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CPM

Task 1: Competitive Profile Matrix

Customer Inserts His/her Name

University Name
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Introduction

In an intensely competitive contemporary business environment it is of absolute

importance that an organization collects and analyzes information regarding the environment

on a periodic basis, particularly as the firm can only exert very limited influence over the

external environment. It is also critically important that the firm has intimate knowledge of

its internal environment, structure and capabilities and how these internal factors combine to

create advantages for the firm relative to their competition. Therefore, it is fair to say that it is

essential for any organization to conduct internal and external analyses at regular intervals

and to thoroughly evaluate both in order to identify its key strengths which give it an

advantage over the competition. Such a process is crucial to assess its overall business

strategy and for formulating a future strategic direction.

There are various methods of conducting this analysis and of presenting its findings.

While an analysis of overall business strategy would involve a comprehensive strategic

management audit (Wheelen, 2008) there are methods available that can succinctly express

the findings of a competitive advantage analysis. This method involves the competitive

profile matrix. The competitive profile matrix analyses critical success factors (Grunert,

1992) by firstly identifying a list of critical success factors, assigning a weightage to each and

assessing the proficiency of competitors in each area (Katsioloudes, 2006).

Literature Review

According to Bygrave and Zacharakis, 2011: “a competitive profile matrix not only

creates a powerful visual catch-point but also conveys information about your competitive

advantage and is the basis for your company’s strategy.” This statement assigns a great deal of

importance to the competitive profile matrix as a tool for external evaluation while a review of

literature pertaining to this topic clearly suggests that the CPM is a valid tool for analyzing

competitors, it cannot provide the sole basis for a business strategy

The primary purpose for any analysis or audit of the internal and external environment

is to provide a firm with information regarding their current strategy which allows them to

evaluate it for its effectiveness and to form a strategy for the future (Miesing, 1997). Therefore it

is vital for any information derived from an auditing process is presentable, easy to understand

and expressed succinctly. The statement under scrutiny for the purposes of this report by

Bygrave and Zacharakis, 2011 alludes to the catch-point potential of competitive profile matrix

and this is one of the key attributes of the method which makes it so popular for its proponents.

Grossman and Livingstone (209) further establish the importance of the visually compelling

nature of the CPM format, by stating that its effectiveness lies primarily in its visual

attractiveness and in its format which is easy to decipher for any employee involved in the

strategic chain of command.

Another key aspect of the statement that is being examined is the importance of

competitive advantage. According to Nilsson and Rapp (2005) understanding the processes that

lead to the creation of a competitive advantage are essential in the development of a firm.

According to the authors a lack of understanding of competitive advantage and how it is attained

can have disastrous consequences for a company, these consequences include the loss of the

competitive advantage in itself. This is what occurred with American industry in the 1970’s

according to Hayes and Abernathy (1980). American firms neglected key aspects of

organizational management by failing to allocate enough resources to strategic management and

hence developed a poor understanding of the internal and external environment. The competitive

profile matrix model recognizes the importance of competitive advantage and by defining critical

success factors and the company’s strength’s vis a vis its competitors the firm will always have a

reference point to understand the source of its unique competitive advantage.

A third key element of the statement made by Bygrave and Zacharakis, 2011, refers to

using the CPM as a basis for formulating business strategy. According to Mertins, et al., 2008 the

formulation of business strategy involves five distinct steps, those of: inputs, analysis, strategy

formulation, strategy implementation and strategy review. Waldman 2010, clearly associates the

CPM with the inputs stage of strategy formulation, whereby, the results contained within the

CPM are used as inputs in the strategy development process, and upon analysis can be converted

into tangible strategic objectives. Similarly, David, 2007 has outlined a framework for analysis

and evaluation of existing strategy and for formulating a new strategy based on the analysis. This

framework contains three different steps, which are: inputs, matching and decision. According to

David the input stage relies heavily on the quantification of subjective values, in order for them

to be useable in the matching and decision stage of the process. David has included the CPM in
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the input stage of this framework suggesting that there is consensus among the works of the

various authors regarding the usage of CPM in strategy formulation, in that it is clearly

associated with the inputs stage.

