Welp MagazineA 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.
What is a Competitive Profile Matrix?
A competitive Profile Matrix is a comprehensive visual representation of an organization’s strengths and weaknesses that are measured by the internal and external factors. The strengths, weaknesses, opportunities and threats of a Strategic Business Unit (SBA) can be articulated to the external and internal environments, and mapped to the key success factors in a graphic form.
CPM is used in competitive strategy to:
- Identify the areas of strength and weakness
- Identify core competencies and competencies to develop
- Act as a guide to translate strategy into action plans
CPM helps in gaining insight into key areas such as:
- How to improve the operational outcomes through various improvement plans
- Understand the opportunities of a business, how it can be exploited and eliminated to become a lead player
Who Uses Competitor Analysis?
A CPM is an analytical tool used by senior management and external advisors to gain a better understanding of the business environment in which the organization functions. It provides a framework for assessing the strengths and weaknesses and key opportunities and threats of the SBA in the global business scenario.
A CPM assists in understanding the potential business landscape and the ability of the organization to compete in such a landscape. With a view to plan strategical actions and set priorities, a CPM is used in the formulation of strategy, cross-functional coordination and planning. CPM is also used as a monitoring and review tool through the strategic planning cycle.
What is a Strategic Position?
A competitive profile matrix is a graphical representation of an organization’s strengths and weaknesses against key success factors such as market penetration strategies, target market, customer needs, and product line and service offerings. It charts the strategic position of an organization to plan suitable strategies for leveraging strengths and mitigating weaknesses. A CPM is integral to the formulation of an organization’s business strategy that seeks to maximize the organization’s potential to gain a competitive advantage over others.
What is a Key Success Factor?
Products or services that are highly differentiated, confer a perception of high value to customers, seem easy to use, or comprise of special features, maintain their competitive advantage in the marketplace. Success factors can provide direction to the organization on what must be improved or developed. Similarly, new products, services and technologies that are entering the market can be studied. Key success factors can also be translated into target markets that help in the formulation of strategies to gain competitive advantage.
CPM is also implemented as a rating system incorporating key success factors that guide the development of strategies in order to gain competitive advantage.
Competitive Profile
A Competitive Profile contains analysis of every SBA from a competitor’s perspective. The analysis is done on the basis of key success factors that form the core of the competitive profile. The Competitive Profile for the SBA includes analysis of the following:
Five forces: The five forces include factors affecting competition in the industry:
- Threat of new entrants
- Threat of substitute products or services
- Bargaining power of suppliers
- Bargaining power of buyers
- Industry rivalry
A competitive profile is established for each of the key success factors by employing the detailed force-field analysis, analyses of the threat of major competitors on all the factors and benchmarking of the SBA against these competitors on the key success factors.
SWOT: A SWOT analysis is carried out on the basis of a combination of strengths, weaknesses, opportunities and threats.
Benchmarking: The components of the Competitive Profile are benchmarked against the competitors to provide a comparative analysis.
Environmental Scanning
An environmental scan provides an idea about the business environment in which the SBA operates. The environmental scan of an SBA encompasses analysis of the following:
- Geographic environment
- Political environment
- Economic environment
- Technological environment
- Social environment
- Legal environment
- Technology trends
Environmental scanning assists the CPM in clarifying industry patterns such as international business trends or domestic business trends.
Competitive Analysis of the SBA
Analysis of the SBA using the Competitive Profile Matrix on the various key success factors enables the SBA to assess its strengths and weaknesses against the competitor’s army and opportunity and threat of the environment.
SBA Analysis helps in the development of a detailed competitive strategy, structured around the key success drivers.
Strategic Guidance and Direction
In the formulation of a business strategy, a CPM is used to provide valuable strategic guidance and direction to the organizational leadership. Strategic guidance and direction are provided in the following ways:
Provide direction for improvement plans preceding strategy formulation
Provide direction for analytical development projects preceding strategy formulation
Provide direction for identifying new products or services and strategic alliances that are required to formulate strategy
Provide guidance on how to exploit opportunities to gain competitive advantage in the short and longer term
Provide guidance on selection of core competencies
Guidance on how to develop business strategies and tactical action plans to improve market position and financial results
Guidance on how to eliminate threats to the business
Guidance on how to maximize the potential to gain competitive advantage of the organization
Data Analysis and Presentation
Data analysis is essential at every stage of the strategic planning process to aid analysis and interpretation. CPM is, therefore, accompanied by a number of charts and graphs so that interpretation of the data is easy.
