key performance indicators

Key Performance Indicators

KPI

Background

The term KPI has become one of the most over-used and little understood terms in business development and management. In theory it provides a series of measures against which internal managers and external investors can judge the business and how it is likely to perform over the medium and long term. Regrettably it has become confused with metrics – if we can measure it, it is a KPI. Against the growing background of noise created by a welter of such KPI concepts, the true value of the core KPI becomes lost.

The KPI when properly developed should be provide all staff with clear goals and objectives, coupled with an understanding of how they relate to the overall success of the organization. Published internally and continually referred to, they will also strengthen shared values and create common goals.

What are the key components of a KPI?

The KPI should be seen as:

Only Key when it is of fundamental importance in gaining competitive advantage and is a make or break component in the success or failure of the enterprise. For example, the level of labour turnover is an important operating ratio, but rarely one that is a make or break element in the success and failure of the organization. Many are able to operate on well below benchmark levels and still return satisfactory or above satisfactory results.

Only relating to Performance when it can be clearly measured, quantified and easily influenced by the organization. For example, weather influences many tourist related operations – but the organization cannot influence the weather. Sales growth may be an important performance criteria – but targets must be set that can be measured.

Only an Indicator if it provides leading information on future performance. A considerable amount of data within the organisation only has value for historical purposes – for example debtor and creditor length. By contrast rates of new product development provide excellent leading edge information.

Obviously KPI's cannot operate in a vacuum. One cannot establish a KPI without a clear understanding of what is possible – so we have to be able to set upper and lower limits of the KPI in reference to the market and how the competition is performing (or in the absence of competition, a comparable measurement from a number of similar organizations). This means that an understanding of benchmarks is essential to make KPI's useful (and specific to the organization), as they put the level of current performance in context – both for start ups and established enterprises – though they

are more important for the latter. Benchmarks also help in checking what other successful organizations see as crucial in building and maintaining competitive advantage, as they are central to any type of competitive analysis.

Start with what you need to measure and monitor

Different organizations need to monitor different aspects of their environment. For example, the airline industry has a complex set of issues many of which (but not all) are different from the dairy farmer. Ibis has created a number of separate business monitoring modules for medium sized companies which we believe cover the majority of requirements for the development and maintenance of their organization, that are part of a bottom up planning system based around knowledge centres.

Knowledge centre Focus of activity Possible KPI

Administration Leadership, planning and monitoring, balanced scorecard, budgeting, portfolio theory, golden circle, decision making, creativity, SCORE, corporate governance, territorial imperative, impact analysis, standard operating procedures, mosaic management, prioritization, trade offs, MBO, succession planning, quality circles, technology audit, vision statement, SBU decisions, Abacus principle, time keeping, barriers to entry, critical success factors, business model, legacy issues, successes failures/ lessons learnt, authority/ responsibility, recruitment appraisal, acquisitions, cascade investment, disposals, premises review, stakeholder relationships, trade associations, synergy, recruitment appraisal, risk management, planning effectiveness, legal, health and safety, SBS, utilities, insurance, security, design for operating efficiency, time study, complaints, pensions, share options, employee share savings schemes, creativity, fringe benefits, bonus systems, secrecy, meeting management, time management, cost cutting, facilities management, stress, forecast grid, trade offs, communication, investment appraisal,

PEST elements, budget ratio, high impact/ high probability assumptions and boundary conditions (strategic risk assessment), CGAL, contractual, portfolio risk levels, % hurdle rate, insurance costs/sales, BEV, capital spread ratio, cost per sqm or cost per employee for facilities total space, productive hours %, % meeting time, BS index, utility cost, noise, accidents, % outsourcing, complaint resolution speed, complaint resolution cost, average meetings/ month, utility cost/ market cost ratio, premises cost/ market cost ratio, space utilization, whistle blowing, temperature, noise, health and safety breaches, security breaches, document loss, pension cost, theft, AER, budget ratio, KFR, project success, certification, wages ratio, litigation,

