CSFs and KPIs

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What are CSFs and KPIs?

CSFs and KPIs are techniques that were pioneered by D. Ronald Daniel and Jack F. Rockart. They can be used for defining and measuring business objectives.

CSF is an acronym for Critical Success Factor. KPI is an acronym for Key Performance Indicator. Both of these words are widely used in the context of the design of relevant aims and measurements and analysis of the goal attainment of an organization.

A CSF is some feature of the internal or external environment of an organization that has a major influence on achieving the organization's aims. A KPI is a quantifiable gauge that an organization uses to measure its performance in terms of meeting its CSFs. There can be more than 1 KPI per CSF. A KPI can be financial or non-financial.

It is useful to understand that at least 3 levels can be distinguished to express the aims of any organization:

1. Vision/Mission. An expression of the basic reason why the organization was established and continues to exist. Example: Oxfam was established to relieve poverty and suffering in the world. Compare: Strategic Intent, Shareholder Value Perspective, Stakeholder Value Perspective.
2. Strategic Goals. Faced with the internal and external circumstances that an organization must deal with in the next years: what should be the focus of the organization so that it can successfully pursue its Vision. Such Goals are identified by various techniques available in strategic analysis. See for example: SWOT Analysis, PEST Analysis, Core Competence, Value Chain.
   Example: A Goal of Oxfam is to seek to provide secure livelihoods for farmers in order to relieve poverty.
3. Objectives. Strategic Goals are by their very nature high level expressions, big ideas. These Goals must be broken down into something more concrete and specific, so that tactical plans can be devised (budgets), responsibilities assigned and measurements made. Therefore the Strategic Goals are analyzed to determine the Factors that affect their achievement. These Factors are the CSFs.
   Example: funding, training and education programs create secure livelihoods. Therefore funding, training and education are CSFs for this Goal.

When combined, the 3 levels form the basis of a Business Plan. In real life, things may not fall very neatly into 3 levels. However the implication here is that of a hierarchy of aims, from the quite vague and ambitious downwards towards the very concrete and measurable. The concept of CSF/KPI can be used throughout the hierarchy, and is the basis for often-quoted and semi-true management phrases such as:

• You can’t manage what you can’t measure.
• Things that are measured get done.
• You can’t improve what you can’t measure.

Origin of CSFs and KPIs. History

The concept of "success factors" was originally developed by D. Ronald Daniel of McKinsey and Company(1) in the sixties. However the idea was most famously refined and popularized by Jack F. Rockart of the Sloan School of Management(2) at the end of the 80s.

According to Rockart, there are 4 basic types of Critical Success Factors:

1. Industry.
2. Strategy.
3. Environmental.
4. Temporal.

These 4 areas, of course, are one view of the strategic concerns that an organization needs deal with. Originally CSFs were devised to operate at the Business Strategy and Strategic Goals level. However, the idea of CSFs has proved so useful that its use was extended to lower levels of the organization. For example towards an organization's departments, even towards sections and towards individuals! The term: "critical" originally referred to the chance of catastrophic failure of the organization if the linked goals were not realized.

How many CSFs and KPIs should there be?

Once there is a clarity of ‘Vision’, 3-5 strategic goals should be enough to focus the organization's efforts during a forthcoming 3-5 year period. However see the Balanced Scorecard technique, which suggests 3-5 goals per focus area. Each Goal, as we have seen, should be broken down into a number of Factors, perhaps again 3-5, that affect the Goal. This would give, theoretically, between 9 and 25 Factors that the organization should consider to be CSFs. There should not be too many factors (focus is lost and responsibility is hard to identify). Nor should there be too many factors (it may be difficult to measure and take effective action to remedy problems).

For each CSF there must be at least one Measurement (KPI) and a Target for the current or forthcoming budget exercise. According to this technique, an Objective (tactical aim) is composed of a CSF plus a KPI plus a Target.

