An overview of Critical success factors

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1 An overview of Critical success factors Sara Khodaveysi Department of Management, College of Humanities, Hamedan Science and Research Branch,Islamic Azad University, Hamedan,Iran. Houshang Mobarakabadi Faculty Member of Management,Islamic Azad University Hamedan Branch, Hamedan,Iran Alireza Slambolchi Faculty Member of Management,Islamic Azad University Hamedan Branch, Hamedan,Iran Abstract Critical success factors are defined as the handful of key areas where an organization must perform well on a consistent basis to achieve its mission. CSFs can be derived through a document review and analysis of the goals and objectives of key management personnel, as well as interviews with those individuals about their specific domain and the barriers they encounter in achieving their goals and objectives. This review includes explanation of characteristic, hierarchy, types of CSF. It also includes the comparison between CSF and goal. In addition the study addressed the CFS s challenges. Keywords :Critical, success, factor, csf. Introduction Critical success factors were introduced by John F. Rockart and the MIT Sloan School of Management in 1979 as a way to help senior executives define their information needs for the purpose of managing their organizations (Rockart,1979). Rockart traced his CSF work to its conceptual antecedent, success factors, introduced by D. Ronald Daniel in Daniel had discussed the problem of inadequate management information for setting objectives, shaping strategies, making decisions, and measuring results against goals. Daniel asserted that organizational planning information should focus on success factors, which he described as three to six factors that determine success key jobs [that] must be done exceedingly well for a company to be successful (Daniel, 1961). Although Rockart did not use CSFs for strategic planning, he noted that the success factor concept was in itself useful for applications other than those he used. Rockart s primary purpose with CSFs was to gather information needs for management decision-making. 1. History of CFS Method The concept of identifying and applying CSFs to business problems is not a revolutionary new field of work. It dates back to the original concept of success factors put forth in management literature by D. Ronald Daniel in the 1960s.8 However, the CSF concepts and approach are still very powerful today and are applicable to many of the challenges being presented. 22

2 1.1 Beginnings: In the late 1970s and early 1980s, organizations found themselves in the midst of an information revolution. The growth of information systems in organizations resulted in the production of significant amounts of information for analysis and decision making. The advent of the personal computer and the evolution of the field of information systems to information technology were indicators that the information explosion would continue. John F. Rockhart, of MIT s Sloan School of Management, recognized the challenge that the onslaught of information presented to senior executives. In spite of the availability of more information, research showed that senior executives still lacked the information essential to make the kinds of decisions necessary to manage the enterprise (Dobbins,1998). As a result, Rockhart s team concentrated on developing an approach to help executives clearly identify and define their information needs. Rockhart s team expanded on the work of Daniel to develop the CSF approach. Daniel sug-gested that, to be effective in avoiding information overload, an organization s information systems must focus on factors that determine organizational success (Rockhart,1979). For ex-ample, in the automotive industry, Rockhart suggested that styling, an efficient dealer organi-zation, and tight control of manufacturing costs are important success factors (Rockhart, 1979). Using success factors as a filter, management could then identify the information that was most important to making critical enterprise decisions. Accordingly, the underlying premise is that decisions made in this manner should be more effective because they are based on data that is specifically linked to the organization s success factors. In 1981, Rockhart codified an approach that embodied the principles of success factors as a way to systematically identify the information needs of executives. This work, presented in A Primer on Critical Success Factors, detailed the steps necessary to collect and analyze data for the creation of a set of organizational CSFs [Rockhart 81]. This document is widely considered to be the earliest description of the CSF approach. Our interpretation and application of Rockhart s approach, as documented in this report, is largely based on this description. 1.2 Evolution of the CSF Method Most of the work in success factors performed by Rockhart and Daniel was focused on refining the information needs of executives. However, as a logical outgrowth of this work, Rockhart hinted at the usefulness of the method as a component of strategic planning for in-formation systems or technology (Rockhart, 1979). The CSF method has found its way into many formalized information or business systems and technology planning methodologies that are still being used today. The CSF method and the analysis of CSFs have been used in many ways outside of the in-formation technology planning arena. In their research on the use of CSFs in federal government program management, James Dobbins and Richard Donnelly (Dobbins 1998) identify uses of CSFs to identify the key concerns of senior management assist in the development of strategic plans identify key focus areas in each stage of a project life cycle and the major causes of project failure evaluate the reliability of an information system identify business threats and opportunities measure the productivity of people While this is not an exhaustive list of the ways in which Rockhart s original work has been applied, it suggests the broad applicability of the method. It speaks to the use of CSFs as a way for organizations to focus and validate many of the important activities they perform to accomplish their missions. 2. Characteristics of CFS It is important to understand the characteristics of CSFs. Some key characteristics are summarized here: CSF hierarchy, types, uniqueness, and stability over time. 23