The graphical presentation of the analysis of strengths, weaknesses, opportunities and threats in the CPM provides visual presentation of data which is an advantage over textual presentations.
CPM provides data for uncertainty analysis which highlights threats and opportunities that are most probable. Therefore, CPM serves as a guide for action, consolidation of the current strategic plans, give direction to improve business performance, and evaluate the business (with regard to the industry segment). During the formulation of new strategy and strategy review, the CPM serves as the basis for setting priorities and for determining the future well-being of the organization.
What to look for in a CPM analysis
Consider the following in selecting a CPM analysis:
Ask the analyst to explain each key success factor. Ensure that the key success factors are applicable to your situation.
Consider the methodology used to select the key success factors. Ensure that the methodology is consistent with that used to formulate the SBA.
Explain how the key success factors are weighted, and what the weights represent. Ensure that the logic of weighting is valid and is explained.
Make sure the analysis is thorough. Be sure the CPM takes into account “all” major players.
Understand the components of the CPM. Also, acquire an understanding of the variables used in the CPM.
Understanding what to look for in a CPM analysis will enable you to better evaluate the analysis, understand the analysis technology, and use the analysis as a tool to understand strategic planning.
TCI Model
A TCI Model or Total Core Interests of a person, team or a group is a useful concept for the strategising executives. TCI Model is a generic term for all factors that constitute a person’s total interests and self-image. In a broad sense, it is the mirror image of self-concept. It is used to prescribe a strategy using the following variables:
TCI model is based on the premise that people act in their own interests. Therefore, it is essential to analyse the interests of the customers in order to understand the basic motives of human behaviours. The TCI model is based on the following assumptions:
The basic premise of the TCI model is that all individuals have underlying societal “interests”. The “Total Core Interests” of a person or a group can be projected in, say, a matrix of L × N in which L = the number of interests and each interest is identified by a column heading and a corresponding row head. Thus, the interactions between one interest and the other columns can be analysed to derive the basic desires of the group to achieve specified objectives. The various possible interest combinations can be analysed and suitably interpreted. The notion that all actions are driven by self-interest is also consistent with Hobbes’ theory of human nature. Accordingly, it can be inferred that the TCI model is designed to implement strategies that are consistent with these motivational assumptions. In the context of strategy formulation, the motivational assumptions essentially mean identifying motives and intentions of the players, and extrapolate the outcome, in order to formulate strategy in a given marketplace.
The underlying conceptual framework for the TCI model is as follows:
The corresponding parameters to be considered for the analysis are listed as:
In short, the set of the Total Core Interests of a person or a group can be analysed using the cui bono? (i.e., who does it benefit?) approach. The analysis involves the following:
What in life motivates people? It is obvious that people are motivated by their own self-interest. What each person thinks will make him/her happy—which are the factors, aspects, and desires that make (sic) him/her happy/contented—are all included in Self-Image. Not everything that makes him/her happy is included in the Self-Image. Anything that does not make him/her happy is not included in the Self-Image, but these factors taken as a whole, the sum total of everything that makes him/her happy, make up the self-image. Self-Image is the collection of all that in a person’s nature that he or she values or wants to have, or that he or she will want in the future.
People will go to any lengths to get and maintain this self-image. The cause and effect of self-image can be viewed in these four patterns:
It is important that one understands what in life motivates people, and that comes to understanding the basic self-interests of people. There are certain needs that humans have as soon as they are born. These are called core interests and they are the basis of all other interests a person has. These core interests are divided into two categories:
The pros and cons of TCI Model Analysis
TCI model analysis is a strategy formulation method that with the help of elemental constructs, allows the analysis of the interest of a team, or a group. The basic premises of the method include, inter alia, the proposition that the interests of an individual can be aggregated to represent interest constructs.
TCI Model is a multivariate methodology for analysing, representing and communicating human affects as they relate to the value of a product. It does not limit its focus to behaviours but also takes into account interpretations by communicating the delivered value to the customer through the eyes of the customer. Using a multi-dimensional approach, the methodology presents how the customer feels about a product/service by looking at the actual experience of the customer.
TCI model analysis can be equated to a financial model of a company. The main objective of using such models is to address and capture the interest of the customers that forms the core of their perception of a product. It is based on Maslow’s hierarchy of needs model, which states that an individual’s actions are determined by his or her core interests.
