Strategic Analysis with Financial Competitive Profile Matrix (FCPM)

 

By Omodiaogbe Samuel

Last Updated: December 18, 2023

Introduction

The Financial Competitive Profile Matrix (FCPM) is a one-page strategic management tool that allows you to compare your company to competition, by revealing the relative strengths and weaknesses on major financial indicators. At a glance, the matrix will enable you to see your company’s competitive landscape in a given market. That offers you the possibility to identify and work on your financial weaknesses in order to create a competitive advantage. The FCPM represents each competitor as a force in the market and then places them on a matrix, with the row representing the major competitors. Whereas, the column represents the Financial Critical Success Factors (FCSF) the industry competes on. The FCSFs are then assigned weight, ranked, and scored on each dimension. A total score is then determined for each of the competitors. The company with the highest total score has the strongest advantage, whereas the ones that didn’t meet the threshold are considered not competitive in the industry. Essentially, the FCPM displays the competitive attributes and it’s a useful instrument to communicate your core competence in the industry. It also provides a clear visualization, and highlights a clear picture of where each company stands in relation to competition on financial performance.

Overall, the FCPM give you the insight you need to:

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

There are 5 key components to the FCPM:

  • Financial Critical Success Factors
  • Weight
  • Rating
  • Weighted score
  • Total Score

The Step-by-Step to Developing FCPM Matrix:

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

Financial Critical Success Factors:

Financial Critical Success actors (FCSF) are the key areas, which must be performed at the highest possible level of excellence if organizations want succeed in the particular 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. The FCSFs you chose have 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 financial success factors of your industry, you need to have a good understanding of your industry’s competitiveness, particularly as it has to do with financial performance.

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 financial performance to theirs.  FCPM 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 financial 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 financial 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 financial 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

The Purpose of CPM Matrix

In most industries, competitors tend to have distinct strengths and weaknesses. While one particular player, for example might have a strong asset base, another could have a healthy free cash flow. Yet another competitor could have low debt, or effective working capital management, or strong equity base. FCPM not only helps you place all of these 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 a manager or business owner to identify the strongest competitors as well as the areas where she most needs to improve. Essentially, the FCPM allows you to do the following:

  • When you perform a financial competitive profile matrix (FCPM), you get an enormous amount of information about everything you might need to know about your competitors and the industry.
  • By completing the FCPM, the company will be in a position to identify its weaknesses and strengths and therefore take actions to strengthen areas of weaknesses
  • The financial 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.
  • FCPM allows you to rank competing companies in terms of the “total package” they bring to the table

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 financial 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 financial 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 15 Financial Critical Success Factors (FCSFs) the industry competes on. On each of the FCSF, Okoroh Energy Services want to understand how it fared relative to competition on each. 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 five main competitors in the industry it wants to use as benchmark, based on the Financial Critical Success Factors (FCSFs) of the industry. For the company to have a comprehensive snapshot, it has decided to use the Financial Competitive Profile Matrix (FCPM) to conduct the analysis. The FCPM will help the company to visually display how each FCSF weigh on each dimension, how each company ranks on the FCSF, 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 FCPM 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 FCPM of Okoroh Energy Services

Okoroh Energy Services major competitors are Ada Energy Enterprises, Project Master Services, Ewu Energy Services, and Climax Oil & Gas Services. On the total score, Project Master Services scored the highest with 3.52/4, while Ewu Energy Services scored the lowest with 1.92. A company need to score a minimum of 2.5 to meet the industry benchmark of competitiveness. And from the analysis, two companies did not meet that threshold―Ada Energy Enterprises and Ewu Energy Services. On the other hand, the three other companies were above the threshold. The focal company, Okoroh Energy Services scored 3.01. What the analysis revealed is that Project Master Services has competitive advantage in most of the FCSFs. But that doesn’t mean the company is without weaknesses. For example, in assets turnover ratio, it only ranked 2, while it ranked 1 in quick ratio. Those are major weaknesses

From the analysis, Okoroh Energy Services need to compare itself on each of the factors. On the areas where its weaker than competition, it need to formulate strategies to improve on them. On the other hand, it equally needs to capitalize on areas of strengths to prevent catch-up. If the company is able to successfully do that, then it will have competitive advantage over other players in the market. However, it does not need to stop at that. It needs to be on continuous look out to see what the competitors does on each of the FCSFs. The information gathered in the market will inform its decision-making. However, it might be difficult to be highly competitive in all factors, but by strategically focusing on its areas of strengths while trying to minimize the weaknesses, Okoro Energy Services will be able to create a competitive edge.

                                        Advantages and Disadvantages of FCPM

Advantages

  • FCPM allows you to analyses the relative strengths and weaknesses of your competitors which enable you to create an effective competitive strategy.
  •  FCPM 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 FCPM can generate alternative strategic positions through which the organization can compete
  • The FCPM has a specific format that allows for a clear interpretation, easy assimilation, and understanding

Disadvantages

  • 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, because the figures might not be in public knowledge.
  • When using a FCPM, a weakness in one area can affect the total score, which may undermine the strengths of the organization
  • FCPM relies on information on research conducted, and it might not be entirely accurate, depending on the researcher

                                                        Conclusion

The Financial Competitive Profile Matrix (FCPM) is a strategic management tool that can help you to compare one company to another across a range of financial factors that are critical to success in a given industry.  The FCPM enables you to benchmark your company in relation to competition and then identify the relative strengths and weaknesses of all the competitors based on some Financial Critical Success Factors (FCSFs). The FCSFs are assigned weight based on their importance, ranked on their strengths and weaknesses, then the weight is multiplied by the rank to determine weighted score. The sum of the weighted score reveals the company that has competitive advantage or disadvantage in the industry. Therefore, the information obtained from the analysis can help you shape your strategy for competitiveness 

Essentially, the Financial Competitive Profile Matrix:

  • 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.
  • It’s a strategy framework that helps in corporate strategic planning

Despite the benefits of the Financial 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 MOOCs 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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