According to David (2012), an external audit is conducted by a firm in order to create a

list of opportunities to be availed and a list of threats to be counteracted. According to the author

the external environment consists of five forces which can influence the operations and success

of a company. These forces include: economic, socio-cultural, politico-legal, technological and

competitive. David’s model draws upon previous models such as Porters five forces, and both

external analysis models highlight the role of competitive forces in influencing the operations of

a firm in any given industry. The emphasis on attaining information on the state of the

competition further establishes the importance of the CPM as method of external audit.

The review of literature related to the CPM has so far suggested that it is a vital tool for

any firm seeking to understand its competitive advantage and to formulate future strategies based

on it. The importance of understanding a firm’s competitive advantage has also been established

during the course of this literature review, however the further examination of literature displays

evidence which alludes to certain shortcomings present in the CPM model. To begin with

prolific business strategy theorist Michael Porter has himself mentioned the drawbacks of

following rigid models for the purposes of strategic planning in the modern environment, the key

to success in the “creative economy” is business adaptability. Specific shortcomings, of the CPM

model according to literary evidence will be elaborated on below.

To begin with, the usage of the CPM model necessitates the collection of extensive

amounts of data regarding competitor activities, and this process of data gathering poses several

problems to any firm, according to David (2012). The initial problem that will be faced by any
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firm with regards to this process involves the allocation of sufficient resources to the task of data

collection. These resources, involve labor resources as well as time and financial resources.

While large organizations may not have a problem in finding the required amount of resources,

the process will be considerably more difficult for smaller firms or firms that are in poor

financial health. Therefore, the CPM may not be a financially viable option for small and

financially unhealthy firms. The other problem that is posed during the process of data gathering

involves the actual process of intelligence gathering in itself and whether or not the intelligence

gathering was conducted in an ethical manner. Unethical forms of intelligence gathering may

result in the breach of anti-trust laws which may have disastrous legal repercussions for an

organization and may result in the loss of image in the eyes of the public and stakeholders. It

would also be difficult to determine the validity of the information that is gathered and whether it

is correct or not. An additional obstacle that may arise during the competitive intelligence

gathering process, refers to international competitors and the difficulties of acquiring information

relevant to these competitors which would involve heightened costs. However, to counteract this

particular obstacle David (2012) states that the internet is an extremely viable tool for data

gathering purposes and suits the needs of organizations with international competitors and or

relatively lower financial resources. Despite these potential drawbacks, David is adamant that

competitive intelligence gathering is a necessary process in order to have a general overview of

the industry, to identify the strengths and weaknesses of competitors and to identify the internal

strengths and weaknesses of a firm relative to its competitors.

The second major disadvantage of the CPM has been highlighted in a paper by Chang

and Huang, 2006. This disadvantage refers to a key element in the CPM process, that of

assigning numerical weightage according to the importance of each critical success factor. The
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importance of each CSF and the weightage assigned to it are based on highly subjective

valuations which may differ from person to person, it is possible for individuals within the same

organization to place greatly divergent levels of importance on each CSF, thus rendering the

weightage assignment process as one that is based on speculation, with little factual basis.

Due to the lack of legitimacy and consistency that the process of weightage assignment

suffers from, David (2007) indicates that the differences between the performance of a firm and

its competitors in a particular critical success area may be inaccurate when presented in a CPM.

While it is possible that a particular competitive advantage may exist the CPM process may

result in an over or under estimation of the advantage, thus creating the potential for inaccuracies

in future strategic planning for a firm, since it will ultimately rely upon the collective intuitive

judgment of a variety of employees. Furthermore, according to David (2012) it is difficult to

define who or what constitutes as a firm’s competitor. A firm may have several or few

competitors many of which will not be in direct competition with the firm. Therefore, it becomes

difficult to identify which competitors should be included in the CPM.

