The original name of Goal Tree is Intermediate Objectives Map, an adaptation of the Theory of Constraints’ Thinking Processes‘ Prerequisite Tree (PRT). IO Map just as Goal Tree displays a logical tree-structured suite of Intermediate Objectives.
Critical Success Factors (CSF) are high-end objectives necessary to achieve in order to achieve the organization’s Goal. Conversely, failing to achieve one CSF means failing to achieve the Goal, thus the name ‘Critical’.
Top management is usually able to state the organization’s Goal, yet stating CSF properly is more difficult than it looks at first glance.
How many CSF?
The purpose or Goal of an organization should not require too many Critical Success Factors to be achievable. Too many of them means the ambition is maybe too high or some CSFs are in fact Necessary conditions mistaken as CSF.
Too many CSFs would simply mean that the Goal is subordinate to too many objectives thus easily endangered. For top management, reviewing, monitoring and managing too many top objectives is distracting and the risk of losing focus increases with the number of CSFs.
I recommend to limit CSF to five. This of course is no absolute limit, but a good start. It requires top management to pick only few really vital, relevant and consistent objectives.
>Read about this company with 20+ “strategic objectives”
What are CSF and how to state them? Here are some tips.
In for-profit organizations and except if in dominant position or in a ‘blue ocean’, the organization faces competition and it is very likely that meeting price, delivery and quality requirements are three Critical Factors. These three are imposed by market, competition and generally speaking external forces.
These external forces will dynamically influence those factors and in order to keep on competitive edge, company may have to adjust permanently.
If one of these three CSF is not met, the company may not be able to compete. End of story.
These three CSF are generic and common to all competitors, this leaves two CSFs to distinguish the company from others. The tip here is to state them wisely to differentiate from others, something that makes the company unique.
CSF statement as for any objective should be SMART. Something like “keeping our quality at best” or “improving our quality” is not SMART, it’s fluffy.
>Read more about SMART CSFs
Almost any contribution can claim helping to improve quality or keep it high, what ever this means. and this would mean contributors are done?
A SMART statement about quality should sound like: “In one year from now our first pass rate is steadily above 98%”.
With such a statement, people in charge and contributors know what they must strive for.
The same applies to any CSF. What does “improving customer relationship” mean? How is it meant to be measured or assessed?
Don’t confuse CSF with Necessary Conditions
It happens often that CSFs and Necessary Conditions are mismatched. Necessary Conditions (NCs) are subordinate (intermediate) objectives compared to CSFs. Just as CSFs, NCs are linked up and downwards to others by a necessity logic relationship: if in order to achieve A we need B, B is a Necessary Condition to A.
What is tricky is CSFs have the same relationship with the Goal, therefore easy to mismatch with NCs. How to distinguish CSFs from NCs? Put plainly, if no higher objective can be inserted between one objective and the Goal, this objective is most probably a CSF.
Example of mismatching: costs, price and margin
Senior managers often suggest “mastering costs” as CSF, which sounds legitimate. But do customers or market care about company’s costs? No, they care about sales price because this is what they have to pay or at least on what they base decision to go for buying or not.
Sales price is higher in rank than costs because price will determine if the company is still in competition or not, not costs.
A startup can challenge the market with aggressive price policy, not with its costs management. This same startup can even write red figures some time, what matters in first place is to conquer market shares through its interesting offering.
Margin is probably also higher rank than costs, because the later surely do influence margin (Price-costs=margin), but it is easier to set a margin level as objective than to foresay future costs. Costs come in many ways: overhead, material, operating expenses, labor, etc. Some costs are a lever to control both sales price and margin, while others are given, non-negotiables. Managing costs is therefore a Necessary Condition, not a CSF.
Some organization operate in a regulatory constrained environment, like aerospace or pharma, where some official certifications are mandatory. Getting and keeping such certification is certainly strategic yet not a CSF, but rather a Necessary Condition and a low level one.
What does it mean? To be authorized to operate in such industry, the certification is a basic requirement which comes early when establishing the company/ the business. This kind of ‘basic’ condition is located near the base of the Goal Tree as without it no operation that goes to the public is allowed.Follow @HOHMANN_Chris