MIS 2 Assignment 6: Critical Success Factors
{ Posted on 1:46 PM
by Ariel Serenado
}
Identify and discuss the steps for "critical success factors" approach?
In any field of endeavor, there are only two options you can associate to it – a success or a failure, so as to business. In a business it is guaranteed to succeed or to fail depending on how you cope up and handle those factors called, CRITICAL SUCCESS FACTORS. Paying attention to these specific factors will surely add up edge to one’s self to start towards a new and high level of performance. Also, it is therefore a must to appreciate the value of foundation in proper planning and preparing some design efforts prior making a start to deal with improvement program. Furthermore, it should be considered that the one of the most vital factors in any business transformation is to identify the above mentioned factors.
For some sources, critical success factor is defined as the following:
• “Critical Success Factor (CSF) is the term for an element that is necessary for an organization or project to achieve its mission. It is a critical factor or activity required for ensuring the success of your business. The term was initially used in the world of data analysis, and business analysis. For example, a CSF for a successful Information Technology (IT) project is user involvement.”
• Critical success factors refer to "the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization”.
Critical Success Factors have been used significantly to present or identify a few key factors that organizations should focus on to be successful. The principle of identifying critical success factors as a basis for determining the information needs of managers as proposed by RH Daniel (1961 Harvard Business Review - HBR) has the following ideas:
In any organization certain factors will be critical to the success of that organization, in the sense that, if objectives associated with the factors are not achieved, the organization will fail - perhaps catastrophically so.
The following as an example of generic CSF's:
• New product development,
• Good distribution, and
• Effective advertising
Factors that remains relevant today for many organizations.
Another examples of Critical Success factors
Statistical research into CSF’s on organizations has shown there to be seven key areas. These CSF's are:
In any field of endeavor, there are only two options you can associate to it – a success or a failure, so as to business. In a business it is guaranteed to succeed or to fail depending on how you cope up and handle those factors called, CRITICAL SUCCESS FACTORS. Paying attention to these specific factors will surely add up edge to one’s self to start towards a new and high level of performance. Also, it is therefore a must to appreciate the value of foundation in proper planning and preparing some design efforts prior making a start to deal with improvement program. Furthermore, it should be considered that the one of the most vital factors in any business transformation is to identify the above mentioned factors.
For some sources, critical success factor is defined as the following:
• “Critical Success Factor (CSF) is the term for an element that is necessary for an organization or project to achieve its mission. It is a critical factor or activity required for ensuring the success of your business. The term was initially used in the world of data analysis, and business analysis. For example, a CSF for a successful Information Technology (IT) project is user involvement.”
• Critical success factors refer to "the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization”.
Critical Success Factors have been used significantly to present or identify a few key factors that organizations should focus on to be successful. The principle of identifying critical success factors as a basis for determining the information needs of managers as proposed by RH Daniel (1961 Harvard Business Review - HBR) has the following ideas:
In any organization certain factors will be critical to the success of that organization, in the sense that, if objectives associated with the factors are not achieved, the organization will fail - perhaps catastrophically so.
The following as an example of generic CSF's:
• New product development,
• Good distribution, and
• Effective advertising
Factors that remains relevant today for many organizations.
Another examples of Critical Success factors
Statistical research into CSF’s on organizations has shown there to be seven key areas. These CSF's are:
- Training and education
- Quality data and reporting
- Management commitment, customer satisfaction
- Staff Orientation
- Role of the quality department
- Communication to improve quality, and
- Continuous improvement
These were identified when Total Quality was at its peak, so as you can see have a bias towards quality matters. You may or may not feel that these are right or indeed critical for your organization.
There are basic types of CSF, these are:
1. Industry CSF's resulting from specific industry characteristics;
2. Strategy CSF's resulting from the chosen competitive strategy of the business;
3. Environmental CSF's resulting from economic or technological changes; and
4. Temporal CSF's resulting from internal organizational needs and changes.
Each CSF should be measurable and associated with a target goal. You don't need exact measures to manage. Primary measures that should be listed include critical success levels (such as number of transactions per month) or, in cases where specific measurements are more difficult, general goals should be specified (such as moving up in an industry customer service survey). Form the identified types of CSF, there are also identified sources these mentioned factors:
Industry: There are some CSF's common to all companies operating within the same industry. Different industries will have unique, industry-specific CSF's. An industry's set of characteristics define its own CSF's Different industries will thus have different CSF's, for example research into the CSF's for the Call centre, manufacturing, retail, business services, health care and education sectors showed each to be different after starting with a hypothesis of all sectors having their CSF's as market orientation, learning orientation, entrepreneurial management style and organizational flexibility. In reality each organization has its own unique goals so while thee may be some industry standard - not all firms in one industry will have identical CSF's. Some trade associations offer benchmarking across possible common CSF's.