Another key drawback in the usage of the CPM is that it is in itself not sufficient for the

purposes of a thorough and comprehensive external evaluation. According to research by

Cassidy, Glissmeyer and Capps, 2013, aspects of the internal factor and external factor

evaluation methods (EFE and IFE) need to be incorporated into the CPM in order to create a

clearer picture of the external environment. A strategy that is based solely on a CPM is doomed

to failure since it ignores other critical forces in the external environment, which includes

economic pressures, socio-cultural/demographic issues and politico-legal developments. These

additional forces may prove to have a greater role in influencing a firms operations and fuure

success than competitive forces. Furthermore, the CPM does not clearly outline the opportunities
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available to a firm and threats which should be avoided, which is a key outcome of any external

analysis by a firm.

Conclusion

The competitive profile matrix offers a simple method of outlining a firm’s strengths

relative to its competitors in a format which is visually attractive as a “catch-point”, and is easy

to understand. Understanding the basis of a firm’s competitive advantage is vital in order to not

only sustain it but also to formulate future strategies based on the extent of this advantage. The

CPM is a perfectly viable tool for the evaluation of competitive advantage but has several

limitations which include the subjectivity inherent in process of weightage assignment,

difficulties in gathering competitive intelligence and the lack of a factual and quantifiable basis

upon which the CPM is created.

Therefore it is recommended that the CPM is included in any external audit process as a

component but not as a key basis upon which strategy should be formulated. Other methods of

evaluation including IFE’s and EFE’s need to be included in order to present a clearer picture for

the firm and to create solid foundations upon which future strategy may be formulated.
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References

Bygrave, W. and Zacharakis, A. (2010). The portable MBA in entrepreneurship.

Hoboken, NJ: Wiley.

Cassidy, C., Glissmeyer, M. and Capps III, C. (2013). Mapping An Internal-External (IE)

Matrix Using Traditional And Extended Matrix Concepts. Journal of Applied Business Research

(JABR), 29 (5), pp. 1523--1528.

Chang, H. and Huang, W. (2006). Application of a quantification SWOT analytical

method. Mathematical and Computer Modelling, 43 (1), pp. 158--169.

David, F. (2007). Strategic management. Upper Saddle River, N.J.: Pearson Prentice

Hall.

David, F. (2012). Strategic management: Competitive Advantage Approach. Upper

Saddle River, N.J.: Pearson Prentice Hall.

Grunert, K. (1991). MAPP working paper no 4 October 1992 ISSN 0907 2101 The

Concept of Key Success Factors: Theory and Method. [report] MAPP.

Hayes, R. and Abernathy, W. (1980). Managing Our Way to Economic Decline. Harvard

Business Review.

Katsioloudes, M. and Katsioloudes, M. (2006). Strategic management. Burlington, MA:

Elsevier Butterworth-Heinemann.

Livingstone, J. and Grossman, T. (2002). The portable MBA in finance and accounting.

New York: J. Wiley.

Mertins, K., Ruggaber, R. and Popplewell, K. (2008). Enterprise Interoperability, 3.

Dordrecht: Springer.
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Miesing, P. (1997). Paul Miesing's Homepage at the University at Albany, State

University ofNew York at Albany. [online] Retrieved from: http://www.albany.edu/~pm157/

[Accessed: 12 Oct 2013].

Nilsson, F. and Rapp, B. (2005). Understanding Competitive Advantage. [New York]:

Springer Berlin ʺ Heidelberg.

Waldman, D. (2010). Uproot U.S. healthcare. Abuquerque, N.M.: ADM Books.

Wheelen, T. and Hunger, J. (2012). Concepts in strategic management and business

policy. Upper Saddle, N.J.: Pearson Prentice Hall.