To most students SWOT analysis probably looks and feels like an uninteresting scholastic exercise, yet this method is a very useful planning tool for business.
Critical Success Factors (CSF) analysis is one of the more difficult strategic management tools to understand, and is even harder to use effectively in real-world management. If properly applied, however, CSF analysis does provide a robust and very practical assessment for strategic planners and can be very effective. As with most management tools, CSF analysis is probably more effective when used together with another, complementary tool such as SWOT or PEST analysis, because the best use of the CSF analysis is as a tool for planning and exercising control techniques over processes, rather than as an environmental assessment tool.
What Are Critical Success Factors
If business and management researchers had an easy answer to that question, perhaps CSF analysis would not be such a challenge to learn to use well. In the most general sense, CSFs are the small number of activities that absolutely must be undertaken effectively for the company to have success. What those specific activities are is a source of confusion, because they are entirely dependent on the unique circumstances of the firm. That has not, however, stopped researchers from trying to develop a definitive, universal list of CSFs that can apply to any company. In a study done about five years ago (K.J. Fryer, J. Antony & A. Douglas, “Critical success factors for continuous improvement in the public sector”, The TQM Magazine, vol. 19, no. 5, 2007), researchers reviewed 29 separate studies on CSFs and interviewed a number of organizations, and came up with a chart that tells us exactly nothing about which success factors are indeed “critical” (see Table 1):
|Success Factor||Percentage of studies and businesses surveyed which defined the factor as “Critical,” by business sector:|
|Mixed Sectors||Manufacturing||Service||Public Sector|
|Training & learning||67%||57%||100%||75%|
|Quality data measurement & reporting||47%||14%||33%||50%|
|Corporate quality culture||47%||57%||67%||50%|
|Ongoing monitoring & assessment||20%||14%||0%||50%|
The problem of choosing appropriate CSFs is immediately apparent; management commitment is an obvious choice, but it seems rather at odds with what we learn in management studies that a factor such as “Employee empowerment” would be fairly important to many different business sectors, while factors that should complement that – Communication and Teamwork – are not considered very important at all, and somewhat incredibly are apparently completely ignored by service-sector businesses.
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But of course, this single example should be taken with a grain of salt; as they say, your results may vary, and if there is one valuable takeaway from it, it is the suggestion of success factors that may be considered as a starting point, regardless if they are eventually found to be actually “critical” or not to a specific organization. It is also important to remember that CSFs are not fixed; they can and probably should change as the circumstances of the business change. For example, other studies have found that it is both common and relatively beneficial for firms facing financial or other crises to shift their CSFs to ones with more short-term effects and change the focus back to a more long-term perspective once the immediate difficulties are resolved.
Developing & Using the CSF Analysis
The interesting thing about using the CSF analysis is that the process of determining what your organization’s critical success factors really are is essentially the whole point. Once the CSFs are identified, steps to see that they are managed properly can be developed using different tools or good old experience and imagination; in many instances, simply identifying what may be a critical success factor and carefully examining why it is indeed “critical” to the firm suggests the way in which it should be handled.
While there are some data management and other analytical tools that can help in selecting CSFs – for example, DEMATEL (Decision-Making Trial and Evaluation Laboratory) software applications – the majority of the process is good old-fashioned intuition and discussion. But there are a number of conventions that should be followed to give the selection and analysis process the best chance of success. First, CSFs should be assessed in a “top-down” fashion; the analysis is not one that is ideally-suited for ‘horizontal’ or ‘collaborative’ organizational structures. Success factors should be judged according to the relevance to the business as a whole, then individual business units or departments, then down to the individual level; if at some level the success factor is not “critical”, then it needs to be reassessed. The reason for this is that the number of CSFs should be kept to an absolute minimum. This prevents conflicts in objectives and processes and helps to prevent a dilution of effort among too many factors.
Second, to avoid overlooking any factors that should be considered “critical”, potential CSFs should be assessed according to the “five sources of organizational success”, a methodology developed in the early 1980’s by MIT researcher John Rockart. Industry CSFs are conditions and operational circumstances that are common to firms within the same sector. Peer CSFs are critical success factors for one’s competitors; this obviously requires an accurate and detailed competitive analysis to be done as a prerequisite to the CSF analysis. Environmental CSFs are related to the firm’s political, economic, and market environment, and can be identified by a method such as a PEST analysis. Temporal CSFs are success factors that are only important at particular times – such as in crisis situations as described earlier – and are most likely to change. And finally, Managerial CSFs are success factors relevant to the management of the firm at different levels; identifying these may seem to run counter to the “top-down” process, but in reality actually helps to focus it by revealing internal conflicts in objectives.