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Finding your organization’s critical success factors: the missing link in performance management

by David Parmenter, Principal, Waymark SolutionsTuesday, August 30, 2011

(This article has been extracted from my whitepapers which can be acquired from www.davidparmenter.com)

Background

Understanding, measuring and managing critical success factors, is increasingly important to ensuring the survival and future prosperity of organizations, in these times of economic recession and uncertainty.

Most organizations know their success factors (SFs), however few organizations have:

  • worded their success factors appropriately
  • segregated out success factors from their strategic objectives
  • sifted through the success factors to find their critical ones – their critical success factors (CSFs)
  • communicated the critical success factors to staff

It is the CSFs, and the performance measures within them, that link daily activities to the organization’s strategies.

In these trying times knowing your CSFs maybe the deciding factor in survival.  If your organization has not completed a thorough exercise to know its CSFs performance management cannot possibly function.  Performance measurement, monitoring and reporting will be a random process creating an army of measurers producing numerous numbing reports, full of measures which monitor progress in a direction very remote from the strategic direction of the organization.  Very few, if any, of the measures in these reports could be defined as ‘winning KPIs’ as they have been derived independently from the CSFs.

Besides focusing on the relevant performance measures, thus significantly reducing the number of performance measures used, knowing ones CSFs will reduce the number of reports that are produced at the end of the month.  Many of these ‘monthly’ reports are not related to the CSFs, and are reporting progress too late, well after the ‘horse has bolted!’ so the question has to be asked “Why do we have them?”  Pareto’s 80/20 rule most certainly applies with reporting, with 80% of management’s need being met by 20% of the reports prepared.

The process outlined in this article will crystallize and communicate the organization’s CSFs.  The beauty of the method, like all great methods, is that it is a simple methodical process, which can be run by in-house staff.  In order to find our CSFs we need to first know our success factors.

Some relevant success factors for these turbulent times

Set out below are some relevant SFs for these turbulent times:

  • Supporting local businesses.
  • Delivering in full, on time, all the time, to our key customers.
  • Prioritizing all activities that will collect cash quickly from major accounts.
  • Finding better ways to do the things we do everyday.
  • Maintaining a safe, happy, and healthy workplace.
  • Implementing innovative ideas from staff quickly.
  • Finishing what we start.
  • Starting only value-adding projects.
  • Selling a greater share of our profitable products to our key customers.
  • Increasing repeat business from key customers.
  • Encouraging our key customers to be active advocates for our business.
  • Increasing adaptability and flexibility of staff.
  • Attracting quality staff to the organization.
  • Maintaining a ‘stay, say, strive’ engagement with staff.
  • Maintaining regular recognition of staffs’ contribution.

This list is an extract from my “Finding Your Organisation’s Critical Success Factors” which can be acquired from www.davidparmenter.com/how-to-guides.

Notice that these SFs are all relatively specific. If told these success factors, staff members would understand what was expected of them. I believe all correctly worded SFs should be understandable to a fourteen year old - I call it the 14 year-old test.

You need to avoid wording SFs as broad statements whose meaning is not clear to employees. In other words, such factors would fail the test of being able to be understood by a 14-year-old. Examples that are too broad to be a success factors include:

  • Increased customer satisfaction
  • Increased profitability
  • Maximizing the use of our most important resource: our people
  • Optimization of working capital
  • Increasing the gross margin
  • Optimal utilization of assets and resources

So what are Critical Success Factors

The CSFs are the ‘list of issues or aspects of organizational performance that determine ongoing health, vitality and well-being’  source: AusIndustry.

Better practice suggests that organizational CSFs should be limited to between five and eight regardless of the organization’s size. However, for a conglomerate the CSFs will largely be industry specific e.g. the CSFs for an airline are different to a retail record chain store. Thus there would be a collection of CSFs in the conglomerate greater than the suggested five to eight.

The relationship between CSFs and KPIs is vital, as illustrated in Exhibit 1.  If you get the CSFs right it is very easy to find your winning KPIs e.g., once the ‘timely arrival and departure of planes’ CSF was identified it was relatively easy to find the KPI – ‘planes over 2 hours late’ for a well known airline.

Exhibit 1: How KPIs fit in the big picture

There are a number of characteristics of critical success factors which are worth dwelling on.  Critical success factors:

  • Are worded so a 14-year-old can understand them and run the company.
  • Will be no surprise to management and the board as they will have talked about them as success factors.
  • Apply to more than one balance scorecard perspectives (e.g., the timely arrival and departure of planes impacts nearly all the BSC perspectives of an airline).
  • Have a great influence on other success factors.
  • Are focused in a precise area rather than being the bland statements that strategic objectives often are.

Finding the CSFs is part of a twelve step process

Before I reveal the process to find your organization’s critical success factors I have to assume that not all readers will be familiar with my work, so a little introduction is in order.  In my book, in articles and web casts, I have talked about a twelve step process, see Exhibit 2.  This process was developed to incorporate better practice and facilitate a swift introduction - a 16 week time frame. Before implementing this critical success factor process, outlined in this paper, you would need to be familiar with this work. 

You need to understand that I am talking about step 6 in a twelve step process, or phase 2 in the 8 phase process (for smaller organizations, under 200 staff).

Exhibit 2: Twelve-step implementation timeline

Click on image to enlarge

Note: the blocks indicate the elapsed time not actual time taken.

Identifying organization-wide critical success factors

In order to find our CSFs, we first need to know our SFs. When you first investigate success factors, you may come up with 30 or so issues that can be argued are critical for the continued health of the organization. The second phase of thinning them down is the key to successful performance management, the alignment of daily activities to strategy.

