When establishing criteria to measure the success of a Business managers should?

Índice Show

What Are Critical Success Factors?
The Four Main Types of Critical Success Factors
Critical Success Factors Versus Key Performance Indicators
Five Steps to Identify and Develop Your CSFs
1. Research Your Mission, Values and Strategy
2. Identify Your Strategic Objectives and Candidate CSFs
3. Evaluate and Prioritize Your CSFs
4. Communicate Your CSFs to Key Stakeholders
5. Monitor and Measure Your Progress
Step 1 — Do Your Research and Benchmark Best Practice
Step 2 — Be Clear on Your Organisation’s Goals for Performance Management
Step 3 — How to Measure Organisational Performance: Establishing Your Success Measures
Step 4 — Evaluation of your performance management system
Step 5 — Take Action on the Results
How to Improve Your Performance Management System

Critical success factors can help your business to focus on what really matters.

Critical Success Factors (CSFs) are every bit as important and straightforward as they sound! They are the areas of your business or project that are vital to its success.

They also give your people focus, and ensure that tasks and projects are aligned across teams and departments.

In this article, we explore how to identify your CSFs, how they should relate to your business objectives, and how they differ from Key Performance Indicators (KPIs).

What Are Critical Success Factors?

Essentially, critical success factors or CSFs are the elements of an organization or project that are vital to its success.

The concept of CSFs (also known as Key Results Areas or KRAs) was first developed by management consultant D. Ronald Daniel, in his article, "Management Information Crisis." [1]

John F. Rockart, of MIT's Sloan School of Management, built on and popularized the concept almost two decades later. He defined CSFs as: "The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization's efforts for the period will be less than desired."

Rockart also concluded that CSFs are "areas of activity that should receive constant and careful attention from management." [2]

The Four Main Types of Critical Success Factors

Rockart identified four main types of CSFs that businesses need to consider:

Industry factors result from the specific characteristics of your industry. These are the things that you must do to remain competitive within your market. For example, a tech start-up might identify innovation as a CSF.
Environmental factors result from macro-environmental influences on your organization. For example, the business climate, the economy, your competitors, and technological advancements. A PEST Analysis can help you to understand your environmental factors better.
Strategic factors result from your organization's specific competitive strategy. They might include the way your organization chooses to position and market itself. For example, whether it's a high-volume, low-cost producer; or a low-volume, high-cost one.
Temporal factors result from your organization's internal changes and development, and are usually short-lived. Specific barriers, challenges and influences will determine these CSFs. For example, a rapidly expanding business might have a CSF of increasing its international sales.

Critical Success Factors Versus Key Performance Indicators

The term "Critical Success Factor" is often used interchangeably with the term "Key Performance Indicator." But they are actually very different.

Critical success factors are derived from your organization's mission and objectives. They set out what you need to do to be successful and tend to be universal across organizations. For example, they might include things like:

Increasing profits.
Improving employee engagement.
Improving talent acquisition and retention.
Becoming more environmentally-friendly.

Once you've identified your CSFs, you can use them to develop more specific Key Performance Indicators (KPIs). These are the specific criteria that managers and organizations use to measure performance, and they often differ from organization to organization.

KPIs provide the data that enable a business to decide whether CSFs have been met, and if goals have been achieved. KPIs can also be used at different levels of a business – they can be used to clarify strategic, business-wide targets, or even to drill down into team and personal objectives.

KPIs are typically more detailed and quantitative than CSFs. For example, the CSF "Increase sales in Asian markets" could generate the KPI "Increase sales revenue in Asian markets by 12 percent year-on-year."

Five Steps to Identify and Develop Your CSFs

To identify and develop CSFs for your organization, follow these five steps:

1. Research Your Mission, Values and Strategy

First, take some time to look through your organization's mission, values and strategy. What are the challenges and key priorities that your organization needs to be focusing on right now?

If you're unsure, or want to gain some background, do a PEST Analysis to gain a better understanding of the external market factors that are influencing your organization right now. Follow this up with a SWOT Analysis to identify how well-equipped you are at dealing with these market challenges, and to assess your organization's strengths and weaknesses. This all-round approach should help you to clarify what improvements need to be made and where.