3 2.1 CSF Hierarchy In Daniel s work, success factors are described at the industry level, and they are shared across organizations within an industry. Daniel focused on non-unique industry-level success factors (i.e., success factors that are relevant for any company in a particular industry). Anthony et al. expanded Daniel s work by suggesting that CSFs could differ from company to company and from manager to manager, introducing the concepts of managerial-level CSFs and organizationally unique CSFs (Anthony, 1972). Caralli also adopted this perspective. Levels of management introduce different types of operating environments and thus different levels of CSFs. Bullen and Rockart provide a thorough discussion of the hierarchical nature of CSFs and identify four specific levels of CSFs: industry, organizational,10 division,11 and individual. Caralli introduces the concept of operationalunit CSFs, which focus on the contributions that an entity makes to support the organization s overall goals and mission, and supports the concept of operational units in the IT strategy context. Caralli also draws an explicit parallel between CSF hierarchy and planning hierarchy by pointing out the similar way in which both hierarchies are interdependent. He notes, however, that CSFs do not necessarily cascade through the layers of an organization in simple one-to-one relationships (Caralli, 2004). 2.2 CSF Types In addition to the types of CSFs introduced by levels of management, Rockart identified five types of CSFs that reflect the way in which they contribute to the achievement of the mission: the structure of the particular industry (industry CSFs) competitive strategy, industry position, and geographical location (strategy CSFs) the macro environment (environmental CSFs) problems or challenges to the organization (temporal CSFs) management perspective (management CSFs) An organization s CSFs may include any or all of these types. Understanding the type of CSF helps an organization know whether the CSFs are shared or unique and how they may persist or evolve over time. (Rockart,1979) 2.3 CSF Uniqueness Caralli puts significant focus on understanding the CSFs that are unique to an industry, organization, or manager. But CSFs are not necessarily unique to the organization, division, operational unit, or individual to whom they apply. Rockart focused on the CSFs at the managerial level, along with department- or organizational-level CSFs (though he continued to acknowledge industry-level CSFs). He also noted that CSFs could be non-unique (shared across the industry) or uniquely linked to internal and external sources other than the industry. 2.4 CSF Stability Over Time Although CSFs may remain fairly constant over time, at least in the sense of a strategic planning period, from Rockart and Bullen s perspective, CSFs change as the industry s environment changes, as the company s position within an industry changes, or as particular problems or opportunities arise (Bullen, 1981). Rockart also points out that CSFs are not key indicators standard measures that can be applied across all divisions of an organization. There can be some migration between CSFs and specific goals, particularly when a CSF reflects a challenge or problem (temporal CSFs). A performance gap in a particular operational area may cause a CSF to be elevated into a fix-oriented goal. Alternately, a goal, once achieved, may migrate to a CSF for sustainment. 24

