Analyzing the Internal/External Competitive Profile Matrix for Competitiveness

 

By Omodiaogbe Samuel

Last Updated: December 6, 2023

Introduction

The External Competitive Profile Matrix (ECPM) /Internal Competitive Profile Matrix (ICPM) is an extended analysis of the traditional Competitive Profile Matrix (CPM). A CPM uses critical success factors (CSFs), which include both internal and external factors, that impacts an organization and then compare the organization to its major competitors based on the identified CSFs. Therefore, the CPM displays the basis of an organization’s strategy and it’s a useful instrument to communicate those strategic attributes to the stakeholders. However, while the CPM is a worthwhile tool for managers to use, it does have some limitations. CSF ratings are subjectively assigned. Also, non-uniformity may occur due to weights being assigned subjectively by the evaluators. As a result, the ECPM/ICPM was designed to address those limitations.  The new approach to designing the CPM using the internal and external factor categories separately, instead of using the critical success factors, adds depth to the strategic insights. Furthermore, the adjustment to the CPM by using force ranking to highlight an organization’s relative competitive position in its industry is much better as it compares major competitors on the basic internal and external factor categories. Essentially, this improved approach helps us to more easily incorporate and interpret ECPM and ICPM in strategic analysis, and therefore executives can better plan to create a competitive advantage. Overall, the matrix provides a clear visualization, displays the competitive landscape, and provides a clear picture of the where each company stands in relation to competition

In a nutshell, the ECPM and ICPM helps you to:

  • make informed strategic decisions as you understand the external and internal factors that determines your competitiveness.
  • the visualization helps you to identify at a glance the relative strengths and weaknesses of your organization vis-à-vis competition
  • the analysis can help you to uncover potential opportunities in the marketplace you could harness.
  • it puts you in a better position to articulate value proposition based on your capabilities.
  • it helps you to envisage the value proposition your competitors are likely to emphasize, and therefore help you to strategically position yourself

Step-by-step approach to developing the model

  • List on the ECPM the external factors that determines the competitiveness of the industry
  • List on the ICPM the internal factors of your organization
  • Identified competitors
  • Assigning weight to the factors
  • Rating of the factors
  • Calculating the weighted score
  • Determining the total Score
  • Making strategic decisions

The external and internal factors

On the traditional Competitive Profile Matrix, you start be listing the Critical Success Factors (CSF) that determines the competitiveness. There is no distinction between the internal and external factors. However, on the improved ECPM/ICPM that is not the case. Here there are two matrices. One for the internal factors, and the other for the external factors. The idea is to help make strategic decisions based on the performance of each section, and then make effective comparison. The external factors are determined by identifying the factors that impact the players in the industry. While on the other hand, the internal factors cut across the competing organizations

 

Identifying Competitors

 Identify the key competitors in the industry. The key competitors are those who play an important role in the industry. You need to select the most important or your close competitors in the industry to benchmark your performance against.  ECPM/ICPM framework is best applied to analyze divisions in and organization, as that gives you the accurate measure of your performance relative to competition

 Weight

Based on your knowledge of the external and internal factors, you assign weight to each of them. On the traditional Competitive Profile Matrix, weights are assigned ranging from 0.0 (not important) to 1.0 (very important). However, the ECPM/ICPM allows for a uniform weight to be assigned to all the factors. The sum of all weights has to be equal to 1.00.

 Rating

The next step is to conduct the rating on the external and internal factors. And this should be based on the knowledge of your indicators, and that of your competitors.  On the traditional CPM, ratings just as weights, are assigned subjectively to each company. That means a companies can be ranked with the same figure on the same dimension. However, on the ECPM/ICPM, we use force raking. That mean two or more companies cannot be assigned the same rank on the same dimension. This approach tends to give better output. A low rating means that the organization is weak on that factor, while a high rating means that the organization has strengths in that factor. The rating should reflect the number of competitors identified. For example, if we have 4 competitors, the format should take the following:

  • 1 – major weakness
  • 2 – minor weakness.
  • 3 – minor strength. 
  • 4 – major strength

  Weighted Score

The weighted score is the result of weight multiplied by rating. Each company receives a score on each factor, and so, you multiply each external and internal factors weight by the rating to determine the weighted score.

  Total Score

 Total score is simply the sum of the weighted score for each of the competing company. The company with the highest total score is the company that is strongest in the marketplace (relative to the other competitors) on the dimension. However, it’s possible to be strong on the external dimension and be weak on the internal dimension, and vice versa. The lager the score differential between one company and another, the lager the competitive advantage

 Analyzing Your Score

If four competitors are analyzed, the total weighted score derived should range from 1 to 4. While the average weighted score for ECPM and ICPM is 2.5. Scores falling below 2.5 indicate poor performance relative to competition. On the other hand, any company that scores 2.5 or higher means meeting the average standard or performing above average.

