What is a Critical Success Factor?
A very common question is, what is a critical success factor? The short answer is that a critical success factor, or key success factor, is an expected success one is seeking. However, when it comes to using Critical Success Factors, hereafter named CSF, in the context of strategy, the meaning and use is somewhat more pre-defined and formal.
Definition of a Critical Success Factor
In his book Good Strategy Bad Strategy: The Difference and Why it Matters, Richard Rumelt made stated:
“Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. The core of strategy work is always the same: Discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.”
Research has shown that three out of four strategies fail to deliver the success they set out for—and a lot of money is wasted on strategies that fail to deliver. In most cases, part of the problem is that the strategy is too high-level and there is no line of sight between the strategy and the employees who really make things happen. They simply don’t understand what is required of them. Therefore, strategy is often regarded as something for top management, and is of no concern to the general employee. Problems arise when top management (those with the most authority) managers don’t actually make their strategies come to life. They rely on others for that.
Referring to Rumelt’s wise words, engaging everyone in the organization in strategy execution requires that the strategy be translated from high-level mission/vision and main goals to Critical Success Factors (CSFs) everyone can relate to. All that remains is for team members to attach a measurable goal (or action to achieve a goal) to their CSFs.
So then, what is a Critical Success Factor? It’s an element required to achieve a particular goal. Strategic CSFs are closely linked to Key Performance Indicators (KPIs). D. Ronald Daniel of McKinsey and Co. introduced the concept of success factors in the 1960s, with four main categories: Industry, Strategy, Environment and Temporary. Later on, Jack F. Rockart of Sloan School of Management popularized the term Critical Success Factors to link strategic goals and Key Performance Indicators. Since then, the CSF concept has been used in various strategy methodologies including the Balanced Scorecard and Hoshin Kanri methods.
CSFs are a part of the strategic hierarchy, which is used to cascade the strategy throughout the organization and provide clear expectations for employees. A typical hierarchy consists of an overall mission, with the vision at the top. The overall mission usually consists of three to five Strategic Pillars or strategic goals. Each strategic methodology has its own name for these factors: Dimensions (Balanced Scorecard), Objectives (Objectives and Key Results), and Wildly Important Goals (Covey’s 4DX methodology).
What is the most important Critical Success Factor in managing teams?
Management is a team sport. It usually takes a team to execute strategic decisions and achieve business goals. All teams require clear and shared goals that everyone on the team is committed to. Larger organizations may include sub-teams with their own CSFs supporting the overall goal of the organization. The Success Factor for engaging all the different teams in the organization is to set clear and measurable goals for them to work toward. Without this there will be no cohesive teams, and employees will neither feel accountable nor committed to whatever the intention might be.
How can each team link their own goals to the overall goals of the organization? The questions are:
- What is our shared goal (or goals)?
- How is that linked to the overall corporate strategy?
These questions must be answered carefully. The overall strategic Critical Success Factors provides guidance. If these questions aren’t answered clearly, there will be no functioning team—hence no success.
How to work with Critical Success Factors
The CSF connects a measurable goal (KPI+Target) with planned actions to achieve that goal. The CSF can be universal (the whole organization can relate to it) or for individual units or employees.
Sometimes only actions are linked to a CSF (which is better than nothing), but for a proper cause and effect relationship between goals and actions, a KPI with an appropriate base line and target is required. When defining CSFs, consider how to measure the success of each factor. If this can’t be defined, rewrite the Critical Success Factor until it can. This is a vital step to success!
If you consider actions as causes and goals as effects, there’s no way to evaluate the effects of the actions if the actual performance isn’t measured. An important learning opportunity is lost, with no way to know if the efforts have delivered the desired results or not. Too often this is the case when strategies are purely project-based, because one vital part of the equation is missing. Moving from a project-based to a result-based approach to strategy implementation is therefore vital to success.
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