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Competitive Profile Matrix: A Theoretical Review

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 COMPETITIVE PROFILE MATRIX: A THEORETICAL REVIEW

Asst. Prof. Dipanwita Bhattacharjee1 and Asst. Prof. Mouri Dey2

Abstract

A Competitive Profile Matrix (CPM) is an analytical tool that provides necessary

information of competitive advantage based on critical success factors and serves as
the basis for an organization’s strategy. This paper provides for understanding the basic
concepts of CPM and its usability in strategy formulation. The study finds that although
CPM helps decision makers in some points of strategy formulation, it does not depict a
clear picture of the competitive situation because of its subjective selection and assessment
of critical success factors and the lack of robustness in calculation in terms of assigning
weights and ranks. However, the usability of CPM can be improved by integrating some
other sophisticated tools, for example, Internal Factor Evaluation Matrix (IFEM),
External Factor Evaluation Matrix (EFEM), Analytic Hierarchy Process (AHP), and
ELECTRE III. This integration will ensure more robust calculation of the weights and
rank assigned to each critical success factor upon which CPM is built and lead to successful
strategy formulation.

Keywords: CPM, IFEM. EFEM, AHP, ELECTREIII

INTRODUCTION remains one of the vital tasks for every

organization for their very survival.
The 21st century’s business world is in Organizations need to pay enough attention
a state of flux as the waves of globalization, to strategy formulation, strategy choice, and
technological advancement, deregulation, strategy implementation (Burnes, 2009).
and many others forces are shaping the And ‘Strategic management is all about
nature of doing business. Attaining gaining and maintaining competitive
sustainable competitive advantage has advantage’ (David, 2011). Development of
become critical for every business organizational success depends on effective
organization. Diagnosing the outside forces use of resources and capabilities to tap the
___________________
1
Assistant Professor Dipanwita Bhattacharjee holds an MBA from Department of Marketing, University of
Chittagong, Chittagong, Bangladesh. She obtains another masters in International Business from University of
Chester, United Kingdom. Currently she is working as an Assistant Professor in the department of Marketing,
University of Chittagong, Chittagong, Bangladesh.
2
Assistant Professor Mouri Dey obtains MBA in (Accounting) from University of Chittagong, Chittagong, Bangladesh.
Currently she is working as an Assistant Professor in the department of Accounting, University of Chittagong. She is
a M.Phil. Research Student in the Department of Accounting, University of Chittagong, Chittagong, Bangladesh.

