Almost every business entity has a vision and a mission. A vision of what it intends to achieve, and a mission which is the road map responsible for turning that vision into reality.
In meeting these goals and objectives, certain factors and processes have to be in place – Critical Success Factors (CSF). They are those conditions, factors and processes that are essential for achieving breakthrough performance within the organization.
Identifying these essential CSF is key for the long-term success and survival of the organization and hence maintaining a competitive edge over competitors.
So often, when implementing performance measurement systems within their organizations, most managers make the mistake of not aligning measurements to strategy. They fail to identify the processes that are essential for driving up business performance.
In other words, they fail to identify those processes that must be performed exceptionally well for the organization’s strategy to succeed or achieve its intended goals and objectives.
The ultimate goal for almost every business, big or small, is to improve the return on capital employed (ROCE).
As a result, most businesses still invest a lot of their time and other resources analyzing financial metrics and performance and trying to figure out how to improve these.
For example, a lot of time is spent performing variance analysis for evaluation and control purposes thereby overlooking non-financial measures such as quality, customer service satisfaction, customer retention rates, throughput, yield, employee satisfaction, employee productivity and innovation.
In order to identify the organization’s critical success factors, managers need to:
Define the process value chain. Identifying the processes that are most critical for achieving customer and shareholder objectives involves identifying current and future customer’s needs and developing new solutions for these needs.
This means having a look at the innovation processes, operations processes and after sales services and locating areas that need change and improvement.
Understand the cause-and-effect relationships between various processes and activities employed to create value. Managers need to understand that the achievement of one goal, be it financial or non-financial will eventually lead to the achievement of the other goal.
For example, managers need to know the link between improved customer satisfaction, sales growth and employee learning.
By sending employees to training courses on say customer service excellence or product awareness, they become knowledgeable about the various product offerings within the organization.
They will then be able to answer any queries or product-related questions brought about by the customer and once the customer is satisfied with the service rendered to him, he is more likely to make repeat purchases( customer retention).
He will also recommend others, sales with therefore improve and hence margins.
Thus by linking non-financial measures and financial objectives, organizations can actually improve their overall business performance.
Know what drives performance. The performance drivers, sometimes known as the lead indicators, are unique to the organization and are responsible for delivering the value proposition of the organization.
Most organizations have a list of outcome measures, also known as lag indicators- what they want to achieve, for example, increased profitability, improved market share, improved employee retention or increased customer satisfaction but do not have a strategy to achieve those measures.
The most important thing is to have a right mix of outcome measures and performance drivers. This will help identify and evaluate whether the current strategy is being implemented successfully.
Be challenged today and identify your organization’s critical success factors for better enterprise performance. Get to know what is working and what is not and implement performance improvement enhanced strategies.