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Critical Success Factors and Organizational Performance

Prepared by: Niemann, Lahlou,

Zertani & Pflug Lecturer: Ihsan Yüksel

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Introduction

• In this project, critical success factors approach will be used in measurement of organizational performance.

• Performance: output/outcome at the end of a certain period of time of an activity.

• Outcome: extents the organization reached its objectives.

• Performance measurement: evaluation of all efforts made to achieve objectives.

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Method

multi-criteria analysis techniques

• Technique for Order Performance by Similarity to Ideal Solution (TOPSIS)

– determine ranking of the critical success factors.

• Analytical Hierarchy Process (AHP): – calculate the weights of critical success factors.

• Critical success factors refer: posses to be successful in the industry they work in.

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Step 1: Determining the factors that enable the organization to be successful in its sector.

In this step, first the factors necessary for the organization to be successful in its sector have been determined.

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The factors considered for the example organization in the project are as

follows:

SF1: financingSF2: brand imageSF3: effective advertisingSF4: pricingSF5: customer satisfactionSF6: distribution skillsSF7: managerial abilitySF8: consumer loyaltySF9: low product cost

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Step 2: Ranking of success factors

Criteria (main factors) which are considered to determine the “critical” of a success factor are as follows:

• Strategic character

• Create value

• Priority of factor

In this step, firstly, the factors that attribute a success factor as “critical” have been determined.

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Comparative judgment Scale of relative importance

ai and aj are equally important 1

ai is moderately more important than aj 3

ai is strongly more important than aj 5

ai is very strongly more important than aj 7

ai is extremely more important than aj 9

Intermediate values between two adjacent judgments 2,4,6,8

Table 1: Scale of relative importance used in the pair-wise comparisons of AHP

In this step secondly, weights of factors had been calculated by the AHP technique. In other words, relative importance has been calculated.

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Main Factors SC CV PF

Strategic character (SC) 1,000 4,000 7,000

Create value (CV) 0,2500 1,000 3,000

Priority of factor (PF) 0,143 0,333 1,000

Table 2: The pair-wise matrix of the main factors

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• After forming the pair-wise comparison matrix, weights of factors have been calculated. In this project, weights vectors had been determined as follows:

Main Factors Weight

Strategic character (SC) 0,701437

Create value (CV) 0,213238

Priority of factor (PF) 0,085324

Table 3: Weight of Main Factors

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Calculate consistency of pair-wise comparison matrix

• Calculate of consistency ratio (CR) as follows

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Then consistency vector is formed as follows:

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n indicates number of factors. The avarage value ( ) of the elements in the

consistency vector is:

= 9,09807÷3 = 3,032576

The consistency index (CI) have been calculated using the following formula:

λmax

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Depending on n number of factors, random index (RI) had been determined.

Random index obtained from the Table 4. For this example RI is 0,58.

Size of Matrix 2 3 4 5 6 7 8 9

Random consistency 0 0,58 0,9 1,12 1,24 1,32 1,41 1,45

Table 4: Average random consistency (RI)

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• Consistency ratio (CR)

• CR is smaller than 0.10 pair-wise comparison matrix is consistent.

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Ranking:

• After calculating weight of the main factors, ranking of the success factors have been determined using TOPSIS technique.

• The calculations have been made in Excel program.

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Each success factor has been evaluated a number between 1-10. And, each column (SC, CV, PF) have been summed (Table 5).