ABAC Journal Vol. 35 No. 2 (May-December, 2015, pp 61-70) 61

Dipanwita Bhattacharjee and Mouri Dey

opportunities which lie in the external websites of different companies, limited

environment. Moreover, Industry analysis academic research has been found in this
provides firms with vital information regarding field. Academics, generally, are found most
the forces, its structure, and its composition interested in writings in the field of
(Porter, 1980). strategic management with particular
Along with external environment attention on the most popular and widely
analysis and industry analysis, firms need practiced tools such as PESTEL (Political,
to undertake competitor analysis which is Economic, Social, Technological,
based on predicting competitors’ actions, Environmental and Legal) for external
responses, and intentions (Hitt, 2011). environmental analysis, Porter’s Five
Competitor analysis is undertaken mostly forces models for analyzing industry
at the business-unit level and competitions attractiveness, SWOT (Strengths,
are mostly oligopolistic in nature since Weaknesses, Opportunities and Threats)
under perfect competition there would be analysis for understanding market segment
no rationale for doing so (FitzRoy, Hulbert, and critical success factors, and Ansoff’s
& Ghobadian, 2011). The competitors’ Product-Market expansion grid etc. Few
objectives, resources, past records of writers, for example, David (2011),
performances, current offerings, and the Bygrave & Zacharakis,( 2011), Gorener
like, need to be collected and profiled in (2012), Borajee and Yakchali (2011),
an usable fashion (Lynch, 2006). Cheng and Huang (2005), Hadighi and
In order to gauge competitiveness, Mahdavi (2011), Capps and Glissmeyer
organizations use a number of models and (2012) have attempted to discuss CPM in
tools of which the competitive profile their academic writings. Despite the
matrix (CPM) is one of the most popular unavailability of secondary literature, an
among the practitioners. This tool gives “a attempt has been made to understand the
powerful visual catch-point by providing basic theory and concept of CPM and its
necessary information of competitive usability in strategy formulation. Therefore,
advantage and serves as the basis for the research question is “In what ways can
organization’s strategy” (Bygrave & CPM help a firm to improve its competitive
Zacharakis, 2011, p.243). Strategic position and strategy formulation?
competitiveness is achieved when firms The paper has been organized into the
successfully formulate and implement value following sections: section 1 is the
creating strategies (Hitt, Ireland & Hoskisson, introduction, section 2 discusses the
2011). objectives of the study, section 3 describes
Although, practitioners are constantly the methodology, section 4 explains the
using CPM to compare their performances concepts of Competitive Profile Matrix or
with their rivals, surprisingly, a lack of CPM, section 5 highlights the ways to
enthusiasm has been observed in this quite improve the usability of CPM, sections 6
fuzzy but vital strategic area in the world and 7 discuss the importance of
of academia. Though a vast amount of data understanding strategic capabilities and
regarding CPM are available in the converging industries, while section 8

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 Competitive Profile Matrix: A Theoretical Review

provides some recommendations and Competitive Profile Matrix (CPM)

conclusions and enumerates the limitations
of the study. A competitive profile matrix (CPM)
allows the firm’s owners to evaluate their
firms against their key rivals by using
OBJECTIVES OF THE STUDY critical success factors (Zimmerer,
Scarborough, & Wilson, 2008). According
The prime objective of this study is to to David (2011,) “A CPM identifies a firm’s
illustrate the concept of competitive profile major competitors and it’s particular
matrix (CPM) and its applicability in strengths and weaknesses in relation to a
strategy formulation. In this connection, the sample firm’s strategic position”(p. 81).
paper aims: The above definitions of CPM signify two
important tasks: firstly, the identification
1. To define CPM and its basic of competitors as well as their strengths
feature. and weaknesses, and secondly, the
2. To understand relative strengths and identification of key or critical success
weaknesses of CPM in strategy factors. This tool helps the managers to
formulation. identify the strongest competitors and
3. To reveal the ways to improve its important factors on a single page as well
usability. as the areas they need to improve (Ozyasar,
4. To provide some implications of n.d.). So, identifying major competitors is
its usage in strategy formulation. one of the key tasks for managers who are
interested in scanning the competitive
landscape and developing either offensive
METHODOLOGY OF THE STUDY or defensive strategies to remain
competitive in the market (Bergen &
The paper is basically a desk study Peteraf, 2002). However, in many markets,
based on existing literature. To conduct this there may be more than one competitor. It
research, the authors first selected some is, however, often impossible to put them
keywords, such as, Competitive Profile all in a single basket and in that case typical
Matrix, and SWOT analysis. These competitors are selected for comparison
keywords were used to search databases (Lynch, 2006). Bergen and Peteraf (2002)
like Emerald, JSTOR, Willy, and Sage have suggested how to identify and then
Journals Online. Search engine Scholar classify the competitors based on similarity
Google was used to find out relevant of resource endowment, i.e. factors
literature from other sources. Articles were necessary for the business, and the
sorted out based on their names, keywords, similarity of market they serve. They have
and abstracts. The authors further searched also urged managers to look beyond their
the same keywords in the indices of direct or close competitors and pay equal
scholarly books of Strategic Management. attention to their indirect or distant
competitors who might serve the same