Conflicts are inevitable between so many objectives. For example a cost cutting objective may be in conflict with a customer satisfaction objective. Hence it is important to create a balance between the various objectives set for each CSF/KPI combination. Thus the business plan for the organization as a whole is viable. This principle is called Satisficing (Herbert Simon) as opposed to Optimizing.

There is a heavy emphasis on IT to achieve all this, since the data that are associated with the KPIs needs to be captured and consolidated. Often the presentation of this information is done through Business Intelligence software and uses some form of scorecard, dashboard, traffic light system or similar. It is crucial to decide when, how often and how the performance will be measured. Equally it is essential to create authority structures and assign organizational responsibilities that enable the Objectives to be actively managed.

How does an organization know if the Factors that have been identified are the right ones?

The simple answer is: It doesn't know! But an organization can learn - it is important to review the CSFs and KPIs periodically to determine whether these Factors really do drive the business, and are driving it in the desired direction. Targets are good servants but very bad masters. There are innumerable examples of this:

• A Transportation Company didn't pick up passengers on a certain route, because then the buses would come too late!
• An Hotel couldn't make name badges for new personnel quickly enough. Therefore it issued badges that had already been made. Hence Susan had ‘Mary’ on her uniform for a couple of weeks.

The mindless pursuit of Targets is at best futile and at worst detrimental and demoralizing to all involved. However the learning process by which organization's develops a truly useful set of CSFs is an essential feature of a healthy and well-led organization. This required learning process can then be seen as a part of the philosophy of Pete Senge’s Learning Organization and the Balanced Scorecard of Kaplan/Norton. Both of these concepts owe a debt to the CSF/KPI idea.

Calculation of CSFs and KPIs. Formula

CSF + KPI + Target = Objective

Usage of CSFs and KPIs. Applications

The technique is widely used for determining in detail where to place the efforts of the organization, so that it achieves its Vision and Strategic Goals.
 

Steps in the CSFs and KPIs. Process

1. Establish the Vision.
2. Determine Strategic Goals.
3. Analyze each Goal - what Factors (CSF) influence the Goal.
4. Assign at least 1 Measure for each Factor (KPI).
5. Assign a Target for the current budget exercise.

Strengths of CSFs and KPIs. Benefits

The idea of CSF/KPI has been very influential in many methods that were designed to align an Organization's tactical efforts with Strategy. Notably the Balanced Scorecard was based on this idea.
 

Limitations of CSFs and KPIs. Disadvantages

• Targets are good Servants but bad Masters. Existing CSFs and KPIs must be reviewed frequently.
• There is an emphasis on measurement. This can quickly result in forgetting or undervaluing major 'soft' elements, which are more difficult to measure. Compare: Scientific Management.
• It is difficult to establish the right number and types of CSF.
• The technique needs a number of cycles and considerable organizational "pain" to get it right.

