Critical Success Factors are areas of activity in which favorable results are necessary for a company to reach its goal. Critical Success Factors are intensive used in business organizations as essential guides for the company or project to achieve its mission and goals.
For example, one of the Critical Success Factors for of a company involved in developing information technology solutions is user involvement. Some general critical success factors include money factors like having positive cash flow, profit margins and revenue growth; customer satisfactions factors; product development factors and many others.
D. Ronald Daniel first presented the idea of Critical Success Factors in the 1960s. A decade later, John F. Rockart of MIT’s Sloan School of Management popularized the idea and since then, the idea has been extensively used in helping business organizations implement projects and industry strategies.
Today, there are already different ways in which the concept of Critical Success Factors is being implemented and this will probably tend to evolve.
According to Rockart, Critical Success Factors refer to "The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization’s efforts for the period will be less than desired."
To illustrate the concept of Critical Success Factors, let us say someone want to set up a bookstore. The person defines his mission as "To be the number bookstore in town by offering the widest selection of books and sustain customer satisfaction rating of 90%.
From the mission, the objectives are:
- To have a wide array of books for sale
- Sustain a 90% customer rating
- Expand book store space for future growth
From the objectives the activities to realize them would then be listed and lay out in a very clear perspective. This will give the company better focus and making good at these activities will be the critical success factors of the company.
The idea of identifying critical success factor is the primary basis for determining the company’s information needs. If the objectives are not met because the information needs were not acquired, then the organization will fail.
In the bookstore case mentioned above, we can already identify some information needs in a few minutes although identifying these needs in detail should take time and participation from different staff of the company. To have a wide array of book, the information needed would be where to find book suppliers, how to build strong and stable relationships with publishers, how to come up with fast and efficient shipment system and others.
In sustaining 90% customer rating, the needed information would be what the main topics that buyers like are, what promotional activities will the bookstore undertake. In the book store expansion, the needed information would be which location will the bookstore expand, how will the physical set up be like, what IT needs will be taken into consideration.
It is also essential to identify the constraint of the critical success factors. In understanding the constraints, critical success factors defense measures can be derived. Knowing the constraints will eliminate guess works which can bring about greater risks to the company’s success.
Knowing critical success factors in the operation of the business can really strengthen management strategy. Risk management process can be more focused and many issues will be corrected and probability of failure greatly reduced. Every single activity within the organization will be directed towards achieving the overall success of the company.