Corporate Planning and Strategic Management

Competitive Profile Matrix (CM) (Applies to MBA Students

only)
Competitive profile matrix is an essential strategic management
tool to compare the firm with the major players of the industry.
Competitive profile matrix show the clear picture to the firm about
their strong points and weak points relative to their competitors.

Competitive Profile Matrix

Critical Success Factors
Critical success factors (CSF) are the key areas that determine a
company’s success in the industry. To succeed in its industry, a
company must perform at the highest possible level of excellence.
These factors vary among industries or even strategic groups.
CSF should include both internal and external factors for analysis.
Therefore, if you want a more robust and accurate analysis,
include more, relevant factors.

Weight
Assign a weight ranging from 0.0 (low importance) to 1.0 (high
importance) to each critical success factor. The weight indicates
the importance of that factor in the company’s success. If you
don’t assign weights, then all factors would be equally important.
This is an impossible scenario in the real world. The sum of all the
weights must equal 1.0. You should not emphasize separate
factors too much by assigning a weight of 0.3 or more. This is
because a company’s success is rarely determined by just one or
few factors.

Rating
The ratings in CPM refer to how well companies are doing in each
area. They range from 4 to 1:

 4 means a major strength

 3 – minor strength
 2 – minor weakness, and
 1 – major weakness.

Subjectively assign the ratings and weights to each company.

However, this process can be done easier through benchmarking.
Benchmarking reveals how well companies are doing compared
to each other or industry’s average. Note that firms can have
equal ratings for the same factor.

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.

Summary
The benefits to using Competitive Profile Matrix (CPM) for rivals
analysis are:

 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.

References:
Bhattacharjee, Dipanwita. (2015). Competitive Profile Matrix: A
Theoretical Review. ABAC Journal. 35. 61-70.
Sohel, Shanewaz & Mohammad Atiqur Rahman, Abu & Uddin,
Md. (2014). Competitive Profile Matrix (CPM) as a Competitors’
Analysis Tool: A Theoretical Perspective. International Journal of
Human Potential Development. 3. 40-47.
https://thinkinsights.net/strategy/competitive-profile-matrix/

Internal Factor Evaluation (IFE)

Internal Factor Evaluation (IFE) Matrix is a strategy tool used to
evaluate firm’s internal environment and to reveal its strengths as
well as weaknesses. The internal and external factor evaluation
matrices have been introduced by Fred R. David in his
book Strategic Management[1]. According to the author, both
tools are used to summarize the information gained from
company’s external and internal environment analyses.

Internal Factor Analysis

Strengths and weaknesses are used as the key internal factors in

the evaluation. When looking for the strengths, ask what do you
do better or have more valuable than your competitors have? In
case of the weaknesses, ask which areas of your company you
could improve and at least catch up with your competitors? The
general rule is to identify as many key internal factors as possible.

Weights
Each key 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 if a company wants to succeed in an
industry. If there were no weights assigned, all the 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 0.30 or more) because the success in an industry is
rarely determined by one or few factors.
Ratings
The ratings in internal matrix refer to how strong or weak each
factor is in a firm. The numbers range from 4 to 1, where 4 means
a major strength, 3 – minor strength, 2 – minor weakness and 1 –
major weakness. Strengths can only receive ratings 3 & 4,
weaknesses – 2 and 1. The process of assigning ratings in IFE
matrix can be done easier using benchmarking tool.
Score
The score is the result of weight multiplied by rating. Each key
factor must receive a score. Total weighted score is simply the
sum of all individual weighted scores. The firm can receive the
same total score from 1 to 4 in both matrices. The total score of
2.5 is an average score. In internal evaluation a low score
indicates that the company is weak against its competitors.

IFE and EFE analyses have little value on their own. You should
do both analyses and combine their results to discuss new
strategies or for further analysis. They are especially useful when
building advanced SWOT analysis, SWOT matrix for strategies or
IE matrix.

References:
David, F.R. (2009). Strategic Management: Concepts and Cases. 12 th ed.
FT Prentice Hall

URL:
https://thinkinsights.net/strategy/ife-analysis/#:~:text=Internal
%20Factor%20Evaluation%20(IFE)%20Matrix,strengths%20as%20well
%20as%20weaknesses.&text=Strengths%20and%20weaknesses%20are
%20used,internal%20factors%20in%20the%20evaluation.

External Factor Evaluation (EFE)

External Factor Evaluation (EFE) Matrix is a strategy tool used to
examine company’s external environment and to identify the
available opportunities and threats.

External Factor Analysis

Key External Factors

When using the EFE matrix we identify the key external
opportunities and threats that are affecting or might affect a
company. By analysing the external environment with the tools
like PESTLE analysis, Porter’s Five Forces or Profile Matrix, the
key external factors can be identified. The general rule is to
identify as many key external and internal factors as possible.

Weights
Each key 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 if a company wants to succeed in an
industry. If there were no weights assigned, all the 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 0.30 or more) because the success in an industry is
rarely determined by one or few factors.

Ratings
The ratings in external matrix refer to how effectively company’s
current strategy responds to the opportunities and threats. The
numbers range from 4 to 1, where 4 means a superior response,
3 – above average response, 2 – average response and 1 – poor
response. Ratings, as well as weights, are assigned subjectively
to each factor. In our example, we can see that the company’s
response to the opportunities is rather poor, because only one
opportunity has received a rating of 3, while the rest have
received the rating of 1. The company is better prepared to meet
the threats, especially the first threat.

Weighted Score
The score is the result of weight multiplied by rating. Each key
factor must receive a score. Total weighted score is simply the
sum of all individual weighted scores. The firm can receive the
same total score from 1 to 4 in both matrices. The total score of
2.5 is an average score. In external evaluation a low total score
indicates that company’s strategies aren’t well designed to meet
the opportunities and defend against threats. In internal
evaluation a low score indicates that the company is weak against
its competitors.