To help organizations, around the world, find their five to eight critical success factors I have developed a process with four key tasks.

Task 1: Determining the Already Identified Success Factors

Review all the strategic documents in your organization covering the last ten years. Then extract and develop SFs from these documents. Interview as many of the organization’s ‘oracles’ as you can and all the senior management team (SMT).  From this information you will be able to come up with a list of success factors. 

To ensure you have covered all bases in your search for the existing success factors you can download the checklist here to help you. The project team should amend this checklist before use to suit the organization and desired approach.

Task 2: Holding the critical success factors workshop

Invite your oracles from around the company to a two day workshop.  These oracles are the individuals everyone refers you to when you need something answered, “You need to talk to Pat”. I have set out the suggested people in an agenda that you can download here and I have provided a success factor matrix you can download here.

Workgroups of up to seven people, from across different functions, are informed about the new techniques. They are shown an example and then asked to tackle each exercise.

During the workshop, material needs to be updated on the computer so lap tops are required.  The output of working out the success factors needs to be updated so the next workshop can commence.

To help you run this workshop in-house I have prepared detailed worksheets in the associated whitepaper.

Task 3: Finalize CSFs after wide consultation

Once draft CSFs have been prepared, review them with the senior management team (SMT), the board of directors, identified stakeholders (relevant CSFs with key customers and key suppliers), an employee focus group, and with the employee union representatives.

The KPI team will then prepare and deliver a presentation on the organisation’s critical success factors to facilitate discussion and agreement with the SMT. The presentation will cover:

  • the top 5 to 8 CSFs
  • process to discuss these CSFs with employee representatives
  • how the CSFs are to be conveyed to staff
  • the ramifications on existing performance measurement
  • what 24/7, daily, weekly measures, if any, are currently being collected in this area
  • permission to proceed to next stage, (selection of the team and organizational measures)

If CSFs are not going to be discussed with employee representatives or conveyed to staff the benefits of the CSFs will be adversely affected.

Task 4: Explain the CSFs to employees

Once final CSFs have been agreed on, communicate them to all management and staff. If CSFs are not going to be discussed with employee representatives and conveyed to staff, the benefits of knowing the CSFs will be adversely affected. If staff are told what is important they can align their daily activities to maximize their contribution.

Finding the CSFs through a ‘relationship mapping’ process

There has been much discussion about documenting “cause-and-effect” relationships, and the relationship mapping process is a derivative of this and a quicker process. When using a ‘relationship mapping’ process, teams need to be careful not to get sidetracked by it. It can become an interesting intellectual process going nowhere.

The aim of ‘relationship mapping’ process is to understand and document the likely ‘cause and effect’ (e.g., if a late plane is brought back on time it will lead to . . .).

To find your five to eight critical success factors a good technique is to draw all your success factors (SF) on a large white board and draw in all the linkages, which SF affects which SF. Take care in drawing the arrows the right way.  In a recent workshop we were handling over 40 SFs and thus the arrows were shown as leaving and entering, with a letter to identify them by, see Exhibit 3 and 4 for examples of this mapping.  The SFs with the most arrows out are the ones with the greatest influence and are thus more likely to be the critical ones, the CSFs!

Exhibit 3: example of a CSF Relationship Mapping exercise using a flip chart

Exhibit 4: example of a CSF Relationship Mapping exercise using A3 piece of paper

Click on image to enlarge

Last words

This ‘finding the CSFs’ exercise may well leave a legacy in the organization that will be greater than everything you have done in the past.  You will have created CSFs that will help to link daily activities into the organization’s strategies - the ‘El Dorado’ of management.

Writer’s biography

David Parmenter is an international presenter who is known for his thought provoking and lively sessions, which have led to substantial change in many organisations. David is a leading expert in: the development of winning KPIs, replacing the annual planning process with quarterly rolling planning, quick month-end processes and making reporting a decision based tool.

His work on KPIs has received international recognition through; an award from the International Federation of Accountants, and the success of his KPI book.

He has speaking engagements as far afield as Auckland, Wellington, Sydney, Melbourne, Brisbane, Adelaide, Canberra, Perth, Darwin, Darussalam, Kuala Lumpur, Singapore, Johannesburg, Jeddah, Tehran, Prague, Rome, Dublin, London, Birmingham, Manchester and Edinburgh.

John Wiley & Sons Inc have recently published two books titled “Winning CFOs: Implementing and Applying Better Practices” and “The leading-edge Manager’s guide to success – strategies and better practices. His “Key Performance Indicators – developing, implementing and using winning KPIs” is now in its second edition and is a best seller.

David has also worked for Ernst & Young, BP Oil Ltd, Arthur Andersen, and Price Waterhouse. David is a fellow of the Institute of Chartered Accountants in England and Wales.

He has written over 50 articles for the accounting and management journals. He has won two ‘article of merit’ awards from the International Federation of Accountants. (2007 and 2009). His published articles titles include: “Quarterly rolling planning - removing the barriers to success”, “Throw away the annual budget”, “Beware corporate mergers”, “Implementing a Balanced Scorecard in 16 weeks not 16 months”, “Convert your monthly reporting to a management tool”, “Smash through the performance barrier”, “Is your board reporting process out of control?” “Implementing winning Key Performance Indicators”, “Quick month end reporting” “conquest leadership- lessons from Sir Ernest Shackleton”, etc.

He can be contacted at parmenter@waymark.co.nz  or +64 4 499 0007. He has recently completed a series of white papers which can be purchased from his website www.davidparmenter.com.

                      

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