health and safety, environmental audit, ISO 9000, ISO 14000, operating financial review (OFR), working conditions, employee suggestion, team building, training, internal service satisfaction

internal service satisfaction levels, effective headcount, % mentoring

Finance Planning and monitoring, balanced scorecard, budgeting, cash flow, profit and loss, balance sheet, successes failures/ lessons learnt, trade offs, MBO, mosaic management, prioritization, IFRS, GAAP, succession planning, accounting assumptions, technology audit, SCORE, decision making, creativity, quality circles, asset register, invoicing,profitability, activity, and liquidity ratios, revaluation accounting, fraud, capital allocation profile, James' rule, contingent liabilities, deferred consideration, cost capitalization, brand accounting, cost cutting, payment systems, trade offs, documentary credits, time keeping, dividend policy, cash management, currency management, sales tax, depreciation, synergy, recruitment appraisal, funding options, financial reporting, audit, cascade investment, recruitment appraisal, source and application of funds, sensitivity analysis, investment appraisal, convertibles, tax management, credit management, hedging, team building, time management,training, internal service satisfaction

Financial ratios, budget ratio, % outsourcing, FER, BEV, BEV/EBITDA, debt age, cost of finance, capital allocation ratio, capex, EFT%, CER, tax charge, SPT %, gross yield, P/E,PEG, EPS, project success, DER%, BDR, FCF, overdue accounts, productive hours %, market dynamics capital allocation, EBITDA currency/ debt currency ratio, sales tax rate %, cash interest rate%, depreciation %, internal service satisfaction levels, effective headcount, % mentoring

Marketing/ sales Planning and monitoring, balanced scorecard , budgeting, portfolio analysis, trade offs, MBO, successes failures/ lessons learnt, succession planning, recruitment appraisal, mosaic management, prioritization, technology audit, SCORE, decision making, creativity, market drivers, marketing mix, branding, Single Block Theory, entrants, substitutes, market research, customer panel, sales

CLV, budget ratio, market share by segment, trial rate, competitive score, sales by channel, % repeat purchase, average sales value, sales productivity, market share, advertising productivity by channel, cost per lead, cost per converted lead, bid success rates, range

channels, distribution channels, sales management, investment appraisal, call centres, marginal profitability, quality circles, customer loss, products/services (width/depth), cross selling, value chain, expectation fulfillment gap, market size, customer transition, seasonality, networking, price elasticity, cascade investment, pricing terms and conditions, quantitative analysis, customer satisfaction, reference sale, time keeping, synergy, pricing power, cost cutting, market spread, customer investment review (CIR), marketing myopia, product age spread, organizational buyer behaviour, reference sale, customer spread, product age, competitive advantage, competitive bidding, trade offs, negotiation, recruitment appraisal, game theory, channel management, customer care, complaints, warranties, mystery shopper, time management, branding, team building, training, internal service satisfaction

sale%, average discount, service call out times, productive hours %, enquiry response time, seasonality ratio, price index, customer satisfaction, advertising awareness, % branding %, customer investment review, customer transition rate, value chain, % outsourcing, MER, budget ratio, EGMG ratio, customer investment return, customer churn, complaints, warranty claims, project success, channel members, product positioning variance, SER, AER, pricing, price elasticity, country spread, seasonality ratio, customer spread, product spread, product age spread ratios, segmental leadership, TDA's, project success, CIR%, competitive bidding success %, internal service satisfaction levels, effective headcount, % mentoring

Production/logistics/ service delivery

Planning and monitoring, balanced scorecard, budgeting, successes failures/ lessons learnt, standard costing, activity based costing, trade offs, MBO, succession planning, mosaic management, prioritization, investment appraisal, design for operating efficiency, JIT, FMS,technology audit, SCORE including cost cutting, decision making, creativity, production efficiencies, PLM, aggregate demand policy, synergy, management accounting, OR, suppliers, supply chain management,

