Wednesday, December 17, 2008

Critical Success Factors: Steps to Ensure the Organization's Success

Identifying what really matters in an organization is essential for its success. These "whats" are the Critical Success Factors...

Before I lay down the steps of the Critical Success Factor approach here, let me define or give you an idea about Critical Success Factors. According to Paul Lemberg’s “Strategic Critical Factors: Jump Start”, for every business there is a unique set of factors that will make it [your business] succeed or fail. This set is your Critical success factors. By identifying these factors, you can focus your efforts and bring about more significant results. These factors are necessary for an organization or project to achieve its mission. Often, critical success factors are mistaken for key performance indicators. However, they are two very different things. Critical success factors are the things, elements, or characteristics that are vital for a strategy to be successful. On the other hand, key performance indicators are only measures for the strategic performance of the organization.

Moving on, to be able to make the most out of the Critical Success Factor Approach, there are several steps that we need to follow. Let us begin with the first step: Identify your critical success factors. Like I mentioned earlier, every business has a unique set of critical success factors. As the manager, or executive, you have to think deeply and broadly about your organization’s unique set of factors. You have to consider your business needs when thinking about what really matters. There are several more obvious factors such as sales, customers, people, or product development but you have to think beyond that because you might actually be missing other unnoticeable or small but important things. Paul Lemberg listed some other critical success factors that you might want to consider for your own organization. These are: Customer satisfaction, Quality assurance, Expense management, Training, and several more. When determining your critical success factors, be specific. As much as possible, do not generalize your factors because there are still underlying principles that could be of more help to you. By being specific, the scope of your efforts would be smaller and you can concentrate more on the little things. It is suggested to limit your factors to seven so that you can easily keep an eye on them.

The second step to the critical success factor approach is establishing the measurements. These measurements will evaluate the factors that you have identified. It could either be quantitative or qualitative, as long as you have a basis to measure the factors. For example, if you identified sales as one of your critical success factors, you can measure it by measuring revenue against budget. It does not matter how you measure your factors, as long as you know that the measure you have chosen best reflects your understanding of how they [the factors] affect the performance of your organization. You may find that some factors can be measured by a combination of two or more computations or means of measurement. But, whatever measurement style or technique that you use, it is best if these measurements are understandable and concise about showing the effect of your set of factors to the organization.

Once you have established a measurement structure for a factor, the third step is setting a baseline. Okay, from what I have read and understood, setting a baseline only means setting something like a measurement range or scale. Some examples that I have found say that you can establish a rating scale, say, 1 for non-performing, 2 for poor, 3 for mediocre, and so on. I believe you can use any rating scale you want for your critical success factors but, like establishing the measurements, you have to make sure that the scale you will be using will properly reflect and rate the performance of your organization based on the critical success factors that you previously identified. The ratings you give here somehow reflect the present status of your organization and these will be of use in the next step of the CSF approach. This is like setting the lowest score possible for your business. Rating your success factors is entirely up to you. Honestly, I agree with my references that this is a very subjective process. However, I do believe that we can make it as objective as possible by taking it seriously and by being fair.

After setting the baseline, the fourth step to the Critical success factor approach is to set new goals. When you have established the baseline, you have to make a “gap” or in other words, a new goal for your organization. This is like setting a goal or target that you want to achieve for a specific factor. Let us say you have a scale of one to ten, one being non-performing and ten being outstanding. Say for example, you set a baseline of 5 for your critical success factor of sales. In this step, you now set a new target, which is 8 or in your scale is “almost great”. You will have to ask yourself, what can I do to reach that sales target of 8? Or, will exceeding my previous revenue put me on 8? Basically, this step will allow you to see how much effort you have to put up to reach your target. So, this will help you, as the manager or executive maybe, to know how much effort you have to exert and to allocate the organization’s resources properly.

Since in the fourth step you made a “gap”, in the fifth step you have to close this gap. This becomes your challenge now. How do you close the gap between your baseline and target? In this step, you have to identify what will close the gap for this particular factor. This is where you have to get your creative juices working, your mind pumping and your organization moving to reach the target or to raise your level. Use any idea generation process you are comfortable with. Develop several possible initiatives to raise the level of that factor. With luck your ideas will work together and harmonize in terms of impact or implementation requirements. Of course, you have to consider several factors when taking initiatives such as the cost-effectiveness of that approach. There are actually several evaluation methods or techniques that will help you determine if a particular approach is cost-effective and will not overrun the budget. You can either break down your plan for closing the gap or you can go for it at once, it entirely depends on you and your evaluation. And, as I learned from class, evaluation does not only happen at the “Evaluation stage”. This must be a constant process, which means that for every step you take, you should evaluate things so that when the project or the gap is closed, you do not have to evaluate a very large area. Whatever the results are, you should make it known to everyone involved in the organization so that they, too, will know if you are getting nearer to or have reached your target.

There is a sixth step to the Critical success factor approach according to Paul Lemberg. This sixth step is called the Ben Franklin Rotation Program. I can relate this step to the Token Ring topology that we learned about in our Data Communications and Computer Networks subject. In this program, you generate a list of your critical success factors and then allocate a specific duration for one factor to be implemented or focused on. Example, you allot one week for each factor and during this time, the organization’s attention will be focused on this single factor alone. Afterwards, the company can reflect on the results of a particular week and the next week will move on to another factor. You can see that it is just like the Token Ring topology in that when a unit seizes the token, that unit alone has all the rights to pass a message or communicate. After fulfilling its job, the token is passed to the next unit and the cycle is repeated. Using Franklin's principles, at the beginning of each week, focus your mind - or collective mind of your management team - on improving that week's factor. What new actions can you take, what new attitudes can you adopt, what new or renewed approaches are available - which will enhance your performance in that one specific area? Do that "thing" wholeheartedly for the entire week. You can also rate or score your performance on that factor by creating score sheets. Using these, you can graph the performance of your organization on that particular factor.

So, those were the steps in the Critical Success Factor Approach. It may seem very simple but it requires a large amount of critical thinking and serious consideration. A very good advantage of this approach that I can clearly see is that it helps you focus your efforts on the most important things. However, you have to identify correctly the CSF’s of your organization because if you identify wrongly, then you would be focusing your efforts on the wrong factors and thus cannot achieve what you are aiming for. This approach may also seem subjective but in a way it is good because the people doing this will have to have a deep and clear understanding of what their organization needs and aims for. If done carefully and critically, the Critical Success Factor approach will be able to help an organization reach its success. alien

Reference:
http://www.wikipedia.org
Paul Lemberg, Strategic Critical Factors: Jump Start retrieved from:
http://www.paullemberg.com/criticalfactors.html

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