Competitive position or strategy: The nature of position in the marketplace or the adopted strategy to gain market share gives rise to CSF's Differing strategies and positions have different CSF's. Not all firms in an industry will have the same CSF's 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 CSF's. The values of an organization, its target market etc will all impact the CSF's that are appropriate for it at a given point in time.
Environmental changes: Economic, regulatory, political, and demographic changes create CSF's for an organization. These relate to environmental factors that are not in the control of the organization but which an organization must consider in developing CSF's Examples for these are the industry regulation, political development and economic performance of a country, and population trends. An example of environmental factors affecting an organization could be a de-merger.
Demerger is the converse of a merger or acquisition. It describes a form of restructure in which shareholders or unitholders in the parent company gain direct ownership in a subsidiary (the ‘demerged entity’). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the ‘demerging entity’. If the parent company holds a majority stake in the demerged entity , the resulting company is referred to as the subsidiary. Demergers can also result from government intervention, usually by way of anti-trust/competition law, or through decartelization.
Temporal factors: These relate to short-term situations, often crises. These CSF's may be important, but are usually short-lived. Temporal factors are temporary or one-off CSF's resulting from a specific event necessitating their inclusion. Theoretically these would include a firm which "lost executives as a result of a plane crash requiring a critical success factor of rebuilding the executive group". Practically, with the evolution and integration of markets globally, one could argue that temporal factors are not temporal anymore as they could exist regularly in organizations. For example, a firm aggressively building its business internationally would 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.
Managerial role: An individual role may generate CSF's as performance in a specific manager's area of responsibility may be deemed critical to the success of an organization. Managerial position. This is important if CSF's are considered from an individual's point of view. For example, manufacturing managers who would typically have the following CSF's: product quality, inventory control and cash control. In organizations with departments focused on customer relationships, a CSF for managers in these departments may be customer relationship management.
In an article written by Paul Lemberg, here’s how an individual can attain a new level of performance by identifying critical factors and dealing with the approach:
Step 1: Identify your critical success factors
The first step is to identify your special set of critical success factors. You may have thought this through in the past; you may think you know them intuitively. When asked "What matters?", many executives reflexively say things like sales, customers, people, or product development. These are all good answers, and they may be correct answers, but you will want to think deeper and broader. Below is a list to start you thinking. It is set in no particular order and contains only the most obvious factors. Review the list and circle areas you believe are critical to your enterprise. You may have to add other, more specific or subtle factors to the list to describe the critical influences on your business' success.
Distribution - this could be direct sales, telesales, third- party sales, etc.
Lead generation
Customer satisfaction
Referrals
Research
Product development
Production, including quality, costing, run-rates, etc.
Sufficient investment capital, sufficient working capital
Customer support / technical support
Quality assurance
Sales process / sales life cycle
Market research
Customer education
Sales compensation
Recruiting
Personnel retention programs
Expense management
Intellectual capital development
Training
Marketing communications
Logistics
Employee equity
Executive leadership
Training and development
Corporate goals / strategic objectives
Values and beliefs
Mission/purpose
Individual accountability
Productivity & effectiveness metrics
Internal communications
Strategic and tactical planning
Executive team
Board of directors/advisors
Be specific when you identify your factors. Don't say "people" when the issue is recruiting, employee satisfaction, training or compensation. Don't say "marketing" or "sales" when the issue is lead generation. Test your assumptions by imagining a decline in a particular factor. How would that impact your business? Now imagine an improvement in that factor. How would that impact your business? In selecting factors, limit your list to no more than seven. Why seven? Cognitive theory suggests that human minds are efficient at juggling from five to nine separate trains of thought - the average and oft- quoted number is seven. Our plan is for you to keep your eye on the ball, you want to limit the balls to those you can keep your eye on.
Step 2: Establishing the measurements
Your next step is to establish a measurement scale for each critical factor. Some of these measures will be quantitative; some qualitative. Sales are an easy one: dollars of revenue measured against budget. Leads generated is also easy - how many? You can further break down sales by product and leads by sources, or you can stick to the consolidated numbers. Choose the measure which best reflects your understanding of how the issue affects your business.
Everything is measurable; you just need the right system. How can you measure your effectiveness in sales compensation? You could establish a compound metric which includes total compensation as a percentage of sales revenue, juxtaposed against goal attainment. Marketing communications is also difficult. One way to measure this is to subjectively assess the quality of your marcom pieces; you could also measure whether you have the total complement of marcom pieces you require. Or, measure whether prospects respond to your marcom efforts. Most likely you will combine all three to get one measure.