Cost variances, budget ratio, order processing cycle, production cycle times, downtime, % outsourcing, PLER, budget ratio, STR, capacity utilization, logistics cost, SPC, load utilization, failure rates, return on plant, space utilization, set up time, waste rates, pollution levels, emergency delivery, out of stock %,

MRP, backorder, time keeping, inventory levels, production equipment age, quantitative analysis, design, sophistication, capacity, TQM, TPM, waste management, condition monitoring, recycling, complaints, technical support, recruitment appraisal, distant data capture, distribution structure (warehousing, outlet location) and physical distribution management, obsolescent stock, cascade investment, time based competition, time management, quality circles, order processing, trade offs, scheduling, purchasing, recruitment appraisal, vendor ranking, networking, postponement, standardization, product/ service design, team building, training, internal service satisfaction

obsolescent stock %, recycling%, back order %, JIT% energy efficiency ratio, peak capacity %, supplier ratio, partnering, obsolescent stock, EOQ, number of suppliers, supplier spread ratio, number of components, emergency call out, delivery failures, productive hours %, E-enablement, vendor rating, project success, internal service satisfaction levels, effective headcount, % mentoring

Personnel Planning and monitoring, balanced scorecard, budgeting, successes failures/ lessons learnt, trade offs, MBO, succession planning, mosaic management, prioritization, quality circles, Noah principle, decision making, creativity, technology audit, SCORE, eight "S", absenteeism, timekeeping, trade offs, overtime, industrial relations, stress, bonus systems, training needs analysis, time keeping, recruitment appraisal, time management, team building, cost cutting, cascade investment, wages, employee record keeping, synergy, vacation planning, training, internal service satisfaction

Productivity, budget ratio, turnover, absenteeism, % outsourcing (temporary staff ratio), PER, budget ratio, labour cost%, wages ratio, CNCER, employee satisfaction levels, CH/WH ratio, overtime%, skills, training, discipline, disputes, appeals, timekeeping ratio, apprenticeship, recruitment costs, training days, productive hours %, whistle blowing, span of control, appraisals, wages ratio, diversity index, PDP, project success, internal service satisfaction levels, effective headcount, % mentoring

IT Planning and monitoring, balanced scorecard , budgeting, successes failures/ lessons learnt, trade offs, MBO, investment appraisal, succession planning, mosaic management, prioritization, data

Management information system functionality, productivity, budget ratio, stability, web hits, access speed, site downtime, site click through, productive

mining, technology audit, SCORE, decision making, creativity, Intranet, Extranet, trade offs, telecommunications and IT platform, management information systems (MIS), web design and management, cloud computing, systems, time management, synergy, recruitment appraisal, SEO, information flow map, security, mystery shopper, teleworking, cascade investment, quantitative analysis, cost cutting, time keeping, systems analysis, team building, training, artificial intelligence, quantitative analysis, modeling, encryption, recruitment appraisal, internal service satisfaction

hours %, Intranet, Extranet, % outsourcing, ITER, budget ratio, security breaches, data storage, EDI, web position, quality of data, information overload, project success, internal service satisfaction levels, effective headcount, % mentoring

Product/ service development

Planning and monitoring, budgeting, innovation matrix, balanced scorecard, mosaic management, prioritization, successes failures/ lessons learnt, trade offs, MBO, succession planning, investment appraisal, TBC, technology audit, SCORE, quality circles, decision making, recruitment appraisal, creativity, product age profile, period of grace, tradeoffs, halo effect, identification of new product/ service concepts, synergy, cannibalization, protocol, IPLC, certification, cascade investment, technology transfer, first mover advantage, time management, recruitment appraisal, IPR, successful development/ commercialization, team building, training, internal service satisfaction