63
Dipanwita Bhattacharjee and Mouri Dey

needs in the market. Though it is difficult Three important steps are to be followed
for the company to collect necessary while developing a CPM using these
information about their competitors, critical factors. Firms must attach weight
Bygrave and Zacharakis, (2011) suggest to each individual CSF reflecting their
using the firm’s network mainly consisting relative importance which must be summed
of the actual and potential customers the up to 1.00, rank each one based on the
firm hopes to sell to and various libraries, relative strengths and weaknesses of the
databases, trade shows, etc. which may company as well as its competitors by
help the firms in collecting competitor’s assigning 1 to major weakness and 4 to
information. major strengths, and finally get the
weighted scores by multiplying the weight
CPM and Critical Success Factors for each factor with its corresponding
(CSFs) ranking (Zimmerer et al., 2008). But if there
is no weight column in the analysis, each
The CPM uses critical success factors factor is assumed to be equally important.
(CSFs) which allow a firm to compare Having a weight column enables the
itself to those of other competitors in a analysts to assign higher or lower numbers
particular industry (Capps & Glissmeyer, to capture the perceived and/or actual levels
2012). The critical success factors are those of importance (David, 2011). A simple
factors that are either viewed by the hypothetical example of CPM is shown
customers as valuable or which provide below:
the firms a significant advantage in terms The above CPM shows that firm A
of cost and these factors vary from industry scores the highest at 3.60 and its nearest
to industry or even in some cases within rival is competitor Y (3.12). Firm A needs
an industry, for example, in the retailing to improve in the area of cost control
industry, supermarkets differ from because its nearest rival has superseded it
convenience stores and from corner shops in terms of that individual weighted score.
(Johnson, Whittington & Scholes, 2011). Once the information is obtained, it drives

Table: A sample of Competitive Profile Matrix Using Critical Success F actors.

CSF s Weight Firm A Competitor X Competitor Y

Quality 0.24 4 0.96 2 0.48 2 0.48
C ustomer retention 0.20 3 0.60 3 0.60 3 0.60
L ocation 0.16 4 0.64 3 0.48 4 0.64
Perception of value 0.20 4 0.80 2 0.40 3 0.60
C ost control 0.20 3 0.60 1 0.20 4 0.80
T otal 1.00 3.60 2.16 3.12

[Notes: The rating values are as follows: 1= major weakness, 2= minor weakness, 3=
minor strength and 4= major strength. Only five critical factors have been included for
simplicity although these are actually too few. Here, competitor X is the weakest (2.16).]

64
 Competitive Profile Matrix: A Theoretical Review

the firm toward complex and deep strategic select unsuitable or irrelevant factors that
thinking in different levels and areas might hamper the success of the desired
(Pettinger, 2004) and an interpretation of outcome.
the numerical results showing relative
strengths and weaknesses may help a Ways to Improve the Usability of CPM
company to develop strategies and build a
more competitive atmosphere in the A simple CPM suffers from a lack of
targeted market (Zimmerer et al., 2008). robustness in calculating different factor’s
However, arriving at a single number does scores for which its practices remain
not necessarily mean gaining a competitive questionable to some extent. However,
advantage unless a robust and meaningful some writers such as Hadighi and Mahdavi
integration and review of the information (2011), Capps and Glissmeyer (2012),
is undertaken (David, 2011). Gorener (2012), Borajee and Yakchali
Even when it depicts the performance (2011) and Cheng and Huang (2005)
gap among the companies or competitors, recommend some measures to improve the
it does not necessarily explain how one can usability of CPM. Some of them are
achieve better performance (Campbell, discussed below.
Stonehouse, & Houston, 2001). Thus,
David (2011) suggests that analysts focus Internal Factor Evaluation Matrix
more on how and why particular factors (IFEM) and External Factor Evaluation
reap benefit for the company instead of Matrix (EFEM)
robotically running after weights and ranks.
Hadighi and Mahdavi (2011)
Weaknesses of CPM recommend that the usability of CPM can
be improved by integrating an Internal
Although CPM depicts a firm’s present Factor Evaluation Matrix (IFEM), for
strengths and weaknesses in a simplistic example, cost, quality, customer retention,
way, additionally, a number of limitations etc. and an External Factor Evaluation
possibly lessen the interest of using CPM Matrix (EFEM), for example, competitor’s
as a strategic tool. One of the most powerful move, economy, etc. into a CPM analysis
reasons is that the factor’s scores are so that businesses can easily identify the
measured subjectively and non-uniformity benefits and losses accrued to it. Moreover,
can happen when answering the same they argue that the whole analysis should
question because of the subjective be based on a quantitative methodology
evaluations of the decision-makers without instead of qualitative one which is usually
a consistency test (Cheng & Huang, 2005). used in a traditional SWOT analysis.
And the factors are not grouped into Capps and Glissmeyer (2012) also suggest
opportunities and threats as they are in incorporating both an IFE and an EFE into
External Factor Evaluation (EFE) or a CPM separately which will be more
SWOT analysis (David, 2011). In addition, helpful in formulating a strategy and acting
Wong (2005) has advised managers not to on it. The internal as well as external factors

