Critical Success Factors (CSFs) are defined as being ‘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. As a result, the CSFs are areas of activity that should receive constant and careful attention from management. The current status of performance in each area should be continually measured, and that information should be made widely available.
CSFs are the few key areas where ‘things must go right’ for the business to flourish. It is very important to identify them when aiming to obtain a profound understanding of the business. The very act of determining CSFs may help to crystallize objectives and strategies, and certainly to emphasize priority activities.
Every firm in an industry may have some common CSFs such as access to raw materials or timely delivery, due to pressures on or in the industry. The overall organization, which could have units in many industries, will have CSFs relative to its objectives of diversification, return on investment and portfolio mix. The key area for determining CSFs as part of IS strategy development is the business unit, since this is the practical level to determine strategy. The agreement of the business unit managers as to what these CSFs are is important in obtaining consensus on the major IS/IT investments. There will also tend to be a structured, cascading relationship in a large organization between objectives and CSFs.
Critical Success Factor (CSF) analysis has been the most commonly-used tool in the IS strategies toolkit and its value is increased if used in conjunction with the Balanced Scorecard. The establishment of a set of CSFs against a set of business objectives and measures, within a Balanced Scorecard framework, requires consolidation into a matrix of objectives and relevant CSFs. This is reasonably straightforward, provided there are not too many of either! The priority for dealing with the CSFs is not determined by the CSF (‘critical’ implies that no priority can be set), but by the priority of the objective that caused the success factor to be identified and by the number of objectives that will be affected by its satisfactory achievement. The next stage in the process is not, however, as straightforward. Interpreting CSFs in terms of information and information systems cannot easily be done without reference to the activities of the business and its organizational structure.
Critical Success Factors in Strategic Information Systems:
A second aspect of the analyses of our research base identifies some of the key factors that seem to recur frequently and underpin success. Few strategic information systems show all of the factors, but many show a number. Again, these factors are often at odds with traditional IS/IT approaches and show more commonality with business innovation.
1. External, not internal, focus: looking at customers, competitors, suppliers, even other industries and the business’s relationships and similarities with the outside business world. Traditionally IS/IT was focused on internal processes and issues. Toshiba is using wireless technology for remote monitoring of photocopiers, so that technicians can be dispatched as soon as there are signs of a problem. This reduces servicing costs and, since machines are out of action less often, increases usage and revenue.
2. Adding value, not cost reduction: although cost reductions may accrue due to business expansion at reduced marginal costs, ‘doing it better, not cheaper’ seems to be the maxim. This is consistent with the requirements of companies to differentiate themselves from competitors—better products, better services—to succeed. Historically, IS/IT was seen as a way of increasing efficiency—doing it cheaper—and, while this is obviously important in any business environment, it is not the only way to succeed. At Svenska Cellulosa Aktiebolaget, a Swedish pulp and paper company, foremen use a wireless system to send instructions to loggers in the field, specifying which trees to cut and in what order. This enables the company to coordinate harvesting decisions with inventory and transport requirements and match those decisions to market needs.
3. Sharing the benefits: within the organization, with suppliers, customers, consumers and even competitors on occasion! In many cases in the past, systems benefits have not been shared even within an organization, but used instead to give departments or functions leverage over each other. This reduces the benefits and does not allow them to be sustained. Sharing benefits implies a ‘buy in’, a commitment to success, a switching cost. Almost all of the examples involve sharing the benefits, with suppliers, customers, consumers and competitors, to provide barriers of entry to the industry. For instance, the introduction of debit cards to replace cheque books depended for its success on banks sharing some of the reduced processing costs with the retailers and consumers, since the benefits that the bank could gain depended on the commitment of retailers and consumers. Some would argue that this was achieved by increasing the cost of the alternative (i.e. cheques!).