Product age spread, R&D%,ideas, strategic fit, budget ratio, protocol score, total cycle time, project review, team creation, testing, % outsourcing, NPDER, budget ratio, license fees, IPR%, IPR infringements, IPR maintenance costs, royalty rate %, time, productive hours %, budget, specification, project success, internal service satisfaction levels, effective headcount, % mentoring

Contingency planning Authority and responsibility, planning and monitoring, budgeting, successes failures/ lessons learnt, creativity, SCORE, investment appraisal, assumptions, high risk/high probability, Black Swan theory, failure points, reducing potential for failure, setting trigger points, action plan, risk profile, stage gate, team building, communication, training, TEWT,

Risk score, response times, budget ratio, KFR, % outsourcing, % SOP, % training, % above/below barrier conditions, success rates, % budget

simulations, role play, impact analysis

Establish current performance, benchmark and target levels

For each monitoring module, one can then establish what the current level of performance is in a measurable and understandable way. This is the current performance. From industry sources, the benchmark level can normally be introduced (getting to benchmarks is often a difficult process and one requiring a mixture of low cunning and/or sophisticated analysis). Then a target level of achievement can be entered. Let us take an example of a financial management module for an established manufacturing company and what it will tell us.

Financial knowledge centre monitoring components

Factor Current Benchmark Target

Gross profit % 68 52 72

ROCE % 13 10 20

FCF 12 n/a 10

BEV/EBITDA 0.2 n/a 0.2

Gearing (DER) 15 38 15

Debt age (years) 8.5 6.3 10

Interest cover X 8.3 3.7 10

AER % 8 12 6

SER % 10 12 6

Debtor length (days) 102 95 60

Creditor length (days) 60 63 60

Stock turn/year 5 4 8

Current ratio 4 3 4

Budget ratio 95 n/a n/a

Capex ratio 8 4 7

WCR 1.7 3.2 1.7

Z score 3 7 3

Tax charge % 12 19 10

Depreciation % 15 12 n/a

Cost of finance % 3 8 3

EFT 82 n/a 88

Overdue accounts % 2 n/a 1

STP% 92 n/a 95

FER% 3 n/a 2.6

Project success ratio 90 n/a 90

Internal satisfaction level % 67 n/a 90

Effective headcount % 64 n/a 75

We can gain an enormous amount of information and control from such a chart, but obviously not all components will meet the criteria of being a KPI – otherwise we are back into the problem of measuring everything and not concentrating on a limited number of core criteria.

Add KPI project control elements

This ratio based analysis is combined with a review of individual projects – normally based around the three key performance criteria, whether the project is on time, on budget and on specification. For projects involving significant expenditure the measurement of stage gate components will also significantly add to the level of control at a knowledge center level.

An example from the same knowledge centre would look like this:

Project Due date On time On budget On spec Stage gate

Debt refinancing

August Yes Yes Yes None

Tax review September Yes Yes Yes None

Sales insurance

August Yes Yes Yes None

How do I use such a format to develop and understanding of what is a KPI?

As different individuals and organisations will put a different emphasis on each item of information a definitive list of what is and what is not a KPI will depend on individual decisions, and will vary considerably according to the stage of company development. Start up enterprises need to place their emphasis on structural factors; established companies on operational performance.

However, one can set some guidelines. The most rapid way to establish the KPI within any set of monitoring information is to work through the three criteria in sequence.

Is the control information key to the success of the organisation?Can we measure it and influence it?Does it provide leading edge indications of future developments?

Which measures in the above chart are key?

Gross profit is one key measure to the success of the organisation. Research shows that survival rates are linked to levels of gross profit; gross profit margins above that of the competition provide clear evidence of competitive advantage.

Return on capital employed is another key measure of the success of the organisation. The ability to use investment effectively is central to effective long term development.

Z score is a measure of the liquidity of the enterprise and clearly defines positive or negative trends.

It would be the Ibis argument that the other components of the chart are not key – they are valuable items of information but are not make or break aspects of company management (unless they are grotesquely different from benchmark values).