A final example is measuring your efforts in the area of your Board of Directors / Board of Advisors. Measures include: do you have one? Are all the board seats filled? Is the board effective for your intended purpose? Measuring the Board factor would likely blend each of these.
Step 3: Setting the baseline
Once you've established a measurement structure for a factor, the next step is setting a baseline.
Each factor should be set against a normalizing scale ranging from 1 to 10. Subjectively this can translate into non-performing(1), poor (2-3) , mediocre (4-5), good (6-7), great (8-9), and outstanding (10). If your sales run-rate is $10 million, determine whether that is a 1, a 5, or a 10. Your answer depends of course on whether you consider performance against budget, performance against stretch goals, or performance against "home-run-out-of-the-park" goals.
If your baseline for Board of Directors is two unfilled board seats - is that a 5 (mediocre) or a poor (2-3)? Only you can decide. Although this ultimately is a subjective process, you want to make it as objective as possible.
Step 4: Set new goals
Next, create a "gap" between where you are - your baseline - and your target for that factor. You already have a sales plan, so your gap exists between your current revenue and your budgeted revenue. You may consider your baseline a 5, and your target an 8. Implicit in this 1- 10 scale are judgements about your intentions: will reaching your budgeted revenue put you at 8 (almost great) or 10 (outstanding)? Where do you want to peg your efforts? If you've assessed your employee training at a 4 (mediocre), are you shooting for a 7 (good) or a 9 (great)? You can see from this how your measurement structure and goal system will impact how you allocate your company's resources and energy.
Step 5: Closing the gap
You now have a baseline and a target for each factor. Between them they define a factor gap - your challenge is to close it. Each gap becomes the focus of a meditation which asks the question: What will close the gap between our current level of this factor and our desired level? What possible actions will raise that measurement? You may have intuitive responses to these questions, and when appropriate, trust your gut. If need be, back that gut response with research - but only when cost effective.
(Sometimes the most cost effective research is implementation, particularly in simple matters.)
Use any idea generation process you are comfortable with. Develop several possible initiatives to raise the level of that factor. With luck your ideas will work together and harmonize in terms of impact or implementation requirements. If you create competing ideas, select the best alternatives. Choose based on return on investment, required resources, scheduling conflicts, time to impact, total cost, and likelihood of success versus risk of failure.
Depending on the specific factor, and the size of the gap, you may plan to close it in stages or shoot the gap all at once. You can launch one initiative at a time, or implement several initiatives in parallel. You may find my GamePlan!" methods useful in designing your gap-closing programs.
Once you launch your gap-closing initiatives, continually measure your results. Report your progress to participants and stakeholders, and post it publicly.
Step 6: “The Ben Franklin Rotation Program”
Each factor also gets a weight, which enables you to develop an overall score. Each week, re-rate all the factors on the score sheet, and graph your progress. You may also graph the overall score. Publish the score sheet and the graphs. You can establish a reward system based on individual progress, or, using the factor weights, you can develop a bonus structure which incentivizes total progress. This simple system will focus your attention on improving each one of your critical success factors. With carefully selected factors, you insure both rapid performance increases and balance in your company. This system simply shows the projection of the progress, so as to monitor if you are improving or not. It’s one way also on assessing the firm’s response on the critical factors.
Generally, the advantages of identifying CSFs are that they are simple to understand; they help focus attention on major concerns; they are easy to communicate to coworkers; they are easy to monitor; and they can be used in concert with strategic planning methodologies. Using critical success factors as an isolated event does not represent critical strategic thinking. But when used in conjunction with a planning process, identifying CSFs is extremely important because it keeps people focused. Clarifying the priority order of CSFs, measuring results, and rewarding superior performance will improve the odds for long-term success as well.
Sources:
http://www.e-competitors.com/Strategy/SBUPlanning/SBUPositioning/SBU_Critical.htm
http://rapidbi.com/created/criticalsuccessfactors.html
There are basic types of CSF, these are:
1. Industry CSF's resulting from specific industry characteristics;
2. Strategy CSF's resulting from the chosen competitive strategy of the business;
3. Environmental CSF's resulting from economic or technological changes; and
4. Temporal CSF's resulting from internal organizational needs and changes.
Each CSF should be measurable and associated with a target goal. You don't need exact measures to manage. Primary measures that should be listed include critical success levels (such as number of transactions per month) or, in cases where specific measurements are more difficult, general goals should be specified (such as moving up in an industry customer service survey). Form the identified types of CSF, there are also identified sources these mentioned factors:
Industry: There are some CSF's common to all companies operating within the same industry. Different industries will have unique, industry-specific CSF's. An industry's set of characteristics define its own CSF's Different industries will thus have different CSF's, for example research into the CSF's for the Call centre, manufacturing, retail, business services, health care and education sectors showed each to be different after starting with a hypothesis of all sectors having their CSF's as market orientation, learning orientation, entrepreneurial management style and organizational flexibility. In reality each organization has its own unique goals so while thee may be some industry standard - not all firms in one industry will have identical CSF's. Some trade associations offer benchmarking across possible common CSF's.
