Competitive Profile Matrix (CPM)¶
The Competitive Profile Matrix (CPM) is a strategic tool that allows organizations to identify and evaluate their major competitors and assess their strengths and weaknesses relative to a firm's strategic position. The CPM is similar to the External Factor Evaluation (EFE) Matrix, but it focuses on both internal and external critical success factors. The ratings in a CPM reflect the relative strengths and weaknesses of the firms being compared.
Key Components of the CPM¶
Weights and Ratings¶
- Weights: Each critical success factor is assigned a weight, ranging from 0.0 (not important) to 1.0 (very important), indicating its relative importance in the industry.
- Ratings: The ratings in a CPM range from 1 to 4, where:
- 4 = Major Strength
- 3 = Minor Strength
- 2 = Minor Weakness
- 1 = Major Weakness
The ratings reflect how well the firm is performing relative to each critical success factor.
Comparative Analysis¶
The CPM allows for a comparative analysis between the firm and its major competitors. By assigning weights and ratings to various critical success factors, strategists can compare the total weighted scores of rival firms. This analysis provides valuable insights into the firm's competitive position.
Steps to Develop a CPM¶
Step 1: Identify Critical Success Factors¶
List the critical success factors that are essential for success in the industry. These factors may include both internal and external issues, such as advertising, product quality, global expansion, management experience, and inventory systems.
Step 2: Assign Weights¶
Assign a weight to each critical success factor based on its importance in the industry. The sum of all weights should equal 1.0. The weights allow for a more robust analysis by capturing the perceived or actual levels of importance for each factor.
Step 3: Rate the Firms¶
Assign a rating to each firm for each critical success factor. The ratings reflect the relative strength or weakness of the firm in that area. Avoid assigning duplicate ratings on any row in the CPM.
Step 4: Calculate Weighted Scores¶
Multiply each factor's weight by the corresponding rating for each firm to obtain the weighted score.
Step 5: Analyze the Results¶
Sum the weighted scores for each firm to determine its overall competitive position. The firm with the highest total weighted score is generally considered to have the strongest competitive position in the market.
Example of a CPM¶
In a sample CPM, the two most important factors for success in the industry might be "advertising" and "global expansion," each assigned a weight of 0.20. The matrix allows comparison between the focal firm and its competitors across these factors.
Competitive Intelligence (CI)¶
Overview¶
Competitive intelligence (CI) is the systematic and ethical process of gathering and analyzing information about competitors' activities and general business trends to further a business's own goals. CI is essential for formulating, implementing, and evaluating strategies.
Methods of Gathering CI¶
- Hiring Top Executives from Rival Firms: Gaining insights from individuals with direct experience in a competitor's operations.
- Reverse Engineering Products: Analyzing competitors' products to understand their strengths and weaknesses.
- Customer, Supplier, and Distributor Surveys: Gathering feedback from stakeholders to gain competitive insights.
- On-Site Visits to Competitors' Operations: Observing and learning from competitors' operational practices.
- Searching Online Databases: Accessing publicly available information on competitors.
- Contacting Government Agencies: Obtaining public information through requests like the Right to Information (RTI).
- Monitoring Trade Publications: Staying informed about industry trends and competitors' activities.
Objectives of a CI Program¶
An effective CI program has three basic objectives:
- General Understanding of the Industry and Competitors: Gaining a broad understanding of the competitive landscape.
- Identifying Competitors' Vulnerabilities: Recognizing areas where competitors are weak and assessing the impact of potential strategic actions.
- Anticipating Competitors' Moves: Predicting potential actions that competitors might take that could threaten the firm's market position.
Characteristics of a Successful CI Program¶
A successful CI program should be flexible, useful, timely, and involve cross-functional cooperation. All members of an organization, from executives to frontline employees, can contribute valuable intelligence that supports strategic decision-making.
Market Commonality and Resource Similarity¶
Market Commonality¶
Market commonality refers to the number and significance of markets in which a firm competes with its rivals. High market commonality indicates that firms compete in many of the same markets.
Resource Similarity¶
Resource similarity is the extent to which a firm's resources are comparable to those of its rivals. High resource similarity suggests that firms have similar capabilities, which can lead to intense competition.
Analyzing market commonality and resource similarity helps in understanding the competitive dynamics between firms and identifying potential areas of competitive advantage along each firm's value chain.
The Competitive Profile Matrix (CPM) and competitive intelligence are essential tools for understanding and improving a firm's strategic position in relation to its competitors. By effectively analyzing critical success factors and gathering intelligence, firms can develop strategies that enhance their competitive advantage.
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