Improvement tools: Critical success factors and key performance indicators

Page last updated: Tuesday, 11 July 2017 - 11:58am

Please note: This content may be out of date and is currently under review.

In any business there are a number of things that have to be in place and working well if the business is to achieve its goals. These are the critical success factors (CSFs).

There might be many day to day tasks that need to be done. But if the CSFs are missing or underperforming, the goals will not be achieved.

Key performance indicators (KPIs) are the way to measure whether the CSFs are working.

Using CSFs and KPIs helps a business stay focused on the key actions that will keep it on track to achieving its goals.

The best way to start to understand critical success factors (CSFs) and key performance indicators (KPIs) is to see some examples. Also included in the examples below is the idea of targets. These are the level of performance that is needed to reach the goals. The examples also include SMARTT goals. SMARTT stands for specific, measurable, achievable, relevant, targeted and timeframed.

Example 1: A restaurant

Goal: Increase profit by 5% by January next year by increasing throughput by 10% in lunch and dinner trade without reducing our gross margins.

CSF KPI Target
Market share % of business within a 5km radius 10%
Customer satisfaction % of customers who are satisfied 95%
Meal quality % of meals returned because of poor quality 2%

Example 2: Whitegoods manufacturer

Goal: To increase the operating profit of a washing machine manufacturer by 5% within two years.

CSF KPI Target
High product quality Number of warranty claims per 100 units 3
High process yields % rolled throughput yield 95%
Low production costs Average variable costs <$350
Market share %  of the market 15%

Doing it yourself

When developing CSFs, KPIs and targets it can be useful to think in the following way:

  • to achieve the goal it is critical to have … (these are the CSFs)
  • the best indication of whether the CSF is working is … (this is the KPI)
  • we will know we are on track to our goal when we have reached … (this is the target).

Using example 1 this type of thinking would look like this:

  • To achieve the goal it is critical to have a share of the market, satisfied customers and quality meals.
  • The best indicator of whether we have market share will be how much business we get relative to other restaurants (market share) in a five kilometre radius.
  • We will know we are on track to our goal when we have 10% market share.

Developing CSFs, KPIs and targets takes practice. Having them means you focus on the things that matter most and you can keep track of progress towards your goals.

Situations change and CSFs, KPIs and targets may also need to change. They should be reviewed regularly.

Other tools to use with CSFs and KPIs

CSFs and KPIs can be used in steps 1, 4, 5, 6 and 8 of the CI&I - Continuous improvement and innovation process.

Develop target outcomes and use the SMARTT goal tool before you develop CSFs and KPIs.

Once you have your CSFs and KPIs you can use the Action design tool or Five Ws and one H to work out the key actions needed to ensure the CSFs are in place and working well.

Support to use the tool

Please contact us if you would like support to develop CSFs, KPIs and targets.

A worksheet to use as you develop CSFs, KPIs and targets can be found in the 'Documents' section on the far right.