Competitive position or strategy: The nature of position in the marketplace or the adopted strategy to gain market share gives rise to CSF's Differing strategies and positions have different CSF's. Not all firms in an industry will have the same CSF's 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 CSF's. The values of an organization, its target market etc will all impact the CSF's that are appropriate for it at a given point in time.
Environmental changes: Economic, regulatory, political, and demographic changes create CSF's for an organization. These relate to environmental factors that are not in the control of the organization but which an organization must consider in developing CSF's Examples for these are the industry regulation, political development and economic performance of a country, and population trends. An example of environmental factors affecting an organization could be a de-merger.
Demerger is the converse of a merger or acquisition. It describes a form of restructure in which shareholders or unitholders in the parent company gain direct ownership in a subsidiary (the ‘demerged entity’). Underlying ownership of the companies and/or trusts that formed part of the group does not change. The company or trust that ceases to own the entity is known as the ‘demerging entity’. If the parent company holds a majority stake in the demerged entity , the resulting company is referred to as the subsidiary. Demergers can also result from government intervention, usually by way of anti-trust/competition law, or through decartelization.
Temporal factors: These relate to short-term situations, often crises. These CSF's may be important, but are usually short-lived. Temporal factors are temporary or one-off CSF's resulting from a specific event necessitating their inclusion. Theoretically these would include a firm which "lost executives as a result of a plane crash requiring a critical success factor of rebuilding the executive group". Practically, with the evolution and integration of markets globally, one could argue that temporal factors are not temporal anymore as they could exist regularly in organizations. For example, a firm aggressively building its business internationally would 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.
Managerial role: An individual role may generate CSF's as performance in a specific manager's area of responsibility may be deemed critical to the success of an organization. Managerial position. This is important if CSF's are considered from an individual's point of view. For example, manufacturing managers who would typically have the following CSF's: product quality, inventory control and cash control. In organizations with departments focused on customer relationships, a CSF for managers in these departments may be customer relationship management.
In an article written by Paul Lemberg, here’s how an individual can attain a new level of performance by identifying critical factors and dealing with the approach:
Step 1: Identify your critical success factors
The first step is to identify your special set of critical success factors. You may have thought this through in the past; you may think you know them intuitively. When asked "What matters?", many executives reflexively say things like sales, customers, people, or product development. These are all good answers, and they may be correct answers, but you will want to think deeper and broader. Below is a list to start you thinking. It is set in no particular order and contains only the most obvious factors. Review the list and circle areas you believe are critical to your enterprise. You may have to add other, more specific or subtle factors to the list to describe the critical influences on your business' success.
Distribution - this could be direct sales, telesales, third- party sales, etc.
Lead generation
Customer satisfaction
Referrals
Research
Product development
Production, including quality, costing, run-rates, etc.
Sufficient investment capital, sufficient working capital
Customer support / technical support
Quality assurance
Sales process / sales life cycle
Market research
Customer education
Sales compensation
Recruiting
Personnel retention programs
Expense management
Intellectual capital development
Training
Marketing communications
Logistics
Employee equity
Executive leadership
Training and development
Corporate goals / strategic objectives
Values and beliefs
Mission/purpose
Individual accountability
Productivity & effectiveness metrics
Internal communications
Strategic and tactical planning
Executive team
Board of directors/advisors
Be specific when you identify your factors. Don't say "people" when the issue is recruiting, employee satisfaction, training or compensation. Don't say "marketing" or "sales" when the issue is lead generation. Test your assumptions by imagining a decline in a particular factor. How would that impact your business? Now imagine an improvement in that factor. How would that impact your business? In selecting factors, limit your list to no more than seven. Why seven? Cognitive theory suggests that human minds are efficient at juggling from five to nine separate trains of thought - the average and oft- quoted number is seven. Our plan is for you to keep your eye on the ball, you want to limit the balls to those you can keep your eye on.