FACTORS SC0,701437

CV0,213238

PF0,085324

SF1 6 4 3

SF2 5 5 5

SF3 3 7 7

SF4 4 3 3

SF5 2 7 4

SF6 6 8 2

SF7 5 2 5

SF8 7 1 6

SF9 8 7 3

Total value 46 44 38

Table 5: Factor Evaluation

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• Normalized matrix

FACTORS SC CV PF

SF1 0,1304 0,0909 0,0789

SF2 0,1087 0,1136 0,1316

SF3 0,0652 0,1591 0,1842

SF4 0,0870 0,0682 0,0789

SF5 0,0435 0,1591 0,1053

SF6 0,1304 0,1818 0,0526

SF7 0,1087 0,0455 0,1316

SF8 0,1522 0,0227 0,1579

SF9 0,1739 0,1591 0,0789

Table 6: Normalized Matrix

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Normalized matrix and the vector of main factor weights have been multiplied.

x

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Success Factors Importance Ranking

SF01 0,103729 6

SF02 0,116146 4

SF03 0,127821 3

SF04 0,078383 9

SF05 0,099389 7

SF06 0,128968 2

SF07 0,092282 8

SF08 0,108298 5

SF09 0,144984 1

Table 7: Ranking of Success Factors with TOPSIS

According ranking of success factors is as follows : First factor is SF09, second is SFO6 and third is SF03 etc.

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Step 3: Determining threshold value for determining critical success factors

At this step, a threshold value had been determined so that critical success factors have been selected from above in Table 7.

In this project threshold value was accepted 0.10

According to this value, these factors are:

• SF01• SF02• SF03• SF06• SF08• SF09

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Step 4: Making pair-wise comparisons of critical success factors and calculation of the weights of

critical success factors.

SF09 SF06 SF03 SF02 SF08 SF01

SF09 1,000 1 ,000 2 ,000 3 ,000 4,000 5,000

SF06 1,000 1,000 2,000 4,000 8,000 7,000

SF03 0,500 0,500 1,000 3,000 1,000 4,000

SF02 0,333 0,250 0,333 1,000 2,000 5,000

SF08 0,250 0,125 1,000 0,500 1,000 7,000

SF01 0,200 0,143 0,250 0,200 0,143 1,000

Table 8: Pair-wise Comparison Matrix of the Critical Success Factors

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• Calculated factor weights are as follows (Table

9).

Weights

SF09 0,26939

SF06 0,336427

SF03 0,154359

SF02 0,102796

SF08 0,102587

SF01 0,034442

Table 9: Weights of Critical Success Factors

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Step 5: Determining organizational performance At this step, performance of the organization has been calculated using critical success factors weights (Table 9) and evaluation scale (Table 10) that provide in the literature.

Level of factors Value

Very Good (VG) 1.0

Good (G) 0.8

Medium (A) 0.6

Negative (N) 0.4

Very Negative (VN) 0.2

Not Evaluation (NE) 0.0

Table 10: Level of Factors

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Table 11: Determining Performance Level According to Critical Success Factors

Critical success factorsFactor weights

Level of factor Value Performance level

SF1 Financing 0,034442 Good 0,8 0,027554

SF2Brand image 0,102796 Very good 1,0 0,102796

SF3Effective advertising 0,154359 Good 0,8 0,123487

SF6Distribution skills 0,336427 Medium 0,6 0,201856

SF8Consumer loyalty 0,102587 Good 0,8 0,08207

SF9 Low production cost 0,26939 Very good 1,0 0,26939

Total Performance Level 0,807153

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There are five columns in Table 11.

• The first column: critical success factors;

• the second column: weight of critical success factors;

• the third column: evaluation level of each factor;

• the fourth column: numerical equivalent of the evaluation level and

• the fifth column: performance level of each critical success factor. • calculation: factor weight and scale value had been

multiplied.

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• In the last row, general performance level had been determined,

• The sum of performance level of each factor in fifth column was yielded general performance,

• This value takes a value between 0 and 1,

• If the value of the general performance level is close to 1, it means that organizational performance is excellent

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• If the general performance level value is close to 0, this means that organizational performance is very bad,

• Of course, the decision and evaluation of organization management are also important,

• In other words, whether the level is considered sufficient or insufficient depends on the organizational management.

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References

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Hussey, D., (1998), Strategic Management; 4.ed., Butterwood Heinemann.

Hwang, C. L., & Yoon, K.,1981, Multiple attribute decision making: Methods and applications, A State of the Art Survey. New York: Springer-Verlag

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