Critical Success Factors (CSFs), sometimes also called Key Success Factors (KSFs), are competitive factors that are essential for your organisation to keep up with the competition. They are generally derived from the goals, values and overall objectives of your organisation. One organisation cannot ‘own’ the CSFs of a particular industry or market, but it can strongly influence the industry and set the bar (expectations) for others in the same industry to meet the CSFs in order to remain in the game. CSFs are therefore defined by those qualities of the industry that best fulfil the needs of customers or clients and become the benchmarks of the industry.
Over time and within industries, CSFs tend to change as markets evolve and develop. Organisations that fail to acknowledge such shifts in the industry, and consequently neglect to adapt and/or adjust to market characteristics (factors), will lose their sustained competitive advantage.
CSFs are often sorted into two categories; that is ‘qualifiers’ and ‘order winners’. Qualifiers are those characteristics which organisations need to have to even start competing in a particular market or industry. Order winners, on the other hand, are those characteristics which give organisations a competitive advantage, allowing them to win a sale. Organisations need both qualifiers and order winners, but success is achieved because of the order winners. Due to changes and developments in the industry, order winners CSFs can gradually, and typically, be downgraded to qualifying factors.
There are five steps you may want to follow in order to identify the CSFs of your organisation:
Reflect on the mission and overall values of your organisation and keep these in mind throughout the whole process. Doing a PESTLE Analysis, discussed in Edition 03 of Empowerment Through Knowledge, can help you identify the greatest external influences on your industry at any given point in time. A SWOT Analysis, discussed in Edition 10, can then help you to understand how well-equipped (or ill-equipped) your organisation is to be resilient against changes in those external factors. It will also aid you in identifying general strengths and weaknesses in order to later pinpoint your CSFs.
Based on your analysis in Step 1, you should be able to identify your organisation’s strategic objectives. This allows you to derive a number of factors that, to different degrees, may help you reach your objectives based on the current situation of the business. There are four main types of Critical Success Factors:
- Industry Factors – These result from the specifications of the industry and must be met in order to remain competitive in an industry.
- Environmental Factors – Resulting from macro-environmental effects on your business, meeting these factors is also crucial to be alive in the industry. The results from your PESTLE Analysis will help you identify these.
- Strategic Factors – These are identified by analysing your organisation’s specific strategy towards gaining competitive advantage and may include the ways in which your organisation presents itself to the public in terms of, for example, offering a high volume of goods at low cost, or a low volume of goods at high cost. The results from your SWOT Analysis will help you identify these.
- Temporal Factors – These factors are usually short-term factors as they result from internal changes within your organisation or external changes in the market. Based on the growth rate of your organisation and the market, and other time-bound criteria, they influence temporary competitive strategies.
Now you should prioritise your list of factors based on their strength to help reach objectives. This is where you can identify the ‘qualifiers’ and ‘order winners’ amongst your CSFs. You may notice that some factors are dependent on each other. To give a common example that would be true to most businesses; if an objective for the year is to increase popularity of your brand within your industry, then two factors towards achieving this may be to attract new customers and to increase your share of the market. As the latter is dependent on the former, your Critical Success Factor chosen from these two would be to attract new customers.
Once you have identified your CSFs and are keeping an eye on any changes that could result in changes in your list, you should focus on identifying the key stakeholders involved in fulfilling them. These stakeholders can be internal, such as having the right workforce with the right skills, or external, such as the right suppliers or target market. You should also identify what processes or operations should be put into play or adjusted in order to reach your CSFs. You will then be well-equipped to communicate your CSFs with the relevant stakeholders or, if they are the expert in their department, you may need to have a sit-down with them to understand possibilities for changes from their side and gain valuable feedback on how to best meet the CSFs that they are involved in.
Your final step is about identifying and laying out ways and means to monitor progress towards reaching your Critical Success Factors. The more different individuals and departments are involved in a CSF, the more crucial detailed monitoring becomes, aiding you in identifying what is working and what isn’t. CSFs are sometimes confused with Key Performance Indicators (KPIs), however, the latter are the set of measurement tools you would need in order to monitor progress towards your CSFs.
Keep an eye out for our weekly releases of Empowerment Through Knowledge, as the creation and effective use of KPIs will be discussed in a later, soon to come, edition.