Step 2: Establishing the measurements
Your next step is to establish a measurement scale for each critical factor. Some of these measures will be quantitative; some qualitative. Sales are an easy one: dollars of revenue measured against budget. Leads generated is also easy - how many? You can further break down sales by product and leads by sources, or you can stick to the consolidated numbers. Choose the measure which best reflects your understanding of how the issue affects your business.
Everything is measurable; you just need the right system. How can you measure your effectiveness in sales compensation? You could establish a compound metric which includes total compensation as a percentage of sales revenue, juxtaposed against goal attainment. Marketing communications is also difficult. One way to measure this is to subjectively assess the quality of your marcom pieces; you could also measure whether you have the total complement of marcom pieces you require. Or, measure whether prospects respond to your marcom efforts. Most likely you will combine all three to get one measure.
A final example is measuring your efforts in the area of your Board of Directors / Board of Advisors. Measures include: do you have one? Are all the board seats filled? Is the board effective for your intended purpose? Measuring the Board factor would likely blend each of these.
Step 3: Setting the baseline
Once you've established a measurement structure for a factor, the next step is setting a baseline.
Each factor should be set against a normalizing scale ranging from 1 to 10. Subjectively this can translate into non-performing(1), poor (2-3) , mediocre (4-5), good (6-7), great (8-9), and outstanding (10). If your sales run-rate is $10 million, determine whether that is a 1, a 5, or a 10. Your answer depends of course on whether you consider performance against budget, performance against stretch goals, or performance against "home-run-out-of-the-park" goals.
If your baseline for Board of Directors is two unfilled board seats - is that a 5 (mediocre) or a poor (2-3)? Only you can decide. Although this ultimately is a subjective process, you want to make it as objective as possible.
Step 4: Set new goals
Next, create a "gap" between where you are - your baseline - and your target for that factor. You already have a sales plan, so your gap exists between your current revenue and your budgeted revenue. You may consider your baseline a 5, and your target an 8. Implicit in this 1- 10 scale are judgements about your intentions: will reaching your budgeted revenue put you at 8 (almost great) or 10 (outstanding)? Where do you want to peg your efforts? If you've assessed your employee training at a 4 (mediocre), are you shooting for a 7 (good) or a 9 (great)? You can see from this how your measurement structure and goal system will impact how you allocate your company's resources and energy.
Step 5: Closing the gap
You now have a baseline and a target for each factor. Between them they define a factor gap - your challenge is to close it. Each gap becomes the focus of a meditation which asks the question: What will close the gap between our current level of this factor and our desired level? What possible actions will raise that measurement? You may have intuitive responses to these questions, and when appropriate, trust your gut. If need be, back that gut response with research - but only when cost effective.
(Sometimes the most cost effective research is implementation, particularly in simple matters.)
Use any idea generation process you are comfortable with. Develop several possible initiatives to raise the level of that factor. With luck your ideas will work together and harmonize in terms of impact or implementation requirements. If you create competing ideas, select the best alternatives. Choose based on return on investment, required resources, scheduling conflicts, time to impact, total cost, and likelihood of success versus risk of failure.
Depending on the specific factor, and the size of the gap, you may plan to close it in stages or shoot the gap all at once. You can launch one initiative at a time, or implement several initiatives in parallel. You may find my GamePlan!" methods useful in designing your gap-closing programs.
Once you launch your gap-closing initiatives, continually measure your results. Report your progress to participants and stakeholders, and post it publicly.
Step 6: “The Ben Franklin Rotation Program”
Each factor also gets a weight, which enables you to develop an overall score. Each week, re-rate all the factors on the score sheet, and graph your progress. You may also graph the overall score. Publish the score sheet and the graphs. You can establish a reward system based on individual progress, or, using the factor weights, you can develop a bonus structure which incentivizes total progress. This simple system will focus your attention on improving each one of your critical success factors. With carefully selected factors, you insure both rapid performance increases and balance in your company. This system simply shows the projection of the progress, so as to monitor if you are improving or not. It’s one way also on assessing the firm’s response on the critical factors.
Generally, the advantages of identifying CSFs are that they are simple to understand; they help focus attention on major concerns; they are easy to communicate to coworkers; they are easy to monitor; and they can be used in concert with strategic planning methodologies. Using critical success factors as an isolated event does not represent critical strategic thinking. But when used in conjunction with a planning process, identifying CSFs is extremely important because it keeps people focused. Clarifying the priority order of CSFs, measuring results, and rewarding superior performance will improve the odds for long-term success as well.
Sources:
http://www.e-competitors.com/Strategy/SBUPlanning/SBUPositioning/SBU_Critical.htm
http://rapidbi.com/created/criticalsuccessfactors.html
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