Strategic Analysis with Competitive Profile Matrix (CPM)

 

By Omodiaogbe Samuel

Last Updated: December 11, 2023

Introduction

The Competitive Profile Matrix (CPM) is a one-page strategic management tool that allows you to compare your company to your competitors, by revealing your relative strengths and weaknesses. At one glance, you will be able to see your company’s competitive landscape, its position in a given market, and then offer you the possibility to differentiate your company’s products or services from the competition. The CPM represents each competitor as a force in the market and then places them in a matrix, with each row representing the competitors, and each column representing the critical success factors in the industry. Overall, the CPM displays the basis of an organization’s strategy and it’s a useful instrument to communicate those strategic attributes to the decision makers. Essentially, 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 CPM give you the insight you need to:

  • make informed strategic decisions.
  • highlight the relative strengths and weaknesses of your organization as well as your competitors
  • uncover potential opportunities in the marketplace you could harness.
  • help you to articulate your value proposition, as you understand your strengths.
  • and also makes you to know the value proposition your competitors are likely to emphasize

                    The Step-by-Step to Developing the CPM Matrix

In order to develop the competitive profile matrix, the following steps are recommended:

A 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. Identify the critical success factors in your industry. They are critical success factors because they’re considered to be important for organizational success. Such factors must be based on factual information as real date are required. Critical Success Factors (CSFs) you chose has to be indicators that determines the performance of your industry, and so they could vary between different industries.  The more critical success factors are included, the more robust and accurate the analysis is. To effectively determine the key success factors of your industry, you need to have a good understanding of your industry’s competitiveness

B: Competitors

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

C:  Weight

Once you have conducted research and identified what key success factors to consider, then you stack- rank them. 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. Based on your knowledge of the critical success factors, you assign weight to each of them. And the weight should range from 0.0 (not important) to 1.0 (very important). The sum of all weights must be equal to 1.00.

 D: Rating

The next step is to conduct the rating of each of the critical success factors. And this should be based on the knowledge of your indicators, and that of your competitors.  Ratings just as weights, are assigned subjectively to each company, but they need to be informed by real data. Benchmarking reveals how well companies are doing compared to each other or industry’s average. A low rating means that the organization is weak in that factor and a high rating means that the organization has strengths in that factor. The rating should take this format:

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

 E: 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 critical success factor weight and rating to determine the weighted score.

 F: 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). The bigger the score differential between one company and another, the bigger the competitive advantage

F: Analyzing Your Score

The total weighted score derived for your company ranges from 1 to 4. The average weighted score for a competitive profile matrix is 2.5. Scores falling below 2.5 indicate poor performance against the industry’s success factors. If all total scores in the matrix fall below 2.5, the industry is being under-serviced. If your company scores 2.5 or higher, you are meeting the average standard for industry performance.

G: Compare the Scores

The matrix provides a visual method to compare scores. Look at each success factor to identify strengths and weaknesses for your company. The matrix also shows where your competitors excel and where they are lacking.  If your company has a relative strength in any financial attribute, you’ll want to protect that strength, while improving in an area where you scored low. 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 strategy to improve on them

Four Types of Competitiveness

The CPM gives way to four distinct types of competitiveness:

  1. Balanced Strengths: A “balanced” firm is one that is strong in all the critical success factors. This means that a balanced firm is well positioned in the industry where it competes, allowing it to face competition from any source. A balanced firm has a distinct advantage over its rivals in that it is likely to succeed through the ability to consistently coordinate all the factors that affect its competitiveness in the market.
  2. Congruency: A congruent firm is one that is well positioned and has a relevant strength that matches the competitive environment. The congruent firm has a competitive advantage in that it can most successfully capture the market’s available share because it can go head-to-head with its peers. Congruence occurs when both the company and the competition are well positioned and similarly size and operated.
  3. Dominant Strengths: A dominant firm is one that excels in one or two areas such as operational superiority or product innovation. A dominant firm has an advantage over its rivals because its particular strength matches the needs of its market niche. While the competition may be strong in one or two areas, the dominant firm’s stronghold in one market area is enough to severely weaken its competitors.
  4. Weaknesses: The weakest firms have few or no leg to stand on when facing the competition. Weaknesses may stem from poor management, a poor location, weak finances, or a substitute product. Weaknesses provide an opportunity for rivals to neutralize the strengths of the weak firms.

The Purpose of CPM Matrix

  • When you perform a competitive profile matrix CPM, you get an enormous amount of information about everything you might need to know about your competitors and the industry.
  • By completing the competitive profile matrix CPM, the company will be in a position to identify its weaknesses and strengths and take actions to strengthen areas of weakness and fill the gaps in its profile to help it gain a stronger position in the market.
  • The competitive profile matrix allows you to avoid the trap of over-emphasizing your own strengths, but also makes you to take the strengths of your competitors into consideration.
  • CPM not only helps you to identify the strengths and weaknesses of players in the industry on a single page, but also distil a vast amount of data into a single numeric score. 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 strongest competitors as well as the areas where they might need to improve.

Case Study

                                                     Okoroh Energy Services

Okoroh Energy Services is an energy services company that provide solutions to oil & gas, power plants and petrochemical companies in Nigeria. The company has five Strategic Business Units (SBUs) comprising of maintenance, fabrication, electrical & Instrumentation (E&I), drilling, and installation services. At the moment, the company want to have a deeper insight on the performance of each of the five divisions of the company relative to competition. The analysis is informed by an attempt to formulate a corporate strategic plan for the corporation. And therefore, the knowledge of the status of each of the division would inform a comprehensive strategic planning approach. However, the focus of this analysis is on the Fabrication division, as each of the strategic business units requires separate analysis.