Are these performance measures – can we quantify them and influence them?

Yes

Do these provide leading edge indications of future performance?

Yes

The conclusion from this analysis is that in financial reporting the company should concentrate on gross profit, return on capital employed and Z scores as their key performance indicators. Both gross profit and return on capital employed are part of the “model” balanced scorecard for overall objectives that Ibis propose for the majority of enterprises as part of their planning platform.

Other components within the financial reporting module that might be considered as KPI's are factors such as the levels of gearing (debt/ equity ratio – DER), project success rates, bad debt rates, and free cash flow (FCF). Including time, budget and specification to project reporting would also be a natural addition.

The balanced scorecard and KPI's

In addition to the creation of the enterprise balanced scorecard, in which gross profit, return on capital and Z scores are standard elements, the identification of KPI's in each of the operational areas or knowledge centres also assists the enterprise in plan development. These KPI's will change over time, but their creation as part of the initial creation of each knowledge centre will focus and direct their operational activities.

KPI's and the management information system

In a decentralised planning system focused around knowledge centers the choice of key performance indicators is the first stage in the re-evaluation of the information system to make it more valuable and relevant to the operating unit rather than one that is centrally provided.

Thus the choices of KPI determine what will drive that part of the enterprise and what

information must be collected to analyse and manage it. Such information gathering or software choices create information networks that are relevant and provide data which is used specifically for operational purposes, reducing information overload and information for information sake.

Where else are KPI's valuable?

The KPI is central to a number of other elements in the planning platform which provides the basis for answering the three crucial planning questions:

Where are we?Where do we want to be (and when)?How are we going to get there cost effectively?

In addition to the creation of knowledge centres and business monitoring, KPI's have a vital role to play in:

Action planning and implementation with an emphasis on management by objectives which will include a standardised rate of return and detailed project control;

Training as part of a company wide approach to focusing staff and management on essential operational requirements;

Central to business planning as a core part of the business plan outline;

Identification of necessary actions in change management, exit planning and survival and recovery planning;

They set priorities for investment appraisal, and the choice of emphasis that should be given to the main strategies within the golden circle, consolidation (including cost cutting), market penetration, ,market development and product development.

Training on key performance indicators, the creation of a business plan and standard operating procedures is available from Ibis.

What is a Critical Success Factor?Critical Success Factors (CSF’s) are the critical factors or activities required for ensuring the success your business. The term was initially used in the world of data analysis, and business analysis.

Most smaller and more pragmatic businesses can still use CSF’s but we need to take a different, more pragmatic approach.

Critical Success Factors have been used significantly to present or identify a few key factors that organizations 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, or organization”.

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Being Practical

As you read this and many other resources on the internet you will discover that there are potentially a confusing variety of definitions and uses of Critical Success Factors.

Before you start the journey looking at CSFs it is important to realise that the specific factors relevant for you will vary from business to business and industry to industry. The key to using CSFs effectively is to ensure that your definition of a factor of your organizations activity which is central to its future will always apply.

Therefore success in determining the CSFs for your organization is to determine what is central to its future and achievement of that future.

This page is primarily written for students of management and business, to keep things simple for application in smaller organizations remember to only have 5-7 critical factors for YOUR organization, and I am sure one of those will be cashflow!

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How are they important to your business?Identifying CSF’s is important as it allows firms to focus their efforts on building their capabilities to meet the CSF’s, or even allow firms to decide if they have the capability to build the requirements necessary to meet Critical Success Factors (CSF’s).

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Academic Background/ History

The principle of identifying critical success factors as a basis for determining the information needs of managers was proposed by RH Daniel (1961 Harvard Business Review – HBR) as an interdisciplinary approach with a potential usefulness in the practice of evaluation within library and information units but popularized by F Rockart (1979 Harvard Business Review – HBR). In time many academics have applied the methodology increasingly outside the educational establishment.