4. Understanding customers and what they do with the product or service: how they obtain value from it, and the problems they may encounter in gaining that value. In the 1980s, McKesson, the pharmaceutical wholesaler, followed this principle very closely in providing a range of information-based services to drugstores, starting from a simple problem of stock control, solved by delivering products in shelf-sized batches. Black and Decker, a low-cost producer, supplied a value-added service to retailers to enable them to ‘swap’ goods they had over or understocked for the season. They did not want returns, but the retailer could not be expected to predict precisely how many lawnmowers, for instance, would be sold. It helped to solve a customer’s problem. Federal Express has built on its original customer-service system, which tracks every movement of every package, and extended access direct to customers.
5. Business-driven innovation, not technology-driven: the pressures of the marketplace drove developments in most cases. This tends to cast doubt on the idea of competitive advantage from IT, but, in practice, it means that new or existing IT provides or enables a business opportunity or idea to be converted into reality. The lead or the driving force is from the business, not necessarily a traditional route to using IS/IT, which has often been driven by technology, pushed by the IT suppliers and professionals, not pulled through by the users. It is only relatively recently that the latest technology has become of interest to business managers. But the business issue does not change: why take two risks at the same time—that is, a new business process based on new technology? It is a recipe for failure! Keen56 summed it up well by saying, ‘Major failures in using IT are often based on much better technology and bad business vision. Successes come from good enough technology and a clear understanding of the customer.’ An early prediction of the demise of many dot.com ventures?
6. Incremental development, not the total application vision turned into reality. Many examples show a stepped approach—doing one thing and building on and extending the success by a further development. To some extent, this is developing applications by experimentation but also not stopping when a success is achieved but considering what could be done next. This, again, is against the traditional notion of clarifying all requirements, defining all boundaries and agreeing the total deliverables of the system before embarking on the expensive, structured process of design and construction, freezing the requirements at each stage. Prototyping of systems obviously has a key role to play here.
7. Using the information gained from the systems to develop the business. Many mail order and retailing firms have segmented their customers according to the purchasing patterns shown by transactions and then providing different, focused catalogues or special offers. Product and market analyses plus external market research information can be merged and then recut in any number of ways to identify more appropriate marketing segmentation and product mix. This aspect has been exploited particularly well by the ‘direct’ insurers, who are able to target the lower risk, more profitable customers very accurately. Through using the information gleaned from customer transactions, the Britannia Building Society in the UK has developed a sophisticated segmentation strategy based on creating customer propensity models, which have helped the Society increase the average number of products per customer from 1.3 to over 2.0.57 Before Safeway introduced its loyalty card scheme, they knew virtually nothing about customers. They didn’t know who they were, what they bought or even if they were the same customers who shopped at the store the previous week. By introducing a loyalty card scheme, it persuaded customers to tell them what they bought, and yielded significant information such as: most customers aren’t profitable; average shopping range is 250 lines; women are 50% impulsive, men 90%; customers shop for concepts not commodities (e.g. Sunday lunch, kids treat, Italian meal); Feta cheese is the 298th most popular cheese on units sold, but leaps to 25th in terms of basket size.
As discussed above, these factors, in general, imply different attitudes to the use of IS/IT than have prevailed in the past, implying that we need new ways of thinking about IS/IT techniques to uncover such opportunities, and then new approaches to managing these applications to ensure success. Another general observation can be made from these examples, by considering what actually produces the success—information technology, information systems or information. Technology itself is the ‘enabler’, which provides short-term advantage and the opportunity to develop new systems and to capture and use potentially valuable information. But, normally, competitors will be able to purchase the same technology, and any advantages could soon be negated. However, the new information systems that developed, utilizing the technology, could provide advantages that may be less vulnerable to erosion by competitive copying. The potential gain will depend on how conclusively and exclusively the systems alter business processes and relationships.
In time, however, the existing competition or new entrants enticed into the profitable parts of industry could redefine the relationships by introducing alternative information systems. If the firm wishes to sustain its competitive advantage, it must use the information gleaned from its systems to improve its products or services—to match the requirements of the marketplace or influence its development.