65
Dipanwita Bhattacharjee and Mouri Dey

may enhance the power of analyzing the inflexible and hence a more humanistic
competitive environment more accurately approach should be brought into light
because of the quantitative aspects of the (Burnes, 2009).
analysis. But at the same time, it raises the
question of whether quantitative analysis Importance of understanding Strategic
alone is sufficient to conceptualize the Capabilities
competitive environment wherein
uncertainty plays a critical role making the The use of conventional matrices
whole scenario somewhat unpredictable. provides valuable insights beyond financial
analysis (Capps & Glissmeyer, 2012). But
AHP (Analytic Hierarchy Process) and environmental perturbations simply leave
ELECTREIII organizations in a hazy state. In most
industries, competitors are often the
Furthermore, a number of sophisticated victims of hyper-competition since they
mathematical models have also been bought interact constantly with competitive moves
into play to improve the performance and such as a price cut or design imitation,
usability of CPM. Gorener (2012), thereby making the cycle of competition
Borajee and Yakchali (2011), Cheng and very fast and aggressive (Johnson et al.,
Huang (2005) have recommended the 2011). Increasing turbulence in the external
integration of the AHP (Analytic Hierarchy environment compels the firms to do an
Process) and ELECTREIII into a CPM external audit and formulate strategy
analysis to improve its usability. While accordingly (David, 2011). The Resource-
AHP is used to give scores to the factors Based theory puts more emphasis on a
which is a function of a consistency test firm’s resources which does not necessarily
and for which weights can be obtained mean the resources also available to the
accurately (Cheng & Huang, 2005), competitors but the extraordinary resources
ELECTREIII is employed to determine the available only to that specific firm, such
priority of the alternatives (Borajee & as brand name that deliver sustainable
Yakchali, 2011). Again, Pal and competitive advantage (Lynch, 2006).
Torstensson (2011) have suggested the use Firms, therefore, need not only threshold
of Three-Dimensional Concurrent capabilities in terms of resources and
Engineering (3-DCE) to synthesize and competencies to tap opportunities but also
identify critical success factors so that it need to cultivate dynamic capabilities to
will render better operational performance cope with the changes thereby creating
thereby enabling managers to understand competitive advantages (Johnson et al.,
the key areas in which to invest and how to 2011). Feurer & Chaharbaghi (1996) opine
invest their time and resources. that companies who have dynamic
However, a different view is also found capabilities achieve superior performances
in this regard. Some argue that exclusive in any competitive environment. In addition,
dependence on mathematical models can it is suggested that since an organization’s
make the strategy more mechanistic and strengths and weaknesses both reside in

