What is the Difference between Key Performance Indicators (KPIs) and Critical Success Factors (CSFs)?
2 July 2021
Anyone who works in business would be forgiven for feeling like they had acronym fatigue. The business world is full of them! Two common acronyms you probably hear a lot about are KPIs (key performance indicators) and CSFs (critical success factors). Often, they’re used interchangeably – although, as we’ll see in this article, the two are not the same thing.
The difference in a nutshell
The difference between KPIs and CSFs is the difference between cause and effect:
- CSFs are the cause of success, i.e. they set out what you need to do to be successful. These are often quite universal across the business world, and include things like good leadership, engaged employees, strong profits and so on.
- KPIs are the effects of your actions, i.e. they measure whether you are successful or not. KPIs typically differ from company to company, depending on the business’s strategic priorities and goals.
As you can see, although they’re different, the two are intrinsically linked and reliant on each other.
CSFs are all those variables that play a vital role in the success of the business. While your overarching strategy sets out the company’s mission and goals (i.e. what you want to achieve), CSFs pinpoint how you will achieve it.
Most businesses across most industries will have the same sorts of CSFs, such as increasing cash flow, boosting sales, improving customer satisfaction, hiring people with the right skills, and boosting productivity.
Some helpful questions for identifying your own CSFs include:
- What factors are likely to lead to our desired outcome?
- What conditions must exist to create that outcome?
- What tools do we need to achieve our goals?
- What skills do we need to achieve our goals?
By defining your CSFs, you create a common point of reference for what the business needs to do to achieve its goals. In this way, CSFs provide much-needed context for people in the organisation by focusing everyone’s attention on the essential activities that must be performed and the priorities that must be met. CSFs should be something everyone can understand and get behind.
Digging into KPIs
In very simple terms, a KPI is a metric for measuring how well individuals, teams or entire companies are performing. Using such metrics, management can understand whether the business (or team or individual) is on the right track and where improvements might be needed.
The very best KPIs are those that are linked to your strategic goals and priorities. There are literally thousands of KPIs out there and if you measured everything, it would be an utterly meaningless (not to mention expensive and time-consuming) exercise. So you need to be choosy, focusing your efforts on those areas that really matter to the business. For example, if you’re focused on building a strong brand, then you’ll want KPIs that measure brand equity and brand awareness. Therefore, think of KPIs as a way to easily quantify the organisation’s goals and priorities into measurable metrics. Using these metrics, you can assess the performance of the company (or individual, or business unit, and so on).
KPIs tend to be quantitative in nature, often using straightforward numbers, percentages or ratios to measure performance. Which makes them easy to use and easy to interpret. But what most standard KPIs don’t do is tell you the why. They don’t tell you why only 30% of customers would recommend your business, for example, or pinpoint how you can improve in future. In fact, KPIs don’t do anything to improve performance – they only tell you if you’re achieving what you want to.
In addition, a too-rigid focus on KPIs can skew behaviours and even have a detrimental effect on the business. Remember, quantity isn’t the same thing as quality. For example, say you manage to meet a target of increasing traffic to your website by 20% by publishing lots more free content. But the quality of that content has gone down because your team has less time to spend on each article or blog. So, although you’re getting more visitors, the average amount of time visitors spend reading your content has dropped. Overall, sales and leads haven’t increased – even though, according to that one KPI, you’ve been successful.
Therefore, it’s important to use KPIs in an intelligent way that links to your strategic priorities.
Combining KPIs and CSFs in practice
When I work with a company to measure and improve performance, I never start with KPIs, CSFs or raw data. Instead, I start by working with the leadership to define the company’s goals and strategy. CSFs then help define the factors that must be in place to deliver those goals. And KPIs help us track how things are going, so we can see whether the company is performing as it needs to.
Clearly, KPIs and CSFs are important parts of the performance puzzle. But, in my experience, too many companies focus on them at the expense of taking action. Far too many strategy documents forget to map out the specific initiatives and actions that will take the business towards its goals – and without action, the whole exercise is pretty much pointless. Therefore, alongside mapping out your CSFs and KPIs, be sure to map out the activities and initiatives that will get you where you need to be.
Where to go from here
If you would like to know more about KPIs and performance measurement, check out my articles on:
- How To Align Initiatives With Strategic Priorities
- What is a Leading and a Lagging Indicator?
- How Many Strategic Goals Should a Company Have?
Or browse the KPI Library to find the metrics that matter most to you.
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