Critical Success Factors and
Organizational Performance
Prepared by: Niemann, Lahlou,
Zertani & Pflug
Lecturer: Ihsan Yüksel
1
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.
2
• Critical success factors refer: posses to be successful in
the industry they work in.
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.
3
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: financing
SF2: brand image
SF3: effective advertising
SF4: pricing
SF5: customer satisfaction
SF6: distribution skills
SF7: managerial ability
SF8: consumer loyalty
SF9: low product cost
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Step 2: Ranking of success factors
In this step, firstly, the factors that attribute a success factor as
“critical” have been determined.
Criteria (main factors) which are considered to determine the
“critical” of a success factor are as follows:
•
Strategic character
•
Create value
•
Priority of factor
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In this step secondly, weights of factors had been calculated by the
AHP technique. In other words, relative importance has been
calculated.
Table 1: Scale of relative importance used in the pair-wise
comparisons of AHP
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
7
Table 2: The pair-wise matrix of the main factors
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
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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:
Table 3: Weight of Main Factors
Main Factors
Weight
Strategic character (SC)
0,701437
Create value (CV)
0,213238
Priority of factor (PF)
0,085324
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Calculate consistency of pair-wise
comparison matrix
• Calculate of consistency ratio (CR) as follows
10
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:
λmax
= 9,09807÷3 = 3,032576
The consistency index (CI) have been calculated using the following formula:
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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.
Table 4: Average random consistency (RI)
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
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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).
Table 5: Factor Evaluation
SC
0,701437
CV
0,213238
PF
0,085324
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
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FACTORS
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• Normalized matrix
Table 6: 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
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Normalized matrix and the vector of main factor weights have
been multiplied.
x
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Table 7: Ranking of Success Factors with
TOPSIS
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
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.
Table 8: Pair-wise Comparison Matrix of the 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
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• Calculated factor weights are as follows (Table 9).
Table 9: Weights of Critical Success Factors
Weights
SF09
0,26939
SF06
0,336427
SF03
0,154359
SF02
0,102796
SF08
0,102587
SF01
0,034442
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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.
Table 10: Level of Factors
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
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Table 11: Determining Performance Level According to Critical Success Factors
Factor
weights
Level of factor
Financing
0,034442
Good
0,8
0,027554
Brand image
0,102796
Very good
1,0
0,102796
Effective advertising
0,154359
Good
0,8
0,123487
Distribution skills
0,336427
Medium
0,6
0,201856
Consumer loyalty
0,102587
Good
0,8
0,08207
Low production cost
0,26939
Very good
1,0
0,26939
Critical success factors
SF1
SF2
SF3
SF6
SF8
SF9
Total Performance Level
Value
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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