66
 Competitive Profile Matrix: A Theoretical Review

core competencies which is related to a partner of Samsung) android software, that

firm’s major business and cannot be make Google a ‘complementor’ as well as
changed fundamentally, managers must be a competitor because of Google Nexus
well-concerned about any strategic move mobile phone series (Johnson et at., 2011).
in any new context and constantly search Again, some specific innovations that
for new competencies because more often are truly a result of a juxtaposition of what
the existing ones simply become irrelevant were previously referred to as ‘different
(Wong, 2005). industries’ (FitzRoy et al., 2011). Likewise,
Thus, any attempt at transformation Capps and Glissmeyer (2012) argue that
requires a careful understanding of the managers should do more homework
critical factors that shape managers regarding the application of CPM and the
perceptions and beliefs concerning such a selection of critical success factors and
radical managerial approach (Kamhawi, then should try to integrate the information
2008). Since identifying competitors is a for robust analysis of competitiveness for
key function in strategy formulation, rather strategy formulation.
than viewing those competitors in isolation Therefore, in developing an effective and
it is proposed that firms think of them in usable CPM, managers should be careful
terms of different strategic groups which about not only the close competitors, but also
will help catch a good snapshot for the the competitors from converging industries as
organization (Johnson et al., 2011). they also try to capture the same market share.
Therefore, understanding strategic Such analysis will definitely provide useful
capabilities is of great importance in insights that enable the decision makers to
designing and developing a useful CPM. design and implement correct strategies for
achieving the desired goals.
The Importance of Analyzing Converging
Industries in the development of CPM Implication and Conclusion

Some contemporary scholars argue that The above discussion raises one
traditional industry and competitor analysis fundamental question regarding the uses of
does not include ‘converging industries’ CPM as a strategic tool. Does CPM alone
and ‘complementary organizations’ reveal or answer all the basic issues relating
whereas they both have a huge impact on to competitor analysis? Or is it enough to
strategy formulation. For example, employ this tool for strategy formulation?
technological change has brought The selfish business world does not give a
convergence between the telephone and second chance to the firm committing even
photographic industries particularly when a single mistake. Only careful investigation
mobile phones (such as Nokia, Samsung) of every single factor may ensure the
have come up with cameras and video success for the company. Since, ‘strategies
settings that actually caused many are potential actions that require top-
photographic companies to fizzle out and management decisions and larger amount of
since Samsung uses Google’s (a strategic organizational resources’ (David, 2011,

67
Dipanwita Bhattacharjee and Mouri Dey

p.13), organizations should seek for customers. This competitive analysis will
sustainable competitive advantage to remain enable the decision-makers to use relevant
competitive in the ever changing marketplace. and vital information in strategy
In such a situation, firms should pay formulation that ultimately leads to future
close attention to critical success factors success.
and use those factors with much care to Therefore, CPM could be used as an
identify the gaps in the value creation and important strategic tool which serves the
tap the opportunity to outperform their information for competitive advantage and
rivals from a competitive scenario aspect. may be used as a strong basis for strategy
Once the firms are able to identify those formulation only if the above mentioned
factors and put this information into recommendations are taken into
developing a CPM, they can easily find the consideration.
gaps in the market in terms of value creation
and act quickly to close them. However, Limitation and Future implication
the simplistic nature of CPM often fails to
better estimate the potentiality which lies The main limitation of this paper is that
in the environment. Therefore, firms are it is basically a theoretical paper not an
suggested to employ improved and more empirical one. The author was only
sophisticated CPM models by integrating interested to look at the concept of CPM,
other models such as EFE and IFE into the its strengths and weaknesses and some
CPM to gain better insights for analyzing related issues. The lack of academic papers
their strengths and weaknesses against their regarding CPM also limits its scope of
competitors. In addition, managers must analysis and relevant findings. Future
be careful about the sole reliance on the research will definitely shed the light upon
quantitative aspects of the analysis and the empirical study on different
need to keep an eye on the qualitative organizational perspectives and their
aspects of the analysis as well. intension to apply CPM in strategy
Many scholars have suggested using formulation which until now has received
mathematical models such as AHP less attention than other approaches from
(Analytic Hierarchy Process), ELECTRE academic scholars.
III (ELimination and Choice Expressing
REality), etc. to improve the usability of
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 Competitive Profile Matrix: A Theoretical Review

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