Critical success factors (CSFs) are the factors or activities necessary for the business to be successful. Knowing your organization’s CSFs is extremely important because it allows management to devote the resources of the firm to the capabilities that matter. Focusing on the right CSFs is fundamental to strategy execution and the planning of key strategic initiatives. So, get the right CSFs and your organization will succeed. If not, the business strategy will fail. In this article, we will explain how to get focused on the right CSFs for executives looking to improve the odds of success.
WHAT ARE CRITICAL SUCCESS FACTORS?
Critical success factors (CSFs) are the factors or activities necessary for the business to be successful. They define the key areas of performance that are crucial for an organization to achieve its goals. The key to effective CSFs is to make sure that the CSFs identified for the business apply directly to the current situation, and truly reflect the goals the business sets out to achieve.
Knowing your CSFs is extremely important. It allows management to focus the efforts and resources of the firm on the capabilities that truly matter. Therefore, getting to the organization’s true critical success factors is an activity that must be performed well.
Without a thorough exercise to uncover the organization’s true CSFs, strategic planning can veer off course quickly and usually amounts to a wish list of initiatives disconnected from the business strategy. The idea is very simple: if the organization focuses on the right CSFs, it will succeed. If not, it will fail. Not surprisingly, the stakes are high.
ARE THERE DIFFERENT TYPES OF CSFs?
There are many types of CSFs that companies use all the time. Such a wide choice can be overwhelming in deciding where to focus. For the purpose of strategy formulation and strategy execution, we classify CSFs into five types corresponding to cascading levels of planning:
- Industry CSFs result from industry conditions, including macroeconomics, policy, regulation
- Organization CSFs result from organizational requirements
- Divisional-level CSFs result from divisional requirements
- Operational CSFs result from operating requirements
- Individual CSFs result from the individual needs of the manager
Each CSF is associated with a target goal and needs to be specific and central to the organization’s success, at whichever level of planning.
The Five Types of Critical Success Factors
WHICH CSFs DO WE USE IN THE STRATEGIC PLANNING PROCESS?
During the strategic planning process, it can be extremely challenging to get everyone on the team focused and unified on what truly matters to the organization. More often than not, each team member comes prepared with a pre-determined point of view and a set of issues that reflect the member’s position in the organization. This point of view is only natural and this is why CSFs can help as a strategic planning tool.
CSFs can be a common point of reference for the team to start planning. However, there can be some confusion as to which CSFs one should use in strategic planning. Managers often ask: should we focus on CSFs at the level of the industry, organization, division, operations, or the individual manager? We can clarify this point quickly.
Briefly, the process is concerned with translating long-term strategic objectives into short-term operating requirements. As a result, best practice suggests that the CSFs required are at the organizational and division levels. At this point of analysis, the CSFs should specify what it takes to make the strategy to work at the organizational level, the division level and across divisions.
To be sure, industry CSFs are an integral part of strategy formulation. Thus, they should have been attended to already and are outside the scope of strategic planning. Similarly, operational and individual CSFs are outside the scope of the process as well. They are important, but they need to be addressed later as part of operational planning and the manager’s performance requirements.
HOW DO WE IDENTIFY THE RIGHT CSFs?
Identifying the CSFs is done in a group session. The workshop is usually part of the strategic planning process and a best practice. Ideally, the group should comprise the top leadership of the business, including private equity sponsors, if any, executive management, and divisional managers. For matrix organizations, functional heads should also attend.
Such a mix of people has the potential to drive a healthy thought exchange because each person will see issues from a different yet valid perspective. With a thorough and effective strategic planning workshop in place, the group has a very good chance to develop constructive insights and, in turn, determine the right strategic initiatives to be executed to make the strategy work. At this point of analysis, the team needs to be able to answer the following questions:
- What is the business strategy of the firm?
- What are the CSFs that we need to make the strategy work at the organizational level?
- What are the CSFs that we need to make the strategy work at the divisional level and across divisions?
- How do we satisfy these conditions?
To learn more about the specifics of the approach on how to identify the CSFs, access our article “Effective Strategic Planning: Beyond SWOT analysis”
Getting to the right CSFs is vital to the survival of the firm. Knowing your CSFs is central to strategy execution, i.e. the ability to field your business strategy. Once the CSFs are crystallized, all subsequent activities cascade from there, including strategic planning, performance management, capital budgeting, monitoring and strategic reviews. Using the wrong CSFs will cause you massive amounts of downstream work that is useless and ultimately counterproductive. Unfortunately, you won’t know until a future point in time when the strategy fails to deliver – and that will be too late.
Conversely, focusing on the right CSFs puts the business in a winning position. There are many advantages to this best practice. First, it streamlines the strategic planning process down to the five to eight CSFs that truly matter. Second, as a result of working with the right CSFs, the team will be able to develop strategic initiatives that truly count. Third, because these initiatives get tied to capital budgeting for investment and tracked over time, their impact will become gradually more visible in 1, 3 and 5-year time frames. Happily, with the right CSFs and key initiatives in place, you will see your strategy unfold with progressively stronger results over time.