 

Making strategic decisions

The matrix provides a visual method to compare scores. The matrix also shows where your competitors excel and where they are poor.  If your company has a relative strength in any factor, you’ll want to protect that strength. On the other hand, you work on improving in areas where you scored low relative to competition. You can identify your competitive advantages and use this information in your strategic planning. At the same time, you can identify your weaknesses, and then figure out the strategies to improve on them

The Purpose of ECPM/ICPM Matrix

  • When you perform External Competitive Profile Matrix (ECPM)/Internal Competitive profile Matrix (ICPM), you get an enormous amount of information about everything you might need to know about your competitors and the industry.
  • By conducting analysis on the ECPM/ICPM, the company will be in a good position to identify its weaknesses and strengths. And therefore, take actions to strengthen areas of weakness, while capitalizing on the area of strength to create competitive advantage
  • The matrix allows you to avoid the trap of over-emphasizing your own strengths. Therefore, the visualization makes you to identify the strengths of your competitors. Knowing areas where competition is better puts you in a position to work harder.
  • The ECPM/ICPM not only helps you to identify the strengths and weaknesses of players in the industry on a single glance, but also distil a vast amount of data on the competing companies. As a result, you can rank companies in terms of the “total package” they bring to the table. This allows the top executives or business owner to identify the direction of competition in the industry

Case Study

Okoroh Fast Food

Okoroh Fast Food is an emerging fast-food restaurant chain located in Nigeria. The company has been in existence for two years and has expended to three locations in Lagos, Nigeria within the period. The plan in to establish 15 other locations in Lagos in the next three years, and then expand to 30 major cities of the country in the next five year. Okoroh Fast Food was setup to redefine fast food industry in Nigeria. As a result, our focus is on the middle-income earners who believe in quality and healthy meal. We offer traditional meals such as pounded yam, eba, fufu, and various kinds on local soup. Equally, we offer staple diets such as various kinds of rice, fried yam, noodle, as well as chicken, beef, and fish. Also, we offer snacks such as meat pie, doughnut, bounce, and beverages. Essentially, the company has three divisions: Swallow division, Staple division, and Snacks division. At Okoroh Fast Food, we’re very mindful of the hearth concerns of our customers, and therefore, we prepare our meals with organic materials and local ingredient. However, we don’t compromise the standard of the tasty meal that makes us to standout in the marketplace

In Nigeria, there are various types of food services business, and they all cater for the needs of different segments of the market. There are those that focus on the bottom of the pyramid (which are usually located on the roadside), the low-income, the lower-middle income, the upper middle income, and the high-income restaurants. Mindful of the different market segments, our focus is on the middle income (lower and upper) who believe in quality and heathy meal, but maybe too busy to make them at home. We understand how busy our customers could be, and therefore we enjoin them to focus on their work or business, while we take care of their meals. Our restaurants are open 16 hours/day to meet the needs of customers who wants to have their meals as early as 6am, and those that close late at 10pm. We also offer takeaway, as well as office/home delivery. We offer excellent services that no other competitor can match. That is coupled with our differentiated approach of sourcing fresh, organic, and local ingredient that makes us unique in the marketplace.

At this time, the company wants to conduct analysis of each of the division to determine their performance. On this analysis, the focus is on the Staple division comprising, of rice, fried yam, and noodles, as well as chicken and fish. For us to determine our performance and make informed decision on our competitiveness, we need to benchmark with the Staple division of our competitors. As a result, we identify three competitors in that segment, that provide similar services, and they are: Ewu restaurant, Eko Quick Food, and Edo Fast Food. The idea of compering a division to another is to avoid the trap of making false comparison. Each competitor performs different activities, and therefore benchmarking against activity you don’t perform leads to error in analysis. The essence of the analysis is to determine if Okoroh Fast Food has competitive advantage on either the External Profile Competitive Matrix (EPCM) or the Internal Profile Competitive Matrix (IPCM) or both. Essentially, the analysis would put Okoroh Fast Food in a better position to have deeper insight on what it needs to do in order to be competitive in the Staple division of the company. Also, it would give the company clearer picture of the value propositions to emphasize in its marketing communication