CSFs are the few key areas where ‘things must go right’ for the business to flourish. It is very important to identify them when aiming to obtain a profound understanding of the business. The very act of determining CSFs may help to crystallize objectives and strategies, and certainly to emphasize priority activities.
Every firm in an industry may have some common CSFs such as access to raw materials or timely delivery, due to pressures on or in the industry. The overall organization, which could have units in many industries, will have CSFs relative to its objectives of diversification, return on investment and portfolio mix. The key area for determining CSFs as part of IS strategy development is the business unit, since this is the practical level to determine strategy. The agreement of the business unit managers as to what these CSFs are is important in obtaining consensus on the major IS/IT investments. There will also tend to be a structured, cascading relationship in a large organization between objectives and CSFs.
Critical Success Factor (CSF) analysis has been the most commonly-used tool in the IS strategies toolkit and its value is increased if used in conjunction with the Balanced Scorecard. The establishment of a set of CSFs against a set of business objectives and measures, within a Balanced Scorecard framework, requires consolidation into a matrix of objectives and relevant CSFs. This is reasonably straightforward, provided there are not too many of either! The priority for dealing with the CSFs is not determined by the CSF (‘critical’ implies that no priority can be set), but by the priority of the objective that caused the success factor to be identified and by the number of objectives that will be affected by its satisfactory achievement. The next stage in the process is not, however, as straightforward. Interpreting CSFs in terms of information and information systems cannot easily be done without reference to the activities of the business and its organizational structure.
Critical Success Factors in Strategic Information Systems:
A second aspect of the analyses of our research base identifies some of the key factors that seem to recur frequently and underpin success. Few strategic information systems show all of the factors, but many show a number. Again, these factors are often at odds with traditional IS/IT approaches and show more commonality with business innovation.
1. External, not internal, focus: looking at customers, competitors, suppliers, even other industries and the business’s relationships and similarities with the outside business world. Traditionally IS/IT was focused on internal processes and issues. Toshiba is using wireless technology for remote monitoring of photocopiers, so that technicians can be dispatched as soon as there are signs of a problem. This reduces servicing costs and, since machines are out of action less often, increases usage and revenue.
2. Adding value, not cost reduction: although cost reductions may accrue due to business expansion at reduced marginal costs, ‘doing it better, not cheaper’ seems to be the maxim. This is consistent with the requirements of companies to differentiate themselves from competitors—better products, better services—to succeed. Historically, IS/IT was seen as a way of increasing efficiency—doing it cheaper—and, while this is obviously important in any business environment, it is not the only way to succeed. At Svenska Cellulosa Aktiebolaget, a Swedish pulp and paper company, foremen use a wireless system to send instructions to loggers in the field, specifying which trees to cut and in what order. This enables the company to coordinate harvesting decisions with inventory and transport requirements and match those decisions to market needs.
3. Sharing the benefits: within the organization, with suppliers, customers, consumers and even competitors on occasion! In many cases in the past, systems benefits have not been shared even within an organization, but used instead to give departments or functions leverage over each other. This reduces the benefits and does not allow them to be sustained. Sharing benefits implies a ‘buy in’, a commitment to success, a switching cost. Almost all of the examples involve sharing the benefits, with suppliers, customers, consumers and competitors, to provide barriers of entry to the industry. For instance, the introduction of debit cards to replace cheque books depended for its success on banks sharing some of the reduced processing costs with the retailers and consumers, since the benefits that the bank could gain depended on the commitment of retailers and consumers. Some would argue that this was achieved by increasing the cost of the alternative (i.e. cheques!).
4. Understanding customers and what they do with the product or service: how they obtain value from it, and the problems they may encounter in gaining that value. In the 1980s, McKesson, the pharmaceutical wholesaler, followed this principle very closely in providing a range of information-based services to drugstores, starting from a simple problem of stock control, solved by delivering products in shelf-sized batches. Black and Decker, a low-cost producer, supplied a value-added service to retailers to enable them to ‘swap’ goods they had over or understocked for the season. They did not want returns, but the retailer could not be expected to predict precisely how many lawnmowers, for instance, would be sold. It helped to solve a customer’s problem. Federal Express has built on its original customer-service system, which tracks every movement of every package, and extended access direct to customers.