4 3. The Critical Success Factor Method Advanced Social humanities and Mangement 3(2) 2016:22-28 Rockart introduced a two-phased, interview-based method that began with a discussion of an executive s goals and the underlying CSFs, followed by the development of CSF measures. Caralli offers a five-step method: 1. define scope 2. collect data 3. analyze data 4. derive CSFs 5. analyze CSFs This method provides a way of deriving CSFs through a document review and analysis of the goals and objectives of key management personnel, as well as interviews with those individuals about their specific domain and the barriers they encounter in achieving their goals and objectives. The collected information is formed into statements that represent the activities that key managers perform; these activities are analyzed and placed into affinity groupings from which the CSFs are derived. 4. A comparison between CSFs and Goals There can be some confusion between CSFs and goals, which are not the same. Goals are broad, high-level aims that support the accomplishment of the mission. Like goals, CSFs represent things that enable the success of or contribute to the accomplishment of a mission. Goals, however, are often derived from performance management exercises rather than strategic planning, and are set with an eye to achievability rather than organizational success or contribution to accomplishment of the mission. CSFs refer to ongoing operational activities that must be sustained for the organization to function successfully. Where goals help an organization attain success, CSFs ensure an organization s survival. If an organization focuses only on goal-setting, it might, as a result, drop attention from the day-to-day activities that sustain its success. Goals and CSFs share a many-to-many relationship because organizational goals may rely on the achievement of more than one CSF and a CSF may affect the achievement of several goals. The potential many-to-many relationship between CSFs and goals is indicative of their interdependence and importance for accomplishing a mission (Caralli,2004). CSFs reflect areas that are important to the organization in the current operating environment and to future success; they remain fairly constant over time, at least in the sense that they are seen as areas critical to the success of the mission in both the present and the future. Rockart writes, Goals represent the end points that an organization hopes to reach. Critical success factors, however, are the areas in which good performance is necessary to ensure attainment of those goals (Rockart, 1979). There is some fluidity among CSFs and goals. As stated earlier, a performance gap in a particular operational area may cause a CSF to be elevated into a fix-oriented goal. Alternately, a goal, once achieved, may migrate to a CSF for sustainment. 4.1 Relationship Between Goals and CSFs The strong relationship between goals and CSFs results from the fact that managers are the origin of both goals and CSFs. When managers set goals, they also implicitly consider what they need to do to be successful at achieving the goals. Thus, it is likely that managers consciously consider their CSFs during goal setting and consequently create the bond between goals and CSFs that is needed to contribute to accomplishing the organization s mission. In this way, the influence of CSFs on goal achievement is made explicit, even if the actual CSFs are not. Organizations that have been successful at achieving their goals have also likely achieved their CSFs, albeit in a less observable way. Thus, goals sometimes resemble CSFs because they embody the importance of a key performance area. 25

5 Usually a goal is immediately discernible from a CSF because of its specificity. A CSF for the organization may be more general and is likely to be related to more than one goal. Consider the following goals for a large manufacturing company: Increase sales in our Northeast division by 10% by 2 nd quarter, Decrease travel expenses by 5% in the next 30 days. Expand product line to include widgets and gadgets. Increase expansion by opening at least two retail stores in at least two European markets by 3 rd quarter The first goal might be commonly found in many commercial organizations: to achieve a 10% increase in sales in a divisional unit. To achieve this goal, the manufacturing company is stating an implicit dependence on the organization s ability to perform well in a few key areas. While the goal is simple, it reflects many key underlying assumptions or conditions. Implicitly, this goal states that The growth of the company is dependent on the organization s capability for increasing sales. Sales staff must be empowered and enabled to meet the challenge of attaining an increase of 10%. The company must act quickly because it needs to retain and grow its market share in the Northeast as other competitors ramp up. The Northeast division is an important area in which sales expansion brings the company a competitive advantage. These assumptions or conditions embody CSFs that are directly related to the potential success in achieving the goal. For example, consider the following dependencies between the goal, underlying assumptions and conditions, and CSFs: The importance of the CSFs in helping the manufacturing company achieve its goals cannot be overstated. In this example, at least one of the CSFs attract, train, and retain competent sales staff is vitally important if the company wants to achieve the goal of attaining a 10% increase in sales. If the company fails to consistently retain qualified sales staff, the goal can-not be achieved, and in the long run, the manufacturing company s mission may be in jeopardy. 4.2 Cardinality Between Goals and CSFs As illustrated above, an organizational goal may be related to more than one CSF to be achieved. Conversely, a CSF may influence or affect the achievement of several different goals. The potential many-to-many relationship between goals and CSFs is indicative of their interdependent nature and the importance of CSFs in helping the organization accomplish its mission. 4.3 The Superiority of CSFs Over Goals Goals alone can be an unreliable predictor of an organization s ability to successfully accomplish its mission. This is because goal-setting in many organizations is at best a subjective exercise and often is strongly influenced by or derived from a performance management sys-tem rather than a strategic planning exercise. Often, goals are set with an eye to their achievability rather than how they contribute to accomplishing the mission. For example, an organization may realize that it is failing to accomplish its mission even though it has successfully achieved its goals. This can occur because the goals have not been aligned with the organization s strategic plan; thus their achievement does not propel the organization for-ward. On the other hand, CSFs are less likely to be biased toward achievement. While CSFs are derived from and reflect the considerations of management, they are also inherited by the organization from the industry in which it operates, its position relative to peer organizations, and the effects of the current operating climate and environment. As a result, even though an organization may not achieve its goals, achieving CSFs may still get the 26

