Africa, it had to pursue a dual listing in order to meet the requirements of South African regulation, particularly in relation to its South African investors (Waples, 2007). Environmental CSFs for Mondi then in the short term include enhancing relations with the South African regulator and ensuring that requirements of South African investors are met.
Temporal Factors
Temporal factors are temporary or one-off CSFs resulting from a specific event necessitating their inclusion. Rockart and Bullen (1981) state that typically, a temporal CSF would not exist and they give as an example of a firm which "lost executives as a result of a plane crash requiring a critical success factor of rebuilding the executive group". However, with the evolution and integration of markets globally, one could argue that temporal factors are not temporal anymore as they could exist regularly in organisations. For example, a firm aggressively building its business internationallywould have a need for a core group of executives in its new markets. Thus, it would have the CSF of "building the executive group in a specific market" and it could have this every year for different markets.
For example, Bear Stearns has stated an aggressive expansion plan in Asia to grow existing and new business lines (Financialwire, 2007). As Bear Stearns grows its business over the next few years, a CSF in each year is to build its management teams for the business and the financial products that it seeks to expand.
Managerial Position
A final primary source of CSF is managerial position. This is important if CSFs are considered from an individual's point of view. Rockart and Bullen (1981) give an example of manufacturing managers who would typically have the following CSFs: product quality, inventory control and cash control. As examples, possible firms whose managers would have the stated CSFs mentioned by the authors include Heidelberg Cement (large global cement firm) and Tata Steel (Indian firm which now owns Corus Group, a UK steelmanufacturing firm) (Satish, 2007). In organisations with departments focused on customer relationships, a CSF for managers in these departments is customer relationship management (Mendoza et al., 2007).
HOW TO WRITE GOOD CSFs
In an attempt to write good CSFs, a number of principles could help guide writers. These principles are:
Ensure a good understanding of the environment, the industry and the company – It was shown that CSFs have five primary sources, and it is important to have a good understanding of the environment, the industry and the company in order to be able to write them well. These factors are customised for companies and individuals and the customisation results from the peculiarity of the organisation. This peculiarity stems from an organisation's strategy, current position, and resources and capabilities.
Build knowledge of competitors in the industry – While this principle can be encompassed in the previous one, it is worth highlighting separately as it is critical to have a good understanding of competitors as well in identifying an organisation's CSFs. Knowing where competitors are positioned, what their resources and capabilities are, and what strategies they will pursue can have an impact on an organisation's strategy and also resulting CSFs.
Develop CSFs which result in observable differences – A key impetus for the development of CSFs was the notion that factors which get measured are more likely to be achieved versus factors which are not measured. Thus, it is important to write CSFs which are observable or possibly measurable in certain respects such that it would be easier to focus on these factors. These don't have to be factors that are measured quantitatively as this would mimic key performance indicators; however, writing CSFs in observable terms would be helpful.
Develop CSFs that have a large impact on an organisation's performance – By definition, CSFs are the "most critical" factors for organisations or individuals. However, due care should be exercised in identifying them due to the largely qualitative approach to identification, leaving many possible options for the factors and potentially results in discussions and debate. In order to truly have the impact as envisioned when CSFs were developed, it is important to thus identify the actual CSFs, i.e. the ones which would have the largest impact on an organisation's (or individual's) performance.
FINDING INFORMATION FOR WRITING CSFs
For the organisation pursuing the CSF method, the foundation for writing good CSFs is a good understanding of the environment, the industry and the organisation. In order to do so, this requires the use of information that is readily available in the public domain. Externally, industry information can be sourced from industry associations, news articles, trade associations, prospectuses of competitors, and equity/analyst reports to name some sources. These would all be helpful in building knowledge of the environment, the industry and competitors. Internally, there should be enough sources available to management from which to build on their knowledge of the organisation. In most cases, these won't even have to be anything published as managers are expected to have a good understanding of their organisation. Together, the external and internal information already provides the basis from which discussion on CSFs could begin.
The information mentioned above can largely be accessed through the internet. Other sources which would be helpful, and not necessarily accessible through the internet, are interviews with buyers and suppliers, industry experts and independent observers.
As a conclusion, CSFs are used by organisations to give focus on a number of factors that help define its success. They help the organisation and its personnel to understand the key areas in which to invest their resources and time. Ideally, these CSFs are observable in terms of the impact on the organisation to allow it to have guidance and indications on its achievement of them.
CSFs can be utilised in both the organisation and the individual levels. Their identification is largely qualitative and can result in differing opinions in pinpointing them. Nevertheless, it is an approach that should be pursued as it provides value in giving due focus to a limited set of factors, which are deemed to be the most critical for an organisation or individual.
Reference:
http://www.coursework4you.co.uk/essays-and-dissertations/critical-success-factors.php
Mood's In ControlTuesday, March 16, 2010
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