Recently I have realised the importance of distinguishing Internal from external critical success factors. A Board of a charity rightly pointed out that the CSFs tabled (the internal CSFs) were too internally focused.  They wanted to see, understandably the external picture, the external CSFs.  The Board was naturally looking from outside-in.  The Board want to see the external CSFs expressed as outcomes and impacts they want to see. We want the organization to deliver this, deliver that which will be a result of success implementation of the organization’s strategy.

This recent clarification has fixed an issue I have noted in a number of in-house workshops I have run where there was a mix of internal and external CSFs emerging.  This distinction is important, and whilst at first, an added complication it is worth the effort to understand and execute.

I was first introduced to critical success factors by the talented people who wrote the KPI manual for AusIndustry (an Australian government department). They defined critical success factors as the “list of issues or aspects of organizational performance that determine ongoing health, vitality, and well-being.”  I have always seen these as internal issues or aspects that need to be done well day-in day-out by the staff in the organisation. They are about what the staff inside the organisation can do, and should do.

Stephen Covey pointed out in “First things first” the importance of focusing on the important things first.  He talked about putting in “rocks in first” every day.  We can liken the internal CSFs as the rocks that staff need to focus on every day. They should be the driving force behind prioritisation throughout the organization.  They are very directional to operational staff who are focused on current demand, current production and current delivery of products and services.  The critical success factor “Deliver in full on time to key customers” communicates to staff that major orders for our key customers, often the difficult and complex orders, need to be tackled first.  Whereas if left to handling deliveries as they saw fit many staff would tackle the easy orders, putting the easy “runs on the board” and thus jeopardising service to our most profitable customers.

A philosophy professor is lecturing to his students. He brings out an empty jar and golf balls. Filling the jar with the golf balls, he asks if it is full. “ Yes, ” they reply. Then he lifts a container of dried peas and pours them in. “ Is it full? ” “ Yes, ” they reply. Then he lifts a container of sand and pours it in around the golf balls and peas. “ Is it full? ” “ Yes,defi nitely, ” they reply. Then he pours in a cup of coffee. He explained, “ Golf balls are the important things in your life — you must put them into your life first, otherwise you can ’ t fit them in. Dried peas — are the next most important things. Sand — emails, meetings, daily chores. ” “ So why the coffee? ” a student asks. “ To remind you to always have the time for a coffee with your friends, ” the professor replied.

External critical success factors are driven from the organisation’s strategy and are the priority of a select few senior management such as the external CSF “Developing and growing a new product or market”.  This ECSF is a result of many different activities happening from secret alliance agreements being successfully signed to new operational capacity being organized in a new country.  New plant in a new country will, once operational, be guided by the internal CSFs already in existence elsewhere in the organization.

To help further clarify I have separated out the characteristics of external and internal critical success n the Exhibit 1

Source for these Characteristics
Internal critical success factors (ICSFs) between five to eight Discussions with senior leadership team and the oracles residing in operations.  Strategic documentation 24/7 daily focusInvolving most staff in operations

Also of concern to support staff

Need to be described as “what staff should do”

Describe an internal action or specific activities that staff can focus on

External critical success factors (ECSFs) Less than ten. Strategy documentation, discussions with directors. Project based focusInvolves senior staff often in negotiations

Need to be described as “what success looks like”

Describe an external result such as growth in a new market, increased service level, retention of customers

I suggest you will know when you have got it right when you have some sort of pictorial representation on office walls illustrating to staff what is important.  If you cannot meaningfully explain what staff need to do well day-in, day-out you do not have a complete list of your organization’s ICSF.

The Missing Link

It is a common myth that performance measures are mainly used to help manage implementation of strategic initiatives was highlighted. Instead, the main purpose of performance measures is to ensure that staff members spend their working hours focused primarily on the organization’s critical success factors. You could be in your tenth year with a balanced scorecard and still not know your organization’s critical success factors. I believe it is like going to soccer’s World Cup without a goalkeeper, or at best, an incompetent one. The term critical success factors does not appear to be addressed by some of the leading writers of the past 30 years. Peter Drucker, Jim Collins, Gary Hemel, Tom Peters, Robert Kaplan, and David Norton all appear to ignore the existence of critical success factors.  

I argue that, unless the ICSFs are ascertained , each manager, in their own empire, will have what is important to them embedded in the way things are done. Many counterproductive activities will occur based on this false premise, that is, what is important to me is important to the organization. For a chief executive officer to steer the ship, everybody needs to know the journey, what makes the ship sail well, and what needs to be done in difficult weather. It can come as no surprise when I say that the term critical success factors could be a major missing link in balanced-scorecard and other methodologies.