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The idea is very simple:

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 remain relevant today for many organizations.

The actual development or history of the approach

With a phrase like Critical Success Factors having ‘common usage’ within technical environments it is difficult to identify its true history in the context of business, management and human resources. One test for originality is the use of the TLA (Three Letter Acronym) of CSF. And one of the earliest uses of this is by

Chief executives define their own data needs. By: Rockart, John F.. Harvard Business Review, Mar/Apr79, Vol. 57 Issue 2, p81-93, 13p

In this earlier work:

MANAGEMENT INFORMATION CRISIS. By: Daniel, D. Ronald. Harvard Business Review, Sep/Oct61, Vol. 39 Issue 5, p111-121, 11p

Ronald does not use the term CSF or even the phrase Critical Success factors, but does discuss critical elements and non critical elements of a business leading to “controlling competitive success” Daniel also uses the term “success factors” in the context that we would understand today.

Predating these pieces is a short entry:

THE CASE STUDY METHOD AND THE ESTABLISHMENT OF STANDARDS OF EFFICIENCY.By: Lebreton, Preston P.. Academy of Management Proceedings, 1957, p103-103, 1p

In which students looking into the efficiency of businesses for case studies are recommended to look at “the factors which seem to be paramount in determining success in this industry” this is bay far the earliest mention of what we today know as “Critical Success factors”

To our mind the first published work of this approach is by Rockart. This pages reproduced from RapidBI.com

Other sources of research:

Management Control Systems: Text, Cases and Readings By Robert Newton Anthony, John Dearden, Richard F. Vancil Published by R. D. Irwin, 1972 p151

This publication seems to be one of the earliest and widest cited books in the early days of CSFs.

10 problems that worry presidents. By: Spencer, Lyle M.. Harvard Business Review, Nov/Dec55, Vol. 33 Issue 6, p75-83, 9p

In this article Spencer asks the question: “What are the essential factors that produce success in my company?” which for 1955 is getting close to the beginnings of CSFs – so for those interested in the early beginings worth a look.back to top

Types of Critical Success Factor

There are four basic types of CSF’s

They 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.

Things that are measured get done more often than things that are not measured.

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).back to top

Definitions

Critical Success Factoran element of organizational activity which is central to its future success. Critical success factors may change over time, and may include items such as product quality, employee attitudes, manufacturing flexibility, and brand awareness. This can enable analysis.

Critical Success Factor any of the aspects of a business that are identified as vital for successful targets to be reached and maintained. Critical success factors are normally identified in such areas as production processes,



employee and organization skills, functions, techniques, and technologies. The identification and strengthening of such factors may be similar. ..

Critical Success Factor (CSF) or Critical Success Factors

is a business term for an element which is necessary for an organization or project to achieve its mission. For example, a CSF for a successful Information Technology (IT) project is user involvement.

Using the termThe term “Critical Success Factor” is used differently, due to ambiguity of the word “critical”,back and forth translations into other languages and interpretation when analyzed in portfolios:

1.1. Definition 1: “critical” = important, key, determining, vital, strategic, etc. 2. Definition 2: “critical” = alarming, anxious, etc. (as shown within the diagram = top left):

Which ever definition you use. make sure that all managers understand the definition.

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Five key sources of Critical Success Factors

MAIN ASPECTS OF Critical Success Factors and their use in analysisCSF’s 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 CSF’s:

1. The industry, 2. Competitive strategy and industry position, 3. Environmental factors, 4. Temporal factors, and 5. Managerial position (if considered from an individual’s point of view). Each of these factors is

explained in greater detail below.

The Industry

Critical success factor

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 strategy and industry position


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’sNot 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 Factors


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.

Temporal Factors




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 Position



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.

