On this page
- Measurement tools to use
- Examples of common measurements
Success often comes down to one thing – focus.
Focusing on the right things will help you save time and money. The most valuable tools to help you focus are Critical Success Factors and Key Performance Indicators.
Critical Success Factors (CSFs) are strongly related to the strategic goals of the business:
- They're the essential areas of activity that should receive constant and careful attention from management.
- They must be performed well if you're to achieve the business's goals.
- Set between four and eight CSFs in order to be effective in implementing change.
- When starting to use CSFs, consider selecting the most meaningful and easiest to assess.
- They monitor the progress of achieving the CSFs.
- They should be quantifiable (able to be measured) and aligned to the CSFs and business goals to be effective and achievable.
- They limit the amount of data (or areas of focus) to the ones that are truly important to business success.
Choosing your CSFs
In order to set CSFs that will be effective to achieve business success, you should first review:
- the overall business operations
- the environment in which you operate – both internal and external
- business performance, including;
To keep your CSFs easy to monitor and manage – and in line with better business practice – consider setting one or two CSFs covering the following areas:
- Financial – what is the financial viability of the business, and will our strategy deliver financial benefits?
- Customer – are we satisfying the customer’s needs, and how do our customers see us?
- Internal business processes – what needs to be improved within the business to deliver to our customers and other stakeholders?
- Learning and innovation – what needs to be done to improve and innovate to create value for our customers and stakeholders?
Creating your KPIs
Setting KPIs will vary between each business. If you do some research on KPIs, you'll notice there are literally thousands of measures that can be used in business.
So it's important that you choose KPIs:
- that mean something to your business
- that can be easily measured (you don’t want to have to create new reports or data sources each time you need to measure)
- that provide outcomes to achieve your CSFs.
Take a look at the examples below to get a sense of the four key areas of the CSFs outlined above.
Your financial measures should tell you:
- What is the financial viability of the business?
- Will our strategy deliver financial benefits?
Examples of financial CSFs and the matching KPIs:
- Strong cashflow (CSF) = positive cashflow balance for each 12 month forecast or access to finance facility (KPIs)
- Profitability growth (CSF) = sales growth of 2.5 percent per month, no change in gross margin or 1 percent reduction in expenses per month (KPIs).
Your customer measures should tell you:
- Are we satisfying the customer’s needs?
- How do our customers see us?
Examples of customer CSFs and the matching KPIs:
- Customer retention (CSF) = number of repeat purchases per customer over six months, or number of new customers over six months (KPIs)
- Reliability (CSF) = number of customer returns, or percentage of time on delivery (KPIs).
3. Internal business process
Your internal business process measures should tell you:
- What needs to be improved within the business to deliver to our customers?
- What needs to be improved within the business to deliver to other stakeholders?
Examples of internal business processes CSFs and the matching KPIs:
- Environmental sustainability (CSF) = increase monthly office recycle of waste by two cartons or introduce a 'green' policy for purchasing and working with other business partners (KPIs)
- Optimise resource allocation (CSF) = increase employee sales as a percentage of net sales or reduce excess and aged stock by 20 percent by half year (KPIs).
Our accounting and financial policies and procedures template is a good place to start to make sure you have best practice procedures in place.
4. Learning and innovation
Your learning and innovation measures should tell you:
- What needs to be done to continue to improve and innovate to create value for your customers?
- What needs to be done to continue to improve and innovate to create value for your stakeholders?
Examples of learning and innovation CSFs and the matching KPIs:
- New product introduction (CSF) = number of new products compared to competition or increase stock turnover by 5 percent per month (KPIs)
- Workforce training (CSF) = each employee to attend one training event yearly or 5 percent of workforce to achieve improved strategic skills for the financial year (KPIs).
Critical Success Factors and Key Performance Indicators when used well in business will:
- ensure goals set are measured
- ensure that everyone in the business understands what the important aspects to the success of the business are
- direct all business activity towards improving the overall performance of the business.