                                       Analysis of the ECPM/ICPM of Okoroh Fast Food

Okoroh Fast Food three major competitors in our analysis are Ewu Restaurant, Eko Quick Food, and Edo Fast Food. With a Total Score of 3.1, it clearly states that Edo Fast Food has competitive advantage on the external factors. On the other hand, Okoroh Fast Food with 3.2 is taking the lead on the internal factors. Also, Ewu Restaurant, and Eko Fast Food could not meet the minimum threshold of 2.5. Rather, they scored 2.3, and 2.1 respectively. On the internal factors, Ewu Restaurant and Edo Fast Food did not meet the threshold, as they scored 2.3, and 2 respectively. Obviously, different organizations will have different strengths and weaknesses. However, what counts is having more strengths than weaknesses. But a company like Ewu Restaurant has more weaknesses than strengths on both dimensions. Essentially, it’s only Okoroh Fast Food that met the threshold on both the internal and external factors with a score of 2.5 and 3.2 respectively.

 

Knowing the total score of each of the competitors is one part of the story. More importantly, we are concerned on what our focal company of analysis need to do to create a competitive advantage, not only on the internal factors, but also on the external factors as well. Essentially, what does Okoroh Fast Food need to do to upsurge Edo Fast Food on the external factors?

For Okoroh Fast Food to create a competitive advantage on the external factors, serious improvements are required in areas such Brand reputation and Price Competitiveness, where it scored 1 respectively. Also, it would need to improve on Product Differentiation, Management Competency, and Employee Retention, where it scored 2 respectively.

 

Essentially for Okoroh Fast Food to create a sustainable competitive advantage, it needs to seek out ways to make its products and services more unique and distinctive. Also, the company needs to effectively strive to deliver on the unmet needs of the customers in new and interesting ways. Essentially, Okoroh Fast Food need to capitalize on its strengths by ensuring that competitors are kept at a distance. It also needs to improve on its weaknesses to at least catch up with competition. Therefore, the External/Internal Competitive Profile Matrix is an excellent framework to help identify the strengths and weaknesses of Okoroh Fast Food. And also, to innovate by creating new opportunities that would give the company a sustainable competitive advantage. Lastly, the model, also enable us to identify the strengths and weaknesses of the competitors. And also identify areas where they could be threat to us. However, it might be difficult to be highly competitive in all factors on both the ECPM and ICPM, but by strategically focusing on its areas of strengths while trying to minimize the weaknesses, Okoro Fast Food will be able to create a competitive edge.

 

                                  Advantages and Disadvantages of ECPM and ICPM

Advantages

  • The ECPM and ICPM allows you to easily visualize and analyze the relative strengths and weaknesses of your competitors on both internal and external dimensions
  •  The matrix enables you to understand the position of each competitors on both external and internal factors
  • By visualizing all competitors on a simple matrix, it allows you to make an easy comparison of companies competing in the industry
  • The total score enables you to easily see which company has the best total offering on both dimensions
  • The matrix can help you to generate alternative strategic positions through which the organization can compete
  • The ECPM/ICPM has a specific format that allows for a clear interpretation, easy assimilation, and understanding
  • The matrix help to the address the problem of subjectivity that characterize the traditional Competitive Profile Matrix
  • By separating the external factors from the internal factors, you will be able to give a holistic and in-depth analysis of each dimensions

Disadvantages

  • The scores that are assigned to internal and external factors although more reliable than the traditional Competitive Profile Matrix, are still subjectively assigned as well. This means they are likely to suffer some degree of inaccuracy.
  • It might be difficult to accurately determine the performance of the internal factors of the competitors, because the figures might not be in public domain
  • The ECPM/ICPM relies on information on research conducted, and that might not be entirely accurate, depending on the researcher
  • The analysis becomes complex are more competitors are added to the analysis

 

                                      Conclusion

The Internal and External Competitive Profile Matrix is a strategic management tool that enables you to benchmark you company in relation to competition. The matrix identifies the relative strengths and weaknesses of all the competitors based on external and internal factors. The model was developed to address the limitations of the traditional Competitive Profile Matrix. Weaknesses such as subjective assigning of weight and raking. Therefore, the External and Internal Competitive Profile Matrix allows uniform weight, and force raking to provide a more comprehensive analysis and decision-making.   The major advantage of expanding on the traditional Competitive Profile Matrix is that the improved model allows for greater depth of analysis in strategic management decision-making. However, despite the benefits of the External/ Internal Competitive Profile Matrix, it still has some limitations, and therefore should be used along with other strategic management tools for deeper analysis and effective strategic decision-making

 

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), and a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading learners on Coursera and Edx with over 500 Certificates from top-ranked Universities, Business Schools, and Organizations.

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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