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The company’s journey in 2016 will going to end soon. Company needs to finish annual routines to get prepared for the next period. The major routine company has to do is evaluating financial performance and other achievements for the current year. Moreover, company needs to implement new strategies and a set of action plans to develop company’s business, such as launching new product, business expansion to a new geographical area, or hold a gathering to intensify relationship with all customers. It requires comprehensive and well-done plans because the outcomes would have significant impacts for the company. Then, how could company develop those plans? What things company need to concentrate on?
The success of strategy implementation and action plans depends heavily on Critical Success Factors (CSFs) determined by company. Critical Success Factors (CSFs) are factors, areas, or crucial activities company have to complete flawlessly. Otherwise, the company would be very uncompetitive. This could lead to significant amount of losses and company’s goals might not be accomplished. CSFs have distinct differences with Key Performance Indicators (KPIs). CSFs are things need to be done to accomplish company’s goals, tend to be qualitative. On the other hand, KPIs are determined measurements to evaluate company’s performances, tend to be quantitative. Parmenter (2007) gives a clear explanation about CSFs and KPIs linkages in below illustration.
Illustration 1 Critical Success Factors and Key Performance Indicators Linkages
Source: Key Performance Indicators. David Parmenter. 2007.
Understanding CSFs is a crucial thing for company. This may help company to focus more on crucial areas, avoid unnecessary efforts, and lessen ineffective usage of resources in unimportant areas. Company’s CSFs might be different to company in the same areas of industry. Whereas, 2 (two) companies with different areas of industry might have the same CSF. This is highly probable because strategy and approach implemented by company might be completely different. For instance, Amazon.com, an American e-commerce company, identified customer-oriented service as one of company’s CSF. The founder, Jeff Bezos, think that “word of mouth” has a prominent impact to compete globally with others. This statement was supported by Temkin Experience Rating publication on 2015. The publication says that Amazon.com is the top retailer on the list of most satisfactory company from the perspective of customers. On the contrary, Alibaba, a Chinese e-commerce company, determine intensive promotion strategy in domestic markets as one of company’s CSF. The company wants to maximise uncovered domestic markets potentials. According to Siddaiah Thirupati, an Indian entrepreneur, Alibaba is the first company in Mainland of China to use digital media like company’s website, search engine, and TV advertisement on marketing its products. Moreover, Alibaba is the major sponsor in Beijing Olympiads and other non-governmental activities in the country. This action raise the public awareness of Alibaba’s existence, and therefore, increasing the brand value of Alibaba.
Based on the illustration above, it is clear that company’s CSFs needs to be identified properly and carefully, so the company could accomplish its goals. Here are applicable steps in identifying CSFs: reviewing company’s vision, mission, and goals statements, corporate values, and strategic plans; analysing current internal and external issues in which they influence company’s operation; summarising the analysis into CSFs and determining the most essential and crucial one; communicating CSFs to other involved parties; monitoring and measuring all identified CSFs.
The first step is reviewing company’s vision, mission, and goals statements, corporate values, and strategic plans. This step is conducted to understand current company’s position or achievements. The company also needs to consider whether the corporate values need to be revised to accomodate the rapidly changing social issues and the challenges company faced; and whether company’s current progress is still in line with company’s initial expectation and goals or not.
The second step is analysing current internal and external issues in which they influence company’s operation. The analysis may consist of tendency in political, economical, social, technological, environmental, and legal (PESTEL) conditions; examining current and future trend in market developments; reviewing company’s key customers’ expectation and satisfaction level; analysing new customers potential; reviewing supplier performance and possible partnership agreement; analysing company’s financial condition and capability; and reviewing company’s human capital capability.
The third step is shortlisting CSFs to only 5 (five) through 8 (eight) CSFs. Parmenter (2007) suggested that company’s ideal CSF is only 5 (five) through 8 (eight) factors. This is to ensure the identified CSFs are truly crucial and keep company’s to focus on goals. Excessive CSFs coulddecrease degree of cruciality and might hinder company’s operation.
The fourth step is communicating CSFs to other involved parties. This action would synergise the involved parties’ dedication in congruence to goals achievement. The fifth step is monitoring and measuring all the identified CSFs. The company must monitor and reevaluate CSFs to ensure those relevancies to company’s goals.
Company could use Rockart’s CSF Checklist as alternative in considering all possible CSFs. Thatchecklist is based on 4 (four) sources, i.e., industry, environmental, strategic, and temporal. Industry factors are factors regarding industry unique characteristics, those factors must be done satisfactorily to retain company’s competitiveness. The simple example could be restaurant, where price and product quality are the most common CSFs in that area of industry.
Environmental factors are factors that might influence company as a whole, such as business climate, economic condition, competitors’ existence, and technological advancements. Strategic factors are factors regarding the implementation of company’s strategy, such as how the company take position and sell their products, how the company’s product characteristics, whether product with high sales frequency but low margin or vice-versa. Temporal factors are factors regarding company’s internal condition. These factors are internal detention, challenges, or specific influences in company’s operation.
Beside the CSFs example of Amazon.com and Alibaba, there are some other CSFs implemented by Indonesia companies, i.e. easily accessible location, short queuing time, and retain customers’ preferences. Easily accessible location give less efforts for customers to buy company’s products or services. Short queuing time minimise risk of customers to cancel transactions. And retain customers’ preferences could avoid them switching to other competitors’ product.
In conclusion, CSFs need to be identified by top-management with full consideration because those have significant linkages regarding the achievement of company’s goals. Top-management have to communicate CSFs to other involved parties, must be explicit, and clear (not ambiguous). Please contact us for further information regarding to these issues.