If you’ve ever seen the acronym KPI or CSF in a business context, you’ve seen a shorthand to those two questions above. KPI stands for Key Performance Indicators, whereas CSF stands for Critical Success Factors. Some people use them interchangeably or confuse them, but they’re two totally different concepts.
The easiest way to understand them singly and in contrast is by understanding that CSFs are the cause of your success, whereas KPIs are the effects of your actions. Thus, there’s a tight relationship between them: if you’ve properly identified your CSFs and have been executing on them AND you’ve properly identified what your KPIs are, you should be meeting – or getting close to meeting – your KPIs.
If we drop the lingo, basically, we’re asking “what must we do to be successful?” (CSFs) and “what indicates that we’re winning?”
The use of KPIs can be strict or loose. Using them strictly means that you set a baseline, i.e. “$10k sales of this product line in a month is our baseline KPI;” in this use, if you get $10k sales in that product line, you’re meeting your KPIs. Using them loosely means that you’ll be watching data trends to determine whether you’re performing better, i.e. “we’ll be watching the sales data from this product line over this month since it’s a clear indicator of our performance.” Both ways of using KPIs have their uses; the more uncertain you are of the relationship between your CSFs and business momentum, the looser you’ll want to use KPIs.
The key part of KPIs is that they help you limit the amount of data you have to make sense of. The actions you take in your business often have many different effects, but not all effects are equal. For instance, gross revenue is almost always a KPI for every business, regardless of what stage of business they’re in, because one of the evergreen goals of a business is to generate profit. Because different actions and decisions may cause a drop in profit, sometimes profit isn’t the right metric to track because it will lead myopic decisions. In general, what we pay attention to grows, and KPIs help us pay attention.
These acronyms formalize and test our intuition, as well as getting us to really analyze the causes and effects of our business momentum. For example, many business bloggers posit an increase of traffic as a KPI and thus endeavor to do the things that increase traffic (informally making those activities CSFs), only to find out that an increase in traffic doesn’t actually affect their COV matrix. Brick-and-mortar business owners posit more people in the store as a KPI, only to find out that people aren’t actually buying anything while they’re in there and they need to rethink their sales process. I could go on, but you get where this is going.
The key difference between CSF and KPI is that CSF refers to the causes for success whereas KPI refers to the effects of success.
CSF stands for critical success factors while KPI stands for key performance indicators. Both CSF and KPI are quite common concepts in the modern business world and used as tools to measure the progress of the business. CSF results from an organization’s mission and strategic goals. Companies can develop KPIs according to the CSFs they identify.
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What is CSF?
CSF stands for Critical Success Factors. This is used to identify a limited number of areas to ensure the performance of the company. In other words, identifying critical success factors of a company will lead to track and measure the progress towards accomplishing strategic goals, and finally the mission of the company. A CSF is a high-level goal that is essential for a business to meet. Furthermore, it determines what’s most significant in ensuring the progress and stability of the company. CSF is also known as Key Result Areas.
The following are examples of CSF.
1. Increasing market share with the existing customers
2. Achieving On time in Full (OTIF) through excellent on line process improvement.
Identifying and communicating CSFs within the firm ensures that the business or project is focused on its objectives. Moreover, this reduces the effort and time taken to focus on less important areas.
What is KPI?
KPI stands for Key Performance Indicator. This is used to measure the performance of a company in terms of achieving organizational objectives. KPI can evaluate the performance of an individual as well as organization performance. Firms use KPIs at multiple levels to evaluate their success at reaching targets. Most of the time, KPIs are measurable values. For instance, to increase sales revenue by 20% this year. Generally, the best KPIs are SMART. SMART stands for Specific, Measurable, Attainable, Relevant and Time-bound.
Moreover, high-level KPIs are given to top management for organizational performance while low-level KPIs are given to middle-level management to drive organizational objectives. It is important to understand the organizational objectives and its impact on the business when developing a strategy to formulate KPIs. Furthermore, Objectives and KPIs may vary from organization to organization. The progress of KPIs has to be reviewed in a timely manner.
What is the Relationship Between CSF and KPI?
CSF and KPI have a close relationship in achieving the progress of a company. CSF results from an organization’s mission and strategic goals. Companies can develop KPIs according to the CSFs they have identified. Moreover, KPIs have measurable and specific criteria; the top management uses them to evaluate the performance of the company. They also provide data that enables organizations to decide whether CSFs have been met or objectives have been achieved.
What is the Difference Between CSF and KPI?
The key difference between CSF and KPI is that CSF is the cause for success whereas KPI is the effects of success. In general, KPIs are more descriptive and quantitative than CSFs. For instance, a company can identify CSF as “significant increase sales volume in European markets” and to drive the identified CSF, a KPI can be assigned as “Increase sales revenue in European markets by 10% against last year, by year-end.”
KPIs need to be SMART, but there is no specific requirement for CSF to be smart. KPIs are assessed or evaluated in a timely manner by top management while CSFs do not need to be evaluated. In general, CSFs are identified by top management whereas KPIs are assigned by department heads to drive CSF or company objectives. Moreover, KPIs are used to evaluate individual performance whereas CSF is not used to evaluate individual performance. Another difference between CSF and KPI is that most CSFs are quite universal across the business world whereas KPI differs from company to company and depends on the business situation.
Summary – CSF vs KPI
Both CSF and KPI are quite common concepts in the modern business world. They are useful as tools to measure the progress of the business. The key difference between CSF and KPI is that CSF can identify the significant factors for the company, leading to finding the causes of success, while KPI can measure or evaluate the success of an organization.
Reference:1. “Critical Success Factors: Identifying What Really Matters for Success.” MindTools.com, Available here.
2. “What Is a KPI? Definition, Best-Practices, and Examples.” Klipfolio.com, Available here.
3. “How To Determine Critical Success Factors For Your Business.” ClearPoint Strategy, 13 June 2019, Available here.