For Okoroh Energy Services to effectively analyze the performance of the fabrication division, it needs to benchmark it in relation to the fabrication division of the other companies in the industry. Based in the research it conducted, it identified 10 Critical Success Factors (CSFs) the industry competes on. On each of the CSF, Okoroh Energy Services want to understand how it fared relative to competition. Also, it wants to know it performance on the overall score on all the dimensions. The information obtain would determine whether it has competitive advantage or not in the fabrication division of the industry. The result will also inform its decision on how to position the company for competitiveness

Okoroh Energy Services has identified four main competitors in the industry it wants to use as benchmark, based on the Critical Success Factors (CSFs) of the industry. For the company to have a comprehensive snapshot, it has decided to use the Competitive Profile Matrix (FCPM) to conduct the analysis. The CPM will help the company to visually display how each CSF weigh on each dimension, how each company ranks on the CSF, and then display the overall score of each of the competitor. With such information, Okoroh Energy Services would be able to determine its strengths and weaknesses in the industry. The information will as well give the company the areas it has competitive advantage, and areas that need improvement. Essentially, the CPM analysis would put Okoroh Energy Services in a better position to have deeper insight on what it needs to do in order to be competitive in the fabrication division. Also, it will give the company clearer picture of the value propositions to emphasize in its marketing communication

 

                                              Analysis of the Application

The CPM analysis reveals that Ada Energy Enterprise is the strongest player in the industry with relative strengths in customer retention, location of facilities, brand reputation, customer satisfaction, financial position, employee retention, superior marketing capabilities, and innovative culture. On the other hand, Okoroh Energy Services prevails in customer retention, service quality, skilled workforce, brand reputation, and customer satisfaction. In a situation where both Ada Energy Services and Okoroh Energy Services scores the same on the CSF, it means they both have equal performance on that dimension. Obviously, different organizations will have different strengths and weaknesses. However, what counts is having more strengths than weaknesses. But Ewu Energy Services has more weaknesses than strengths, and that is why the total score is only 2.36. That is below the benchmark of 2.5 of the desired minimum performance measures. As a result, the company is at a competitive disadvantage, while Ada Energy Services has a strong competitive advantage in the industry.

 

However, just because Ada Energy Services scored 3.63 total score and Ewu Energy Services got 2.36, it does not necessarily follow that the first firm is precisely 53.81% percent {= (3.63-2.36)/2.36 = 53.81%} better than the second, but it does suggest that the first firm is better in most areas. For Okoroh Energy services to create a competitive advantage, serious improvements are required in areas such as market share, R&D spending, and innovative culture. Also, minor improvement is required in location of facilities, financial position, employee retention, and marketing capabilities. Essentially for Okoroh Energy Service to create a sustainable competitive advantage, it needs to seek out ways to make its products and services more unique and distinctive. Also, it needs to effectively strive to deliver on the unmet needs of the customers in new and interesting ways. And the Competitive Profile Matrix analysis is an excellent framework to help the company realize how to create a competitive edge

 

Useful Outcomes of the Analysis

Here are a few uses and outcomes the matrix may reveal:

  • Find ways to differentiate and improve your products or services when compared to your competitors
  • Develop new ways to easily customize your products to meet the differing needs of customers
  • Develop a new marketing and sales initiative to communicate your products’ benefits and advantages more effectively than your competitors
  • Find an opportunity to develop new products that will further differentiate your company
                            Advantages and Disadvantages of the Competitive Profile Matrix

Advantages

  • CPM allows you to analyses the relative strengths and weaknesses of your competitors which enable you to create an effective competitive strategy.
  •  CPM enables you to understand the critical success factors and identifying these factors is a crucial component of developing an effective strategy
  • By putting all competitors in a simple one-page matrix, it allows you to make an easy comparison of companies visually.
  • The total score enables you to easily see which company has the best total offering in the marketplace.
  • The CPM can generate alternative strategic positions through which the organization can compete
  • The CPM has a specific format that allows for a clear interpretation, easy assimilation, and understanding

Limitations

  • The scores that are assigned to critical success factors are subjectively assigned. This means they are likely to suffer some degree of inaccuracy.
  • It may be difficult to accurately determine the scores of competitors critical success factors, simply because this may not be public knowledge.
  • When using a CPM, a weakness in one area can affect the total score, which may undermine the strengths of the organization
  • CPM relies on information coming from survey which might not be entirely accurate
  • The CPM only describes the firm’s strategy but does not dictate its choice of strategy.
  • The CPM is very vague about the degree of correlation between strategy and environment

                              Summary

The Competitive Profile Matrix (CPM) is a strategic management tool that can help you to compare one company to another across a range of factors that are critical to success in your industry.  The total score for a given company shows how competitive that company is in the marketplace relative to other companies. Therefore, the information obtained from the analysis can help you shape your strategy for competitiveness.

Essentially, the Competitive Profile Matrix (CPM):

  • is a powerful strategic analysis tool that displays the major players in an industry and their strengths and weaknesses relative to each other.
  • Can be used in any industry with single or multiple businesses to give a detailed view of the competitive landscape.
  • has four key components. Critical success factors must be identified, weighted, ranked, and then scored to determine the overall market position.
  • Is a strategy framework that helps in corporate strategic planning

Despite the benefits of the Competitive Profile Matrix, it still has some limitations, and therefore should be used along with other strategic management tools for deeper analysis and effective strategy formulation

 

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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