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How to write a good Critical Success Factor – CSF’s

In an attempt to write good CSF’s, a number of principles could help to guide writers. These principles are:

Ensure a good understanding of the environment, the industry and the company – It has been shown that CSF’s 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 customized for companies and individuals and the customization results from the uniqueness of the organization.

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 organization’s CSF’s Knowing where competitors are positioned, what their resources and capabilities are, and what strategies they will pursue can have an impact on an organization’s strategy and also resulting CSF’s

Develop CSF’s which result in observable differences – A key impetus for the development of CSF’s 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 CSF’s 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 CSF’s in observable terms would be helpful.

Develop CSF’s that have a large impact on an organization’s performance – By definition, CSF’s are the “most critical” factors for organizations 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 CSF’s were developed, it is important to thus identify the actual CSF’s, i.e. the ones which would have the largest impact on an organization’s (or individual’s) performance.

Finding information for writing Critical Success Factors (CSF’s)

For the organization following the CSF method, the foundation for writing good CSF’s is a good understanding of the environment, the industry and the organization 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 organization. In most cases, these won’t even have to be anything published as managers

are expected to have a good understanding of their organization Together, the external and internal information already provides the basis from which discussion on CSF’s 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.

CSF as an activity statement:

A “good” CSF begins with an action verb and clearly and concisely conveys what is important and should attended to. Verbs that characterize actions: attract, perform, expand, monitor, manage, deploy, etc. (“poor CSFs” start with: enhance, correct, up-grade, …)Examples: “monitor customer needs and future trends”

CSF as a requirement:

After having developed a hierarchy of goals and their success factors, further analysis will lead to concrete requirements at the lowest level of detail

CSF as a key influence factor:

Some CSFs might influence other CSFs or factors such as markets, technologies, etc.Such CSFs could be rephrased into “key influence factors” For example: “physical size” or “trained staff”back to top

Key Performance Indicators (KPI’s) and Critical Success factors

A critical success factor is not a key Performance Indicator (KPI). Critical success factors are elements that are vital for a strategy to be successful. KPI’s are measures that quantify objectives and enable the measurement of strategic performance.For example:

KPI = number of new customers/ response time CSF = installation of a call centre for providing quotations

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A Critical Success Factor MethodStart with a vision:

Mission statement Develop 5-6 high level goals Develop hierarchy of goals and their success factors Lists of requirements, problems, and assumptions Leads to concrete requirements at the lowest level of decomposition (a single, implementable

idea) Along the way, identify the problems being solved and the assumptions being made Cross-reference usage scenarios and problems with requirements


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Analysis matrices

Problems vs. Requirements matrix Usage scenarios vs. Requirements matrix Solid usage scenarios Relationship to Usage Scenarios Usage scenarios or “use cases”; provide a means of determining:

o Are the requirements aligned and self-consistent? o Are the needs of the user being met as well as those of the enterprise? o Are the requirements complete

Results of the Analysis

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Using Critical Success Factors for Strategic and Business Planning

For other strategic business planning models please see our management models page

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Examples of Critical Success factors


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Statistical research into CSF’s on organizations has shown there to be seven key areas. These CSF’s are:

1. Training and education 2. Quality data and reporting 3. Management commitment, customer satisfaction 4. Staff Orientation 5. Role of the quality department 6. Communication to improve quality, and 7. 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.

The Critical Success Factors we have identified and us in the BIR process are captured in the mnemonic PRIMO-F

1. People – availability, skills and attitude 2. Resources – People, equipment, etc 3. Innovation – ideas and development 4. Marketing – supplier relation, customer satisfaction, etc 5. Operations – continuous improvement, quality, 6. Finance- cash flow, available investment etc

Following is a sample list of the more common success factors.

This list should serve only as a guide to get you started. Some of these factors will be irrelevant in a particular industry or competitive situation; others may need to be added, as appropriate.

The factors are grouped into three categories of organizational competency, you will use your own differentiators.

