The Competitive Profile Matrix (CPM)(Strategic Mangement)?

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.

CPM Table

		Company A		Company B		Company C
Critical Success Factor	Weight	Rating	Score	Rating	Score	Rating	Score
Brand reputation	0.13	2	0.26	3	0.39	1	0.13
Level of product integration	0.08	4	0.32	3	0.24	1	0.08
Range of products	0.05	3	0.15	1	0.05	2	0.10
Successful new introductions	0.04	3	0.12	3	0.12	3	0.12
Market Share	0.14	2	0.28	4	0.56	4	0.56
Sales per employee	0.08	1	0.08	2	0.16	3	0.24
Low cost structure	0.05	1	0.05	3	0.15	4	0.20
Variety of distribution channels	0.07	4	0.28	2	0.14	2	0.14
Customer retention	0.02	2	0.04	4	0.08	1	0.02
Superior IT capabilities	0.11	3	0.33	4	0.44	4	0.44
Strong online presence	0.15	3	0.45	3	0.45	4	0.60
Successful promotions	0.08	1	0.08	2	0.16	1	0.08
Total	1.00	-	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	Union relations	Power over suppliers
Product Quality	Skilled workforce	Access to key suppliers
Clear strategic direction	Location of facilities	Efficient supply chain
Customer service	Production capacity	Supply chain integration
Customer loyalty	Added product features	On time delivery
Brand reputation	Price competitiveness	Strong online presence
Customer satisfaction	Low cost structure	Effective social media management
Financial position	Variety of products	Experience and skills in e-commerce
Cash reserves	Complementary products	Management qualification and experience
Profit margin	Level of product integration	Innovation in products and services
Inventory turnover	Successful product promotions	Innovative culture
Employee retention	Superior marketing capabilities	Efficient production
Income per employee	Superior advertising capabilities	Lean production system
Innovations per employee	Superior IT capabilities	Strong supplier network
Cost per employee	Size of advertising budget	Strong distribution network
R&D spending	Effectiveness of sales distribution	Product design
Strong patent portfolio	Employee satisfaction	Level of vertical integration
New patents per year	Effective planning and budgeting	Effective corporate social responsibility programs
Revenue per new product	Variety of distribution channels	Sales per outlet
Successful new introductions	Power over distributors	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.

Using 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.

CPM Example

		Android OS		iOS		Windows Phone
Critical Success Factor	Weight	Rating	Score	Rating	Score	Rating	Score
Market share	0.13	4	0.52	2	0.26	2	0.26
Number of apps in store	0.10	4	0.40	4	0.40	2	0.20
Frequency of updates	0.06	3	0.18	4	0.24	2	0.12
Design	0.07	3	0.21	3	0.21	3	0.21
Product brand reputation	0.05	3	0.15	3	0.15	2	0.10
Distribution channels	0.11	4	0.44	2	0.22	3	0.33
Usability	0.11	3	0.33	3	0.33	3	0.33
Customization features	0.04	4	0.16	2	0.08	2	0.08
Marketing capabilities	0.04	2	0.08	4	0.16	2	0.08
Company brand reputation	0.10	4	0.40	4	0.40	3	0.30
Openness	0.02	4	0.08	2	0.04	2	0.04
Cloud integration	0.12	4	0.48	2	0.24	2	0.24
Rate of OS crashes	0.08	1	0.08	4	0.32	3	0.24
Total	1.00	-	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.