June 16, 2024

Organizational Analysis and Appraisal – core competency – CRITICAL SUCCESS FACTOR ( CSF )

Organizational Analysis and Appraisal

An organisation uses different types of resources and exhibits a certain type of behaviour. The interplay of these different resources, competency and capability along with the prevalent behaviour produces synergy within an organisation, which leads to the development of strengths or weaknesses over a period of time. Some of these strengths make an organisation especially competent in a particular area of its activity causing it to develop competencies. Organisational capability rests on an organisation’s capacity and the ability to use its competencies to excel in a particular field, thereby giving it strategic advantage.

The resources, competency, capability behaviour, strengths and weaknesses, synergistic effects of an organisation determine the nature of its internal environment

An organization consists of various departments, such as marketing, finance, human resources, and operations. An organization should try to know the important internal factors and identify the nature of different departments and their capabilities.


Organizational Resources

Organizational resources can be broadly divided into two types; that is, tangible and intangible.

Tangible resources consist of financial, physical, and human resources.

Financial resources include cash and long term investments. Physical resources include plants, equipments, and raw materials; whereas human resource constitutes the employees.

Intangible resources consist of patents, copyrights, and intellectual property rights. The availability of all the resources is of paramount importance for an organization’  success. The adequacy of resources acts as a strength, whereas the scarcity of resources acts as a weakness for an organization.

When an organization possesses scarce resources, it should use them efficiently for satisfying customer needs and accruing strategic advantage. Thus, a mere possession of resources is not enough; the strategic advantage depends on the efficiency of the resource utilization.

The usage of resources is based upon organizational behavior. Organizational behavior can be defined as the manifestation of various influences operating in the internal environment that may create or destroy the utility of resources. The forces that affect the organizational behavior are quality of leadership, shared values and culture, quality of work environment, and organizational politics. The organizational behavior affects the utilization of resources; therefore, it collectively produces strengths and weaknesses within the internal environment of the organization.


 Organizational Competencies

A cluster of related abilities, commitments, knowledge and skills that enable a person (or an organization) to act effectively in a job or situation.

Competence indicates sufficiency of knowledge and skills that enable someone to act in a wide variety of situations.

Organizational competencies are termed as strengths or qualities possessed by an organization that help it to outshine the competitors in the market.

Competencies are special qualities possessed by an organization that make them withstand

the pressures of competition in the marketplace.  These competencies are developed over a period of time.

There are two types of competencies namely, core competency and distinctive competency.

Core competency

Core competency refers to collective learning of an organization, which is gained by coordinating diverse skills of employees and integrating technologies.

When an organisation develops its competencies over a period of time and hones them into a fine art of competing with its rivals, it tends to use these competencies exceedingly well. The capability to use the competencies exceedingly well turns them into core competencies.

According to Prahalad and Hamel, the competitive (or strategic, as we call it here) advantage can be traced to the core competencies of an organisation.

 Competitive advantage:

An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retains more customers than its competition. There can be many types of competitive advantages including the firm’s cost structure, product offerings, distribution network and customer support.

They take the analogy of a tree in describing core competence.

‘The diversified corporation is a large tree. The trunk and major limbs are core products, the smaller branches are business units; the leaves, flowers, and fruit are end products. The root system that provides nourishment, sustenance, and stability is the core competence.’

Further they explain core competence as: ‘… the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technologies….  it is also about the organisation of work and the delivery of value… (It) is communication, involvement and a deep commitment to working across organisational boundaries. It involves many levels of people and all functions… (and it) does not diminish with use.’

To identify a core competence, Prahalad and Hamel prescribe three tests:

  1. it should be able to provide potential access to a wide variety of markets;
  2. it should make a significant contribution to the perceived customer benefits of the end product; and
  3. it should be difficult for the competitors to imitate.

It should be noted that core competency is very critical for the organization to achieve competitive advantage.

From the several examples of corporations that Prahalad and Hamel use to exemplify their concept of core competence, we quote here a few. Canon’s core competence lies in optics, imaging and microprocessor controls, Sony’s in miniaturisation, Philip’s in optical-media, 3M’s in stick tape and Honda’s in engines and power trains. The core competencies of these corporations have enabled them to operate in diverse markets offering different products. For instance, Canon has entered, and even dominated, diverse markets such as copiers, laser printers, cameras and image scanners.

Other For instance, Tesco.com has been successful in capturing leadership in online grocery shopping by designing and delivering a customer interface system that personalizes online shopping.

Distinctive competency

 Distinctive competency is a specific ability possessed by a particular organization exclusively or relatively in large measure. It is a strength that allows an organization to gain competitive advantage by differentiating its products or minimizing costs.

Many organisations achieve strategic success by building distinctive competencies around the critical success factors.  Critical success factors are those which are crucial for organisational success.

A few examples of distinctive competencies are given below.

  • Superior product quality on a particular attribute, say, a two-wheeler, which is more fuel efficient than its competitor products.
  • Creation of a marketing niche by supplying highly specialised products to a particular market segment.
  • Differential advantage based on superior research and development skills of an organisation, not possessed by its competitors.
  • Access to a low-cost financial source, like equity shareholders, not available to its competitors.

A distinctive competence is ‘any advantage a company has over its competitors because it can do

something which they cannot or it can do something better than they can’. It is not necessary, of course, for all organisations to possess a distinctive competence. Neither do all organisations, which possess certain distinctive competencies, use them for strategic purposes. Nevertheless, the concept of distinctive competence is useful for the purpose of strategy formulation.

For instance, Motorola “created distinctive competency by developing six sigma methodologies in its manufacturing process to produce defect free cell phones.


The concept of CSFs (also known as Key Results Areas or KRAs) was first developed by management consultant D. Ronald Daniel, in his article, “Management Information Crisis.”

John F. Rockart, of MIT’s Sloan School of Management, built on and popularized the concept almost two decades later. He defined CSFs as: “The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization’s efforts for the period will be less than desired.”

Rockart also concluded that CSFs are “areas of activity that should receive constant and careful attention from management.”

Critical success factor (CSF) is a management term for an element that is necessary for an organization or project to achieve its mission. To achieve their goals they need to be aware of each key success factor (KSF) and the variations between the keys and the different roles key result area (KRA)

A CSF is a critical factor or activity required for ensuring the success of a company or an organization. The term was initially used in the world of data analysis and business analysis. For example, a CSF for a successful Information Technology project is user involvement.

Critical success factors should not be confused with success criteria. The latter are outcomes of a project or achievements of an organization necessary to consider the project a success or the organization successful. Success criteria are defined with the objectives and may be quantified by key performance indicators (KPIs).

The Four Main Types of Critical Success Factors

Rockart identified four main types of CSFs that businesses need to consider:

  1. Industry factorsresult from the specific characteristics of your industry. These are the things that you must do to remain competitive within your market. For example, a tech start-up might identify innovation as a CSF.
  2. Environmental factorsresult from macro-environmental influences on your organization. For example, the business climate, the economy, your competitors, and technological advancements. A PEST Analysis  can help you to understand your environmental factors better.
  3. Strategic factorsresult from your organization’s specific competitive strategy. They might include the way your organization chooses to position and market itself. For example, whether it’s a high-volume, low-cost producer; or a low-volume, high-cost one.
  4. Temporal factorsresult from your organization’s internal changes and development, and are usually short-lived. Specific barriers, challenges and influences will determine these CSFs. For example, a rapidly expanding business might have a CSF of increasing its international sales.



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