6 organization closer to accomplishing the mission. Organizations that have achieved their goals but failed at their missions may have ignored the achievement of their CSFs. The connection between an organization s operating environment and CSFs make them collectively more reliable as a predictor of the organization s capabilities for accomplishing the mission. To further develop this assertion, it is useful to explore the various sources of CSFs in more detail. 5. Addressing Challenges with CSFs One of the ways in which IT departments have addressed these challenges (as early as the 1970s) is by involving the organization at large in their strategic planning process. This process known by many names, such as business systems planning explicitly takes into consideration the organization s key business processes and data to determine the technology needs of the organization. To further determine priority, these efforts also frequently include a direction-setting activity such as the development of CSFs. If the organization s accomplishment of the mission is tightly linked to its performance in a few key areas and the technology plan is based on enabling high performance in these same areas, the plan can enable the mission. We drew upon the broad experience of the SEM team to address similar challenges for security management. At least one SEM team member had previously used CSFs in the development of an information technology plan. Other team members were also familiar with CSFs, and thus we began to explore the CSF method as a possible way to help our customers improve the focus of their security efforts. We began our investigation of the method specifically in response to the increasing number of questions and concerns of customers in their attempt to develop a scope for their risk assessment activities selecting the right operational areas and critical assets to focus on. In our fieldwork, we also observed the value of the method for security management and strategy and goal development. Conclusion Critical success factors are the relatively small number of truly important matters on which a manager should focus her attention. For this reason, the term "critical success factors" is aptly chosen. They represent the few "factors" which are "critical" to the "success" of the manager concerned. There are, in every manager's life, an incredible number of things to which her attention can be diverted (Barnes, 1984). The key to success for most managers is to focus their most limited resource (their time) on those things which really make the difference between success and failure. In general, there are, for any manager, only a very limited number of critical success factors. Examples are given in the original article. Additional examples will be found in the final part of this section of this paper. For most managers this limited set of important factors is far from a mystery. Most managers spend considerable time and energy both on the job and in their leisure hours thinking about these few areas of activity which are "close to the bone." Much time is spent considering ways to improve performance in each of these areas. The value of the CSF process is to make these areas explicit, not merely implicit. They then can be used (as will be discussed more fully later) to aid in the company's planning process, to enhance communication among the firm's management, and to aid information systems development. It is important for a manager to determine his goals -- which are the targets he will shoot for. That is common managerial lore. It is equally important, however, to determine, in a conscious explicit manner, what the basic structural variables are which will most affect his success or failure in the pursuit of these goals. These are the critical success factors. References Barnes, J. H., Jr. (1984). Cognitive biases and their impact on strategic planning. Strategic Management Journal, 5,

7 Bullen, C. V. & Rockart, J. F. (1981). A primer on critical success factors. Cambridge, MA: Center for Information Systems Research, MIT. Daniel, D.R. (1961). Management information crisis. Harvard Business Review, (Sept-Oct), Dobbins, James H. & Donnelly, Richard G. (1998) Summary Research Report on Critical Success Factors in Federal Government Program Management. Acquisition Review Quarterly: Rockhart, John F. & Bullen (1981), Christine V. A Primer on Critical Suc-cess Factors. Cambridge, MA: Center for Information Systems Re-search, Massachusetts Institute of Technology, Rockart, J. F. (1979). Chief executives define their own data needs. Harvard Business Review, (March-April). 28

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