What are critical success factors in business and how to identify them?
They are the few key areas where things must go right for the business to flourish.
There are four main types of CSFs. Each of the CSFs that you establish in your organization will likely fall into, and have been defined by, one of these groups.
Result from the specific characteristics of your industry. These are the things that you must do to remain competitive within your sector. For example, a tech start-up might identify innovation as a CSF.
Result from macro-environmental influences on your organization: the business climate, the economy, your competitors, and technological advancements, for example. A PEST Analysis can help you to understand environmental factors better.
Result from the specific competitive strategy that your organization follows. This could include the way your organization chooses to position and market itself, and whether it's a high-volume, low-cost producer, or a low-volume, high-cost one.
Result from the organization's internal changes and growth and are usually short-lived. Specific barriers, challenges, directions, and influences will determine these CSFs. For example, a rapidly expanding business might have a CSF of increasing its international sales.
Six Steps to Identify and Develop Your CSFs
To identify and develop CSFs for your organization, follow these six steps
i. Establish your organization's mission and strategic goals.
ii. For each strategic goal, ask yourself, "Success in what area of business or project activity is essential to achieve this goal?" The answers to the question are your potential (or "candidate") CSFs.
iii. Evaluate your list of candidate CSFs to identify the ones that are truly essential for achieving your goals – these are your Critical Success Factors. As you identify and evaluate candidate CSFs, you may uncover some new strategic objectives, or refine existing ones. So, you may need to redefine your goals and CSFs as you go along.
iv. Work out how you will monitor and measure each of your CSFs.
v. Clearly communicate your CSFs to those responsible for delivering them and to rest of the business.
vi. Continually monitor and reassess your CSFs to make sure that you stay on track toward your goals. Although CSFs can be less tangible than measurable targets or KPIs, monitor each one as specifically as possible.
Although there's no absolute rule, it's a good idea to limit the number of CSFs to five or fewer. This helps to ensure that each CSF has maximum impact and gives clear direction on priorities to other elements of your business.