Examples of Success Factors:

Understanding of Market:

Sensitivity to changing market needs Understanding of how and why customers buy Innovative response to customer needs Consumer loyalty Linkage of technology to market demand Link marketing to production Investment in growth markets Knowing when to shift resources from old to new products Long-term view of market-development and resources Ability to target and reach segments of market

Identify and exploit global market Product-line coverage Short time to market for new products Lack of product-line overlap Identification and positioning to fulfill customer needs Unique positioning advantage Strong brand image and awareness Understanding of competitors’ capabilities and decision rules Sensitivity to cues for co-operation Prevention of price wars Aggressive commitment when required Willingness to form inter company coalitions Maximizing payback from marketing response to resources

Marketing Variables:

Distribution coverage, delivery speed, and prominence Co-operative trade relations Advertising budget and copy effectiveness Promotion magnitude and impact Sales force size and productivity Customer service and feedback High product quality Patent protection Low product cost Ability to deliver high value to user Large marketing resource budget

Decision making:

Marketing research quality Information system power Analytic support capability Develop human resources Attract the best personnel Managerial ability and experience Quick decision and action capability Organizational effectiveness Learning systematically from past strategies

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Sample Critical Success Factor templates


Critical Success Factor analysis – Template 1

Critical Success Factors for __________________ Dated ____________

Critical Success Factor Source of CSF Primary Measures & Targets

Industry, Strategy, Environmental, Temporal [delete as appropriate]





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Critical Success Factors for __________________ Dated ____________

Success Criteria Potential Benefit Approach


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What do you want to be?

Vision / Mission / Strategic Goals / Critical Success Factors

Vision / Mission / Profile

What do we want to become / what is our purpose:

Mission:

Vision:

Strategic Goals

What do we have to do to get there:

Strategic Goal #1:

Outcomes / Critical Success Factors

How we will get there:

1.1

1.2

1.3

1.4

Strategic Goal #2:




2.1

2.2

2.3

2.4

2.5

Strategic Goal #3:



3.1

3.2

3.3

3.4

3.5

Strategic Goal #4:



4.1

4.2

4.3

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What should you measure?

Measure Identification Worksheet

This worksheet is helpful in creating the list of measures to support each Critical Success Factor

Critical Success Factor

Measures

Supporting

Measure Name

Definition / Formula

Is it a true indicator of

this CSF?What is it

telling you?

Owner(who’s

accountable?)

Is Data Available

?

If yes,Data

Source?If no, is

it possible

to collect?

Quality of

Data?High / Low

Targets Availabl

e?Yes / no

Discard?

Future?Keep?

Initiatives / Activities

Supporting

Initiative / Project

Unit / Person

Responsible

Implementation Team Member Assigned

Target Start Date

Target Completion Date

Budget/

Resources

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Critical Success Factor & their analysis in projectsResearch has shown that to complete a project successfully the following critical success factors apply:

1. Match Changes to Vision 2. Define Crisp Deliverables 3. Business Need Linked to Vision 4. Have a Formal Process to Define Vision 5. Organizational Culture Supports Project Management

You can have all of the above elements, but if you lack an engaged and involved business sponsor, your chances for success are greatly lessened.

According to a recent Gartner Institute study, 50% of all projects were delivered above schedule and/or budget.

Many projects were delivered with significant functionality missing, often cancelled after requirements definition.

In 2001, the Gartner group updated their research to include lack of executive sponsorship as a major contributor to project failures.

According to a 2000 Standish Group Report, the top success factors for projects were as follows. The list is in decreasing order of percentage factors responsible for success.% – Success Factors

18% Executive support 16% User involvement 14% Experienced project manager 12% Clear business objectives 10% Minimized scope 8% Standard software infrastructure 6% Firm basic requirements 6% Formal methodology 5% Reliable estimates 5% Other criteria

key performance indicators

Documents

term kpi

core kpi

kpi concepts

utility cost market

time management

risk management

complaint resolution

meeting management