2. Identify Your Strategic Objectives and Candidate CSFs

Identify your organization's key strategic goals – these are usually linked to your mission and values. Then, for each objective, ask yourself, "How will we get there?" There may be a number of things that need to happen for you to achieve each of your strategic objectives. These are your "candidate" CSFs.

For example, if one of your strategic goals is to "reduce waste over the next year," you will likely need a number of critical success factors to help you to achieve this, such as:

Reducing carbon emissions.
Investing more in renewable energy sources.
Improving the efficiency of supply chains.
Developing "green" offices and processes.

3. Evaluate and Prioritize Your CSFs

Now, work through your candidate CSF's and identify only those that are truly essential to your success.

As you work through each candidate CSF, you may see that some are linked or are interdependent. For example, if have two CSFs – "to increase your share of the market" and "to attract new customers," the latter would take priority, as it is only by attracting new customers that you will likely increase your market share.

Prioritizing your candidate CSFs in this way will enable you to really focus in on the areas that your business must succeed in. You may find that some candidate CSFs are not a priority at all, in which you case you can cross them off your list.

4. Communicate Your CSFs to Key Stakeholders

Once you've identified your key CSFs, you now need to think about who is best placed to help you to achieve them. What departments or people will need to be accountable for them? What activities or operations will be key in helping you to achieve your CSFs? Do any activities or roles need to be changed or developed to do this?

Once you've done this, communicate your key CSFs to the relevant people. Make sure that everyone is clear on what they are, why you need to achieve them and how you hope to succeed. Get feedback from these key stakeholders, too – they are often best placed to identify any roadblocks or issues that may need to be overcome to achieve success. They may also be able to offer some great ideas of their own about how to meet your CSFs.

5. Monitor and Measure Your Progress

Think about how you will monitor and measure each of your CSFs. This can be tricky as CSFs are often very broad and may require input from several different departments and stakeholders across the business.

One way to effectively monitor and measure your progress is by setting a number of different KPIs against each of your Critical Success Factors. For example, if one of your CSFs is to reduce your carbon emissions, you might create a KPI to fill in some detail, such as "Reduce carbon emissions by 30 percent by 2035."

It's also a good idea to put in place monitoring systems to keep track of your progress. This might mean assigning accountability for this task to a specific person or department. This person will be responsible for gathering data and regularly monitoring the organization's progress toward specific CSFs and KPIs.

So, you would need to think about how this person would gather data on your organization's carbon emissions going forward, where they should store that data, and how regularly they would need to update it.

Although there's no absolute rule, it's a good idea to limit the number of CSFs to five or fewer. This will help to ensure that each CSF has maximum impact and gives clear direction on priorities to other elements of your business.

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Below, we explore how to effectively implement performance measurement to keep your company and your employees on track.

Organisations invest a significant amount of time (and therefore money) in performance management activities. Indeed, before their performance management revamp, Deloitte calculated their 65,000 employees were spending a total of 2 million hours a year completing forms, holding meetings and assigning and analysing ratings.

CEB found managers spent an average of 210 hours per year on performance management, finding that a company of 10,000 people spent $35 million a year on performance reviews alone. Yet so many of us — managers and employees alike — are dissatisfied with the quality and effectiveness of our performance management systems.

Does this sound all too familiar? If so, it’s time you took action and began measuring the effectiveness of your performance management system.

Below, we outline five steps that will have you on the road to measuring performance in a meaningful way.

Step 1 — Do Your Research and Benchmark Best Practice

If you are going to assess the quality of your performance management system objectively, an important first step is to understand what”excellent” looks like for your business.

Spend some time reading the latest research into performance management trends and best practice. Look at some case studies of organisations who have succeeded after revitalising their performance management system. To help with this, we’ve created a free eBook on effective performance management. The book summarises a wide variety of research and case studies into an easily digestible guide.

Want to see how our Performance Management Software works?

Step 2 — Be Clear on Your Organisation’s Goals for Performance Management

A number of guiding principles have come to light in recent research into performance management — such as the importance of having regular future-focused“check-ins”, giving frequent feedback and decoupling performance measurement from developmental performance discussions. But how effective your performance management process is will ultimately depend on what you are looking to get from it.

