• Written on 29 Oct 2013

Competitive Profile Matrix (CPM)

Definition

The Competitive Profile Matrix (CPM) is a tool that compares the firm and its rivals and reveals their relative strengths and weaknesses.”

Understanding the tool

In order to better understand the external environment and the competition in a particular industry, firms often use CPM. The matrix identifies a firm’s key competitors and compares them using industry’s critical success factors. The analysis also reveals company’s relative strengths and weaknesses against its competitors, so a company would know, which areas it should improve and, which areas to protect. An example of a matrix is demonstrated below.

Company ACompany BCompany C
Critical Success FactorsWeightRatingScoreRatingScoreRatingScore
Brand reputation0.1320.2630.3910.13
Level of product integration0.0840.3230.2410.08
Range of products0.0530.1510.0520.10
Successful new introductions0.0430.1230.1230.12
Market Share0.1420.2840.5640.56
Sales per employee0.0810.0820.1630.24
Low cost structure0.0510.0530.1540.20
Variety of distribution channels0.0740.2820.1420.14
Customer retention0.0220.0440.0810.02
Superior IT capabilities0.1130.3340.4440.44
Strong online presence0.1530.4530.4540.60
Successful promotions0.0810.0820.1610.08
Total1.00-2.44-2.94-2.71

Critical Success Factors
Critical success factors (CSF) are the key areas, which must be performed at the highest possible level of excellence if organizations want succeed in the particular industry. They vary between different industries or even strategic groups and include both internal and external factors. In our example, we have included 11 CSF, which is usually not enough. The more critical success factors are included the more robust and accurate the analysis is. The following list provides some of the general CSF, but the list is not definite and you should include industry specific factors in your matrix:

  • Market Share
  • Product Quality
  • Clear strategic direction
  • Customer service
  • Customer loyalty
  • Brand reputation
  • Customer satisfaction
  • Financial position
  • Cash reserves
  • Profit margin
  • Inventory turnover
  • Employee retention
  • Income per employee
  • Innovations per employee
  • Cost per employee
  • R&D spending
  • Strong patent portfolio
  • New patents per year
  • Revenue per new product
  • Successful new introductions
  • Union relations
  • Skilled workforce
  • Location of facilities
  • Production capacity
  • Added product features
  • Price competitiveness
  • Low cost structure
  • Variety of products
  • Complementary products
  • Level of product integration
  • Successful product promotions
  • Superior marketing capabilities
  • Superior advertising capabilities
  • Superior IT capabilities
  • Size of advertising budget
  • Effectiveness of sales distribution
  • Employee satisfaction
  • Effective planning and budgeting
  • Variety of distribution channels
  • Power over distributors
  • Power over suppliers
  • Access to key suppliers
  • Efficient supply chain
  • Supply chain integration
  • On time delivery
  • Strong online presence
  • Effective social media
    management
  • Experience and skills
    in e-commerce
  • Management qualification
    and experience
  • Innovation in products and
    services
  • Innovative culture
  • Efficient production
  • Lean production system
  • Strong supplier network
  • Strong distribution network
  • Product design
  • Level of vertical integration
  • Effective corporate social
    responsibility programs
  • Sales per outlet
  • Parent company support

Weight
Each critical success factor should be assigned a weight ranging from 0.0 (low importance) to 1.0 (high importance). The number indicates how important the factor is in succeeding in the industry. If there were no weights assigned, all factors would be equally important, which is an impossible scenario in the real world. The sum of all the weights must equal 1.0. Separate factors should not be given too much emphasis (assigning a weight of 0.3 or more) because the success in an industry is rarely determined by one or few factors. In our first example, the most significant factors are ‘strong online presence’ (0.15), ‘market share’ (0.14), ‘brand reputation’ (0.13).

Rating
The ratings in CPM refer to how well companies are doing in each area. They range from 4 to 1, where 4 means a major strength, 3 – minor strength, 2 – minor weakness and 1 – major weakness. Ratings, as well as weights, are assigned subjectively to each company, but the process can be done easier through benchmarking. Benchmarking reveals how well companies are doing compared to each other or industry’s average. Just remember that firms can be assigned equal ratings for the same factor. For example, if Company A, Company B and Company C, have the market share of 25%, 27% & 28% accordingly, they would all receive the rating of 4 rather than receiving ratings 2, 3 & 4.

Score & Total Score
The score is the result of weight multiplied by rating. Each company receives a score on each factor. Total score is simply the sum of all individual score for the company. The firm that receives the highest total score is relatively stronger than its competitors. In our example, the strongest performer in the market should be Company B (2.94 points).

Benefits of the CPM:

  • The same factors are used to compare the firms. This makes the comparison more accurate.
  • The analysis displays the information on a matrix, which makes it easy to compare the companies visually.
  • The results of the matrix facilitate decision-making. Companies can easily decide which areas they should strengthen, protect or what strategies they should pursue.

How to use the tool?

Step 1. Identify the critical success factors

To make it easier, use our list of CSF and include as many factors as possible. In addition, following questions should be helpful identifying industry’s CSF:

  • Why consumers prefer Company A over Company B or vice versa?
  • What resources, capabilities and competences firms possess?
  • What sustainable competitive advantages companies have in the industry?
  • Why some companies succeed and others fail in the industry?

Step 2. Assign the weights and ratings

The best way to identify what weights should be assigned to each factor is to compare the best and worst performing companies in the industry. Well performing companies will usually undertake activities that are significant for success in the industry. They will put most of their resources and energy into those activities as compared to low performing organizations. Weights can also be determined in discussion with other top-level managers.
Ratings should be assigned using benchmarking or during team discussions.

Step 3. Compare the scores and take action

You should compare the scores on each factor to identify where company’s relative strengths and weaknesses are. In our first example, Company A had relative strength in ‘level of product integration’, ‘product range’ and ‘variety of distribution channels’. Therefore, Company A should protect these areas while trying to improve its weaknesses in ‘sales per employee’ and ‘market share’.
The company should also improve its strategy to become more successful in the industry.

Example

This is competitive profile matrix example of smartphones operating systems. The main competitors: Google’s Android OS, Apple’s iOS and Microsoft’s Windows Phone operating systems will be compared to each other to find out their relative strengths and weaknesses.

Android OSiOSWindows Phone
Critical Success FactorsWeightRatingScoreRatingScoreRatingScore
Market share0.1340.5220.2620.26
Number of apps in store0.1040.4040.4020.20
Frequency of updates0.0630.1840.2420.12
Design0.0730.2130.2130.21
Product brand reputation0.0530.1530.1520.10
Distribution channels0.1140.4420.2230.33
Usability0.1130.3330.3330.33
Customization features0.0440.1620.0820.08
Marketing capabilities0.0420.0840.1620.08
Company brand reputation0.1040.4040.4030.30
Openness0.0240.0820.0420.04
Cloud integration0.1240.4820.2420.24
Rate of OS crashes0.0810.0840.3230.24
Total1.00-3.51-3.05-2.53

The CPM analysis reveals that Android is the strongest player in the industry with relative strengths in market share, distribution channels, customization features, openness and cloud integration. On the other hand, iOS prevails in frequency updates, marketing capabilities and the rate of OS crashes. Windows Phone is the weakest of them all and doesn’t have any relative strengths against its rivals. The companies should create their strategies according to their strengths and weakness and improve their ratings in the most significant industry’s areas.

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Written by Ovidijus Jurevicius

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