TCI analysis quantifies the underlying core interests of the customers and quantifies these interests in terms of monetary values. This is similar to the way financial statement quantifies future cash flows. TCI analysis is an important management tool that complements and enhances strategic relations in organisations. It is based on the premise that customers choose where to do business based on the value a company can add to them as well as the value or business they can add to the company.
A common method used to determine the value of a good or service is the TCI or Total Core Interest analysis. (TCI) is a multi-variable construct used to represent the benefits that are relevant to a consumer from a particular product or service. In the TCI analysis, the multi-dimensional approach is used to understand the customer’s perceptions of a more complex service. The overall product concept is divided into several key concepts, each having their own relevance to the overall appeal of the service. TCI analysis provides a qualitative and quantitative basis to understand the customer’s perceptions of the product.
It is useful in the sense that it creates awareness on how each factor influences customer perceptions. The analysis may be used to understand customer perceptions in relation to different factors, such as price, distribution, quality, service, support, etc.
It also differentiates between relevant and irrelevant factors, and between factors with high and low weights. This is important to understand which factors have a greater impact on the perceived value of the product/service. This information might be of great importance to an organisation and is quite useful in case of diversified products. Hence, it provides a wider perspective of the market.
This method is based on the assumption of the availability of complete information regarding the consumer perceptions. Therefore, it is essential to understand the concept of TCI model analysis in detail before conducting an analysis.
TCI model analysis has several advantages such as it is non-obtrusive, objective, and easy to use. However, the main disadvantage of TCI model is that it does not provide an in-depth understanding of the customers’ emotions. It fails to capture their feelings and perception of the product or service. It provides quantitative information, which may be of less value to the organisation.
The first step in the development of a “TCI Model” is the identification of the subject’s interests. These “interests” are defined as the customer’s likes and dislikes (what he or she wants and does not want). Each “interest” is placed in an interest “column” and a “weight” is assigned to each. Interest columns may be divided into subgroups, and each sub-group may be assigned a “weight.’ For example, there may be three sub-groups in the column of interests called “quality of service,” and each sub-group may be assigned a different weight.
Building Blocks (Core interests) of a Customer & Value
The TCI model analysis consists of two major blocks that represent the customer’s construct and the value of the product/service to the customer.
The first block represents the customer’s construct, where the customer’s interests are placed in columns.
The second block represents the value of the product/service to the customer, where the value of these interests is placed in rows. This value is assigned a weight, axis 1.
The “core interests” of values, shown in the rectangular block, are the values shown in the rows if there were no other considerations.
Core Interests (Building Blocks) of a Customer
Before analysing the relevance of core interests, it is necessary to understand the concept of “core interests” and how it is defined. There are numerous ways in which the definition of core interests could be interpreted. For example, one could define core interests as those values that customers would be willing to spend more money on than any other value.
Another way of viewing core interests is through the concept of “expectation value.” The expectation value can be calculated as (E = dly/theta), where E = expectation value, dly = difference in the last year’s sales and the current year’s sales, and theta = the standard deviation of dly.
While the definition of a core interest is extremely important, it must be remembered that the identity and importance of interests vary in direct proportion to the importance of the product, service, and the individual customer. Identifying core interests will provide the business an understanding of the relative importance of the customer’s value of a product.
For example, if the core interest of a product is the physical quality of the product, the interests would be “zero” and “one,” respectively (i.e., as opposed to a “five” on a ten-point scale). If the product, however, is one such as diamond, the quality may be of great importance to the customer. Hence the “core interest” would be a value such as a five or six on a ten-point scale.
The Customer’s Construct
Core interests are typically placed in “columns” to make a “construct.” For example, for the product of X, the construct might look like the one in Figure 1. In this example, the customers’ values for quality, service, design, and price are placed in columns.
The column to the left, labelled as “column a”, contains the customer’s value for service if the quality of the product were considered zero. The column to the right, labelled as “column b”, contains the customer’s value for service if the quality of the product is considered eight. The difference between the two values, labelled as “dly”, is placed in the next row, and assigned a weight. Since the difference in the product’s quality is the same for the two different columns (“a” and “b”), the standard deviation, “theta”, is the same.
