Critical success factors (CSFs) are elements that must be met for an organization to achieve its goals. A critical success factors analysis might help businesses identify the opportunities based on the goals and missions of the business both short and long term.
Understanding critical success factors
Critical success factors have a few non-negotiable characteristics.
Benefit the individual, department, or organization as a whole.
In terms of a precise definition, critical success factors are generally action phrases describing the desired result and the action itself.
For example, a company might seek to be service-oriented when working with its customers. Another may opt to work toward a higher quality order fulfillment experience through process improvements.
Regardless of the particular CSF or industry concerned, it must be stressed that the preferred course of action is aligned with organizational goals and mission.
Determining critical success factors
Establishing a suite of critical success factors can be performed in five steps:
Assemble a team from the top level of the organization. Seniority is important to guide proper strategy and ensures there is buy-in from those with the power to make decisions. Some businesses may choose to bring in consultants to facilitate the process.
Incorporate employee feedback to create a list of around 10 to 15 critical success factors. Be sure to incorporate a broad swathe of employees, backgrounds, skills, departments, and expertise.
Use multiple frameworks to understand the key elements of each goal. A business may choose to use an OAS (Objective, Advantage, Scope) statement to help them describe its strategy and strategy execution. A SWOTanalysis can also be performed to optimize performance, maximize potential, manage competition, and minimize risk. Then, combine a strategic plan with a change agenda to outline what needs to change for goals to be met.
Determine which factors are key to achieving long-term plans. Using key insights from the frameworks in step 3, determine the most salient critical success factors. These factors and their associated goals should then be grouped by category. As a general rule, the categories of finance, customer, process, and people are a good place to start.
Strategic plan implementation – it is important to take action on a strategic plan to see the real benefits. Some organizations opt to use a balanced scorecard (BSC) which helps them understand if they are acting in such a way that their objectives will be met. What’s more, the balanced scorecard lists smaller action tasks that keep the team motivated to follow through on the strategic plan.
Different types of critical success factors
According to American organizational theorist and MIT lecturer John F. Rockart, there are five broad CSF types:
Temporal factors – or factors critical to the success of managing short-term or temporary situations. A somewhat temporal factor was the introduction of COVID-19 hygiene protocols in many brick-and-mortar businesses.
Management-position factors – these factors are identified by managers who have a unique perspective on continuous improvement, company culture, and employee engagement. Factors are specific to the individual role or expertise of each manager. For example, an operations manager may gauge success through production efficiency and cost control.
Industry-related factors – or factors an organization must satisfy to remain industry competitive. For an airline company, a CSF may be an average delay time of no more than ten minutes.
Peer-related factors – which factors relate to the relative position of a business with respect to its competitors? An industry leader will be more focused on maintaining a competitive advantage. On the other hand, a smaller player may consider success to be an increase in market share driven by higher brand loyalty.
Environmental factors – describing any factor happening external to the organization over which it has no control. Examples include public or economic policy, competitor behavior, and technological innovation. Critical environmental success factors should always seek to mitigate, anticipate, and stay ahead of the curve wherever practicable.
Key takeaways:
Critical success factors are objectives that must be satisfied for an organization to meet goals, objectives, or missions.
Critical success factors are created by assembling a team of senior managers and incorporating employee feedback. Frameworks such as the SWOT analysis and OAS statement then help the organization determine which CSFs are the most important for success.
Critical success factors are grouped into five general types: temporal, management-position, industry-related, peer-related, and environmental.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