Note that EFE analyses only help identify and evaluate the
factors, but do not directly help formulate a strategy or the next
best strategic move.

References

David, F.R. (2009). Strategic Management: Concepts and Cases.

12th ed. FT Prentice Hall

URL: https://thinkinsights.net/strategy/efe-
analysis/#:~:text=External%20Factor%20Evaluation%20(EFE)
%20Matrix%20is%20a%20strategic%20analysis
%20tool,strengths%20as%20well%20as
%20weaknesses.&text=According%20to%20the%20author%2C
%20both,external%20and%20internal%20environment
%20analyses.
Boston Consulting Group Matrix (BCG Matrix) - Applies to
MBA students only

The Boston Consulting group’s product portfolio matrix (BCG

matrix) is designed to help with long-term strategic planning, to
help a business consider growth opportunities by reviewing its
portfolio of products to decide where to invest, to discontinue or
develop products. It's also known as the Growth/Share Matrix.

The growth share matrix was created in 1968 by BCG’s founder,

Bruce Henderson. It was published in one of BCG’s short,
provocative essays, called Perspectives. At the height of its
success, the growth share matrix was used by about half of all
Fortune 500 companies; today, it is still central in business school
teachings on strategy.

The Matrix is divided into 4 quadrants based on an analysis of

market growth and relative market share, as shown in the
diagram below.

1. Dogs: These are products with low growth or market share.

2. Question marks or Problem Child: Products in high growth

markets with low market share.

3. Stars: Products in high growth markets with high market share.

4. Cash cows: Products in low growth markets with high market

share

How to use the BCG Matrix?

To apply the BCG Matrix you can think of it as showing a portfolio

of products or services, so it tends to be more relevant to larger
businesses with multiple services and markets. However,
 marketers in smaller businesses can use similar portfolio thinking
to their products or services to boost leads and sales as we'll
show at the end of this article.

Considering each of these quadrants, here are some

recommendations on actions for each:

 Dog products: The usual marketing advice here is to aim to

remove any dogs from your product portfolio as they are a drain
on resources.

However, this can be an over-simplification since it's possible to

generate ongoing revenue with little cost.

For example, in the automotive sector, when a car line ends,

there is still a need for spare parts. As SAAB ceased trading and
producing new cars, a whole business emerged providing SAAB
parts.

 Question mark products: As the name suggests, it’s not

known if they will become a star or drop into the dog quadrant.
These products often require significant investment to push them
into the star quadrant. The challenge is that a lot of investment
may be required to get a return. For example, Rovio, creators of
the very successful Angry Birds game has developed many other
games you may not have heard of. Computer games companies
often develop hundreds of games before gaining one successful
game. It’s not always easy to spot the future star and this can
result in potentially wasted funds.
 Star products: Can be the market leader though require
ongoing investment to sustain. They generate more ROI than
other product categories.
 Cash cow products: The simple rule here is to ‘Milk these
products as much as possible without killing the cow! Often
mature, well-established products. The company Procter &
Gamble which manufactures Pampers nappies to Lynx
deodorants has often been described as a ‘cash cow company’.

https://www.bcg.com/about/our-history/growth-share-matrix

Although BCG analysis has lost its importance due to many

limitations, it can still be a useful tool if performed by following
these steps:

 Step 1. Choose the unit

 Step 2. Define the market
 Step 3. Calculate relative market share
 Step 4. Find out market growth rate
 Step 5. Draw the circles on a matrix

Step 1. Choose the unit. BCG matrix can be used to analyze

SBUs, separate brands, products or a firm as a unit itself. Which
unit will be chosen will have an impact on the whole analysis.
Therefore, it is essential to define the unit for which you’ll do the
analysis.

Step 2. Define the market. Defining the market is one of the

most important things to do in this analysis. This is because
incorrectly defined market may lead to poor classification. For
example, if we would do the analysis for the Daimler’s Mercedes-
Benz car brand in the passenger vehicle market it would end up
as a dog (it holds less than 20% relative market share), but it
would be a cash cow in the luxury car market. It is important to
clearly define the market to better understand firm’s portfolio
position.

Step 3. Calculate relative market share. Relative market share

can be calculated in terms of revenues or market share. It is
calculated by dividing your own brand’s market share (revenues)
by the market share (or revenues) of your largest competitor in
that industry. For example, if your competitor’s market share in
refrigerator’s industry was 25% and your firm’s brand market
share was 10% in the same year, your relative market share
would be only 0.4. Relative market share is given on x-axis. It’s
top left corner is set at 1, midpoint at 0.5 and top right corner at 0
(see the example below for this).

Step 4. Find out market growth rate. The industry growth rate

can be found in industry reports, which are usually available
online for free. It can also be calculated by looking at average
revenue growth of the leading industry firms. Market growth rate
is measured in percentage terms. The midpoint of the y-axis is
usually set at 10% growth rate, but this can vary. Some industries
grow for years but at average rate of 1 or 2% per year. Therefore,
when doing the analysis you should find out what growth rate is
seen as significant (midpoint) to separate cash cows from stars
and question marks from dogs.

Step 5. Draw the circles on a matrix. After calculating all the

measures, you should be able to plot your brands on the matrix.
You should do this by drawing a circle for each brand. The size of
the circle should correspond to the proportion of business
revenue generated by that brand.
 Corporate “A” BCG Matrix

Bran Revenue % of Larges Your Relativ Market

d s Corporat t Brand’ e Growt
e Rival’s s Market h Rate
Revenue Market Market Share
s Share Share

Bran $500,000 54% 25% 25% 1 3%