The Competitive Profile Matrix (CPM) is a tool that compares the firm and its rivals and reveals their relative strengths and weaknesses. The profile matrix identifies a firm’s key competitors and compares them using industry’s critical success factors.
What is Competitive Profile Matrix CPM?
The competitive profile matrix combines Porter’s five forces analysis with the SWOT (strength, weakness, opportunity and threat) analysis to find an overall competitive advantage for a firm or organization.
The competitive profile matrix, or CPM, represents each competitor as a force in the market and then places them in a matrix, with each row representing a competitor and each column representing an aspect of competition.
Fortunately, the CPM is very easy to construct. To do this, we use information from the analysis performed in Porter’s Five Forces and SWOT.
Applications of Competitive Profile Matrix CPM
The competitive profile matrix is more comprehensive and inclusive than the Porter’s Five Forces creating a cluster of rivals on a columned board, rather than on a list which represents a row of rivals.
Another major difference is that in the competitive profile matrix, each competitor takes one position and has an ideal score in every column.
The competitive profile matrix allows you to avoid the trap of going on and on about your own strengths and doing a mediocre job of describing the strengths and weaknesses of rivals.
CPM should showcase your strengths over your rivals and equally emphasize areas where you have weaknesses over rivals.
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.
So, what is Competitive Profile Matrix CPM and how can it be applied to your business?
In the next section, we will focus on the Porter’s Five Forces Analysis as the framework for the Competitive Profile Matrix CPM.
What is competitive analysis CPM?
Before we get started with the Competitive Profile Matrix CPM, it is necessary to understand the Porter’s Five Force analysis.
The Five Force analysis is an analytical tool it is a business strategy tool that can be used to analyze the attractiveness of an industry.
Porter’s Five Forces are a tool for strategy development. The Porter’s model contains several “forces” that determine the intensity or magnitude of the company’s competitive position within an environment.
Porter’s Five Forces are based on the concept that in any given structural environment, there are five forces that are constantly at work to achieve equilibrium in the industry.
The Five Forces analysis is a framework in which an analyst uses to evaluate a business environment. If a company can create the most value in an industry, it will attract a larger market share and more profits.
The Five Forces are:
- Buyer Power
- Supplier Power
- Threat of New Entrants
- Threat of Substitutes
- Competitive Rivalry
Understanding Porter’s Five Forces analysis for Competitive Profile Matrix CPM
The Five Force analysis of Porter is an analytical approach to determine if you can compete long-term in a given industry. It predicts whether or not you can defend your market position.
The Five Forces analysis is a framework in which an analyst uses to evaluate a business environment. Porter was the first to offer a formal analytical framework designed to assess and evaluate the effectiveness of competitive strategy.
The Five Forces provide a clear description of the opportunities and threats that affect a specific competitive landscape.
Firms that master the ability to understand the ever-changing dynamics of Porter’s Five Forces report are well-positioned to lead industry, seize new market opportunities, and achieve continuous growth.
Firms that master the ability to understand the ever-changing dynamics of Porter five forces report are well-positioned to lead industry, seize new market opportunities, and achieve continuous growth.
Understanding the Five Forces is a vital prerequisite for CPM to ensure that the analysis of individual organizations against their industry rivals is valid and that the results are defensible.
How to construct a Competitive Profile Matrix CPM
When you design a Competitive Profile Matrix CPM, you can view the Porter’s Five Forces Analysis as a framework that will help you determine the relative attractiveness of any given market or industry.
The Competitive Profile Matrix CPM is created by using information from the Five Force Analysis of Porters.
The first step in using the Competitive Profile Matrix CPM is to evaluate your competitiveness in the market or industry by using information from Porter’s Five Forces analysis.
It is difficult to say that there is a right or wrong way to lay out the information in the matrix. The matrix is basically a tool to assess areas for improvement and development.
If you are just starting out in some market, you may be strong in every aspect of competition and have just a few weaknesses. If that’s the case, maybe there are ways that you can fill in the matrix.
On the other hand, if you are an established firm that is not doing well in its market, it may show up clearly in the matrix. There are many successful firms that have been in business a long time. During this time, they have acquired one or more of the weaknesses that become essential vulnerabilities in the market.
An analysis of each element is a very useful exercise because it not only allows you to see where your own company is strong but to see the weaknesses in your rivals and identify strategies to strengthen those areas.
Competitive Profile Matrix CPM Create
The competitive profile matrix is divided into two parts. There is the inner circle and the eight columns. Each of the eight columns represents a different facet of competition.
The actual activity of creating a Competitive Profile Matrix CPM is quite easy. In the center, what you do is you write the name of your company. Just write what you would like to call it. Maybe you want to call it “Company X”.
Then, you write the name of your chief competitor or top three competitors. If you are in an industry where you are not really competing with anyone, you can just leave that column blank.
Next, you write the current scores up, and then you actually write what you would like to be in every column that’s out there.
For example: Let’s assume that Company X is a shoe manufacturer, and its closest rival is Company Y.
Let’s just say that each of these companies has a product price set at $1.00 for their shoes. Company X just decides to slightly change its price to $1.05.
If they do this, they would actually increase their market share and sales volume for this particular line because they are now a little bit more competitive.
After all, there is no real strong way in which Company Y could respond to this move. They will probably leave the price right where it is, and then they will know that Company X is now a little bit more competitive.
Filling competitive profile matrix CPM
When you fill the Competitive Profile Matrix CPM, you simply write the name of a company at the top.
Under that, you list the company’s main competitors. There are a lot of companies out there that are direct competitors. It might even prove to be easy to list each of the competitors.
Now ask yourself, “Where am I strong, and where am I weak?”
It is important to rate your strengths and weaknesses on a scale of 1 to 5.
The best rating of 5 means you are extremely strong in that category, while the worst rating of 1 means you are extremely weak.
It’s not totally necessary for there to be a total of 8 columns. Maybe your firm only competes in four or five aspects of the market. In that case you would just list those five or four aspects, and you won’t have to create the other three patterns.
If you want to carry out a more detailed competitive profile matrix CPM, you will have to evaluate your competition at least in terms of quantity, quality, and price.
In almost every competitive profile matrix CPM, there is a product-price analysis.
The actual evaluation is pretty straightforward. Simply take the product price of each of the rival companies and then compare it to the product price of your company. It doesn’t really matter if a competitor is ahead, behind, right in line, or below the price of your own company, just identify where the competitors are in price.
The next step is to identify where the competitors in each of the other categories are in relation to each other. Quality is a big problem for many companies in today’s market. A lot of companies have taken their eye off the ball when it comes to quality.
Information from The Five Forces Analysis of Porters is essential in helping a company to maintain its quality level.
It is also important in helping the company to identify where it is weak. Usually, long term success is only possible if a company manages to maintain the quality of its products and services and also identifies and manages those areas of its business where it is weak.
This aligns with the need to identify the rivals in the industry to gain an appreciation of the competitiveness of the industry and to establish an assessment of the relative strength of the company. It is a good idea to take information from Porter’s Five Forces analysis and develop it further by working in the above five categories. This will enable the company to decide where it is strong and where it is weak, as well as provide a mechanism to help identify areas that need improvement. Overall, the competitive profile matrix CPM will enable the company to gain a clearer picture of the current marketplace and where it stands in relation to its competition.
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.