5. Business-driven innovation, not technology-driven: the pressures of the marketplace drove developments in most cases. This tends to cast doubt on the idea of competitive advantage from IT, but, in practice, it means that new or existing IT provides or enables a business opportunity or idea to be converted into reality. The lead or the driving force is from the business, not necessarily a traditional route to using IS/IT, which has often been driven by technology, pushed by the IT suppliers and professionals, not pulled through by the users. It is only relatively recently that the latest technology has become of interest to business managers. But the business issue does not change: why take two risks at the same time—that is, a new business process based on new technology? It is a recipe for failure! Keen56 summed it up well by saying, ‘Major failures in using IT are often based on much better technology and bad business vision. Successes come from good enough technology and a clear understanding of the customer.’ An early prediction of the demise of many dot.com ventures?
6. Incremental development, not the total application vision turned into reality. Many examples show a stepped approach—doing one thing and building on and extending the success by a further development. To some extent, this is developing applications by experimentation but also not stopping when a success is achieved but considering what could be done next. This, again, is against the traditional notion of clarifying all requirements, defining all boundaries and agreeing the total deliverables of the system before embarking on the expensive, structured process of design and construction, freezing the requirements at each stage. Prototyping of systems obviously has a key role to play here.
7. Using the information gained from the systems to develop the business. Many mail order and retailing firms have segmented their customers according to the purchasing patterns shown by transactions and then providing different, focused catalogues or special offers. Product and market analyses plus external market research information can be merged and then recut in any number of ways to identify more appropriate marketing segmentation and product mix. This aspect has been exploited particularly well by the ‘direct’ insurers, who are able to target the lower risk, more profitable customers very accurately. Through using the information gleaned from customer transactions, the Britannia Building Society in the UK has developed a sophisticated segmentation strategy based on creating customer propensity models, which have helped the Society increase the average number of products per customer from 1.3 to over 2.0.57 Before Safeway introduced its loyalty card scheme, they knew virtually nothing about customers. They didn’t know who they were, what they bought or even if they were the same customers who shopped at the store the previous week. By introducing a loyalty card scheme, it persuaded customers to tell them what they bought, and yielded significant information such as: most customers aren’t profitable; average shopping range is 250 lines; women are 50% impulsive, men 90%; customers shop for concepts not commodities (e.g. Sunday lunch, kids treat, Italian meal); Feta cheese is the 298th most popular cheese on units sold, but leaps to 25th in terms of basket size.
As discussed above, these factors, in general, imply different attitudes to the use of IS/IT than have prevailed in the past, implying that we need new ways of thinking about IS/IT techniques to uncover such opportunities, and then new approaches to managing these applications to ensure success. Another general observation can be made from these examples, by considering what actually produces the success—information technology, information systems or information. Technology itself is the ‘enabler’, which provides short-term advantage and the opportunity to develop new systems and to capture and use potentially valuable information. But, normally, competitors will be able to purchase the same technology, and any advantages could soon be negated. However, the new information systems that developed, utilizing the technology, could provide advantages that may be less vulnerable to erosion by competitive copying. The potential gain will depend on how conclusively and exclusively the systems alter business processes and relationships.
In time, however, the existing competition or new entrants enticed into the profitable parts of industry could redefine the relationships by introducing alternative information systems. If the firm wishes to sustain its competitive advantage, it must use the information gleaned from its systems to improve its products or services—to match the requirements of the marketplace or influence its development.
Reference:
Strategic Planning for Information Systems, Third Edition
By: John Ward and Joe Peppard
Copyright © 2002 by John Wiley & Sons Ltd.
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