For this reason, it’s essential to be 100% clear on what your organisation’s goals for performance management are. This is something that should be discussed and agreed with your senior leadership.

A survey conducted by eReward in 2014 found the most common goals for performance management were:

to improve organisational performance
to align individual and organisational objectives
to develop a performance culture
to improve individual performance
to align individual behaviour to organisational values
to provide the basis for personal development
to inform performance pay decisions

Step 3 — How to Measure Organisational Performance: Establishing Your Success Measures

Once you are clear of the goals of your performance management system, the next step is to establish what success should look like for each one. Here are some success measures for a selection of the common performance management goals above. These show you how to measure the effectiveness of your system against your performance management goals:

Performance Management Goal	Example Success Measures
Improve organisational / team performance	Increase in profitability of organisation / teams Growth in revenue or other measures such as customer satisfaction
Improve individual performance	Quality and frequency of employee-manager performance conversations Percentage of employees with objectives set Quality of objectives Percentage of high and low performers in the organisation
Encourage performance development	Amount of personal development activity undertaken Frequency and quality of feedback given
Increase employee motivation and engagement	Employee engagement survey results Impact of performance reviews on employee motivation levels Employee turnover rates
Inform performance pay decisions	Ability of managers to differentiate performance for pay purposes Satisfaction levels / perceived fairness of performance-related pay awards

In addition to agreeing on success measures related to specific performance goals, it is important to define some measures for your performance management processes (i.e. the actual mechanics). You’ll want to know how easy your employees and managers find the processes and tools they use, how time-consuming they are, how well they are implemented, what proportion of people are following the processes and whether people are demonstrating the necessary performance management skills.

Step 4 — Evaluation of your performance management system

Once you have established your success measures, it’s time to start collating data and evaluating.

To truly know how effective your performance management is — and to understand how to improve it — you will need a combination of both qualitative and quantitative data. Looking at quantitative figures such as company or team profitability or employee engagement levels in isolation will not help you to understand the direct impact performance management had on them — other factors will also be at play. Methods of getting useful qualitative and quantitative performance management data include:

Carrying out a dedicated survey of a selection of employees and managers on their views and experiences of the performance management process and tools and how they have contributed to achieving the desired goals
Asking specific questions relating to performance management in your existing employee attitude surveys
Conducting interviews with a sample of employees and managers about their experiences of performance management
Focus groups
Extracting data and reports from your online performance management system (if you have one)
Reviewing a sample of objectives and personal development plans for quality.

Step 5 — Take Action on the Results

Once you’ve analysed the results, you should have a clear idea of how effective your performance management processes are and which aspects could be improved. If the results are not as good as you had hoped, don’t be disheartened as you are not alone. A 2014 study found only 8% of companies reported that their performance management process drives high levels of value. More recently, two-thirds of organisations suggested their performance management system was ineffective. There’s definitely room for improvement.

The key to improving your performance management is to involve a variety of senior managers, managers and employees in discussions on how to make improvements. This will help you to get buy-in to the improved process and greater ownership from those who have to implement it.

How to Improve Your Performance Management System

Here are five suggested steps to improving your performance management processes:

Summarise the results and areas for improvement into a presentation that can be easily digested by those outside of HR.
Consult senior management on the results. Obtain their support for making changes and seek their ideas for how to make improvements.
Run focus groups with a variety of managers and employees from different areas of the organisation. Discuss the results with them and ask for their suggestions for improvement.
Decide on what actions should be taken to address the issues discussed and draw up a proposed action plan. Discuss this with your senior management and manager/employee focus groups to get their feedback.
Make any required amendments to the action plan based on the feedback received, then implement the plan.

While involving people in the redesign of your performance management processes is essential, they probably won’t be able to provide all the answers. Sometimes you’ll need to present them with options based upon best practice from outside of the organisation. For this reason, you should make it a priority to remain up-to-date with performance management trends, knowing that the field of HR is ever-evolving.

We have helped hundreds of organisations improve their performance management systems by moving away from annual appraisals. We can help you improve conversations and encourage great performance in your organisation. Get in touch today to discuss how our performance management software can help you.