ERPM Insights

In the previous post I touched on the benefits of understanding your organization’s critical success factors. In this post i will look at the key tasks involved in identifying organization wide CSFs. In order to establish the CSFs, management need to first identify and list all the success factors. Normally, this initial process of investigating the business success factors often results in a long list of issues deemed critical for the continued success of the organization. However, analysis of better performing organizations has revealed that these organizations have between five and ten CSFs that they focus more on.

After identifying all the organizational success factors, it is important to trim down the list as this is key to successful   enterprise performance management and the alignment of daily operational activities to the business strategy. Since the relationship between CSFs and KPIs is vital, if you get the CSFs right, it becomes easy to identify and establish organization wide KPIs that are linked to the business strategy.

There is a difference between success factors and CSFs. Critical success factors have the following characteristics:

• They are worded in a way that is easy for employees to comprehend and deduce what is expected of them.
• They apply to more than one balanced scorecard perspective and impact nearly all the BSC perspectives of the business.
• They have a great influence on other success factors.
• They are focused on a specific area of the business as opposed to being broad statements that lack any form of clarity.

When identifying the organization’s CSFs the following is key to success:

• Determine the existing identified success factors. This can be done through reviewing and analyzing all the strategic documents in the organization as well as interviewing all the knowledgeable employees across the business and all the senior management team. You can also utilize the services of outside consultants who possess valuable knowledge about your organization’s industry, sector, products or services to come up with a list success factors. Success factors and CSFs must link back to the organization’s strategic issues and initiatives.
• Conduct a CSFs workshop. This workshop plays a critical role of developing the organization’s CSFs and establishing the way to use them in order to successfully execute the overall strategy of the business. All the knowledgeable employees from the different functions of the organization, senior management team, KPI project team and the external facilitator (if one is appointed) should attend this workshop. The benefits of conducting such a workshop is that it helps the organization to revisit its success factors, map the cause-and-effect relationship between the various success factors, identify the critical few success factors that link back to strategy, brainstorm the relevant performance measures on the CSFs and determine how these performance measures will be reported.
• Consult with all the organizational stakeholders before finalization. The CSFs workshop is a platform to identify the organization’s CSFs and prepare drafts for wider review by the other stakeholders who did not attend. These stakeholders include senior management team members, board of directors, key customers, key suppliers, employee focus groups, employee union representatives etc. A wider consultation on the organization’s CSFs helps stimulate discussion and facilitate agreement. Without entity wide buy-in, successful strategy execution is compromised because various stakeholders will focus only on certain areas of the business they think are critical for the continued success of the organization and exploit others. This lack of agreement on the organization’s CSFs often leads to resource wastage, duplication of effort and sub-optimal performance.
• Communicate the CSFs to all employees. Once the final CSFs have been agreed on, they must be communicated to all management teams and their subordinates. If staff members know what is important, they can align their daily activities and maximise their contribution towards successful strategy execution.

I welcome your thoughts and comments.

In today’s competitive environment knowing and understanding your organization’s CSFs is key to survival and success. Critical success factors (CSFs) and their performance measures play an important role of linking daily operational activities to the organization’s strategies. Without thorough and complete knowledge of its CSFs, the organization’s performance management system will not produce the expected results.

Although most organizations are aware of their success factors, few of them have identified and defined their critical success factors appropriately; separated success factors from their strategic objectives and communicated the CSFs to all employees. Identifying and understanding CSFs will help the organization to focus and allocate resources on those activities that create and add long lasting value.

On the contrary, a lack of comprehending the CSFs will result in performance measurement, monitoring and reporting becoming just another random process that produces a long list of measures and reports not aligned to the overall business strategy.

When selecting the critical success factors of the business, it is important to have senior management commitment to ensure the effectiveness and usefulness of the chosen CSFs. In other words, active leadership by senior management is not an option but mandatory.

Knowing, communicating and evaluating the progress of the organization’s CSFs has the following advantages:

• It helps the organization to discover the most important KPIs that are aligned to the organization’s strategies.
• It helps eliminate performance measures that are unrelated to the organization’s CSFs or those measures that do not positively impact the CSFs.
• CSFs help senior management and their employees to prioritize their actions and resource allocations which in turn help align performance management and strategy.
• By focusing on the critical success factors, performance measurement; monitoring and reporting will become more focused on what matters most. This therefore means senior management will not be bombarded with numerous or irrelevant reports.
• It encourages clearer summary reports to the board and those charged with governance based on progress in the CSFs.

Although the selection of the CSFs is very subjective exercise, the effectiveness and usefulness of the chosen CSFs are highly dependent on the analytical skill of the team involved. It is important to ensure that the wording of the CSFs is clear and easily understandable to all employees. Avoid using broad statements whose meaning is not clear to employees.

Watch out for my next post on identifying organization-wide critical success factors.

I welcome your thoughts and comments.