Book: Harvard Business Review, Sept.-Oct., 1961 - Management Information Crisis

Book: Christine V. Bullen - The Rise of Managerial Computing

Book: Peter M. Senge - Fifth Discipline

Book: David Kaplan & Robert Norton - The Balanced Scorecard

Forum Forum discussions about CSFs and KPIs. Objectives and Key Results (OKR) Introduced by Andy Grove to Intel and documented in his 1983 book "High Output Management," Objectives and Key Results (OKR) is a popular framework for defining objectives and tracking the implementat... 13   1 comments 🔥 What is the Current Role of KPIs in your Company? Schrage M. and Kiron D. conducted research on the use of KPIs. In their survey, key performance indicators are defined as 'the quantifiable measures an organization uses to determine how well it meets... 10   4 comments Spider Web Visualization of Key Success Factors Is anybody aware of a software tool or program that allows you to easily visualize your KSF's in a spider web format? Thanks...... 7   1 comments How to derive Key Performance Indicators (KPIs)? Corporate KPIs can be derived from the corporate strategy and implemented possibly with the help of the Balanced Scorecard. Individual KPIs can be derived from key result areas in jobholders job desc... 6   2 comments Critical Success Factors (CSFs) versus Balanced Scorecard Can you explain what is difference between CSFs and Balanced Scorecard?... 5   2 comments Top KPIS for Pharma Supply Chains Hi everyone, the supply chain has become a very hot issue nowadays and it is now considered a profit center for many organisation and no longer a cost center. My question is that, what are the top KPI... 4   1 comments Applicability of KPIs and CSFs in Small Organizations Wish to know if KPIs, CSFs, KRAs are applicable to lean / very small organisations? How has this been implemented in small organizations?... 4   1 comments Aims versus Goals versus Objectives in Strategic Management What is in management the difference between goals, aims and objectives? I am reading for MSc Management and Leadership in Healthcare.... 3   1 comments Usages of Key Performance Indicators (KPIs) Are key performance indicators purely used as a tool, by management, to measure performance, or do they in fact influence the success or failure of a project, by steering behaviours and decision makin... 3   2 comments Measurement of DIFOTOQ I am interested in definitions and practices of measuring a KPI - DIFOTOQ The acronym means: Delivered In Full On Time On Quality. Who can provide some information about this KPI? Thanks..... 2   1 comments Start a new topic about CSFs and KPIs Sign up for free

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Best Practices The best, top-rated topics about CSFs and KPIs. Here you will find the most valuable ideas and practical suggestions. 🥇 Difference Between a KPI and a KRA? Can anyone tell me the difference between a Key Performance Indicator (KPI) and a Key Result Area (KRA)? There seems to be a confusion between the two. Any thoughts?... 8   2 comments 🥈 BSC Difference Between CSF and Goals Hello, my name is Dan and I am an MBA student. I am learning BSC and I cannot understand the difference between CSF and goals. Can anyone please clarify this difference possibly with a couple of ECO... 5   5 comments

Expert Tips Advanced insights about CSFs and KPIs. Here you will find professional advices by experts. Consultancy Tips Teaching Tips Practical Implementation Tips Typical CSFs Categories A list from Best Practices Here is a list of typical CSFs categories derived from various academic management literature and shared best practices ... Best Practices to Better Target Setting Management by Objectives, SMART, Business Performance Management, Balanced Scorecard, KPIs, CSFs In most organizations it is very common to specify organizational targets with the aim of increasing performance. This s... Strategy Types and CSFs CSFs to Stand Out In their 2001 research Ghosh, B.C.Tan Wee Liang, Tan Teck Meng and Ben Chan analyzed the strategy dynamics and CSFs for ... Redefining Key Metrics Performance Management In their book “Market Busters – 40 Strategic Moves that Drive Exceptional Business Growth”, Rita Gunther McGrath and Ian... 8 CSFs key Questions Analyzing CSFs from the Customer Perspective In his 2008 book ‘Tool for Project Management: workshop and consulting.’ Nicolai Andler suggest that managers should ans... KPI Examples and Cases KPI Library You can find, discuss and compare practical key performance indicators at: kpilibrary.com....

Information Sources Various sources of information regarding CSFs and KPIs. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. Critical Success Factor Analysis Strategy, CSF Short presentation about Critical Succes Factors (CSF) Analysis by Daniel Austin, including the following: 1. Overview ... Goal Setting: Purpose, Models and Steps Goal Setting, FRAME Model, SMART Goals, Motivation, Commitment This presentation provides information about goal setting in organizations, and includes the following sections: 1. Wha... KPIs and KPI Management Understanding KPIs, Introduction Introduction by expert Joe Panebianco gives a first understanding of what Key Performance Indicators (KPI's) are and the... Setting Health and Safety KPI's Performance Measurement, KPI, CSF Presentation about Safety Key Performance Indicators (KPI's) by J. McGerty. In this presentation the concept of KPI is ...

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