For this example, the values are calculated as:
(“column a”, 0, “column b”, 8, “dly”, 4) => (0,8,4,0.47) => E = 0.47
The value of Customer’s construct can be viewed as the MRP (marginal revenue product) of having the customer. Essentially, the values on columns represent different customers’ values for products. The difference between the columns is the marginal revenue product of customers.
However, the weights are the value of the difference between two different products and the construct value with all the weights considered is known as construct value.
The Value of the Product to the Customer
In the previous section, it was calculated that the construct value of customer for the product “X” (with a value of “column a”) was equal to $0.47. The actual value of “X” to the customer, though, is much greater as the customer is making decisions based on more than one value. The customer will actually be considering the product’s value for style, quality, price, etc.
The values placed in the next row of the value table are known as the consumer’s contribution to value (CCA). The CCA can be calculated as the value of the customer’s construct (i.e., the left- most column) minus the value of the per-customer construct value (i.e., the value in the left-most column times the number of customers who value it).
For the product of “X”, the values for style, price, quality, and service are placed in the next row of the value table (as shown in Figure 2), and the weights are placed in the next column.
The standard deviation of the weights (theta) is given as 3. The values for price and service can be calculated as the value of the individual product times the number of customers who value it. For the value for quality, the values in column “a” and “b” (shown in Figure 1) are used to calculate the difference in the value. Similarly, for the value for style, the values for products “x” and “y”, shown in Figure 1, are used.
(“column a”, 0, “column b”, 8, “dly”, 4) => (0,8,4,0.47) => (0,8,4,0.47) => E = 0.9
“column” = value of the product/service to the customer
The second step in the analysis is to analyse the relevance of the core-interests. Similar to the core-interests, the “relevance” of a core interest to the customer is measured as the difference between the value of a product to a customer, and the construct value of the product, formula_1.
One of the main reasons for the relevance is the CCA value itself. The value of a core interest to the customer is measured as the CCA to the corresponding interest.
Relevance is measured as follows:
The second block of Figure 3 shows the derivation of relevant interests. The relevant interests are calculated by summing the the covariance of the customer’s values with the interest’s affinity and the product’s affinity. In the case of a “perfect affinity”, the interest is relevant even when the product has little value to the customer. It should be noted that the highest value of the affinity (i.e., affinity of the interest with the highest affinity value) always outweighs the other values.
The output of this step in the segmenter process is a set of relevant interests for each customer that have a high predicted value of the segment. The formula for the analysis is described below:
“i” is the customer or one unit of customers
“C” is the core-interest vector for the interest. It is a subvector of the core-interest vector for the segment.
“I” is a vector of values for form, style, quality etc.
The above algorithm predicts the value of the interest to the customer, the CCA value. This value can be used as a quantitative measure for the importance of the interest.
The next step is to apply a top-down approach for the analysis of the segmentation process. This top-down approach is carried out using factor analysis and cluster analysis.
Factor analysis attempts to find a smaller number of factors which allow the variation of the customer attributes and lower dimensions of the customer product. Figure 4 shows the two-dimensional output of a factor analysis.
The first component has a weight of 0.79, and it is related to a product with dimensions of style and quality. The values of affinity of each interest with the product dimensions are shown on the bottom row. The second component has a weight of 0.21, and it is related to a product with dimensions of price and service. The values of affinity of each interest with the product dimensions are shown on the bottom row.
The cluster analysis attempts to find a smaller number of groups of customers that are similar to each other. Figure 5 shows the output of a cluster analysis.
It can be seen that five groups of customers have been identified. These groups are named based on the values of the products to their interests. The figure shows that customers with similar product affinity should be clustered, but customers might be clustered even if they have little affinity with the products.
The final step is to aggregate the customers, and create a segment. The customers are clustered and aggregated based on the similarities in their attitudes, demographics and profile.
The outputs of the second and third steps are as follows
The fifth block of Figure 5 shows the analysis of customer interest. It shows the values and interest affinity of the interest on the left and the output of the cluster analysis on the right. It can be seen that the group of customers with values between $0.6 and $0.8 of style+quality interest are clustered into the same group. It can be observed that the cluster analysis created artificial groups based on similarities.
Once the segmentation process is complete, the customer’s relevance for the interests in the segment can be determined. The usefulness of the segment to the company can also be determined. The predictive value of the segment can be determined by categorizing customers based on their range of values as described below.
The attractiveness of the customer to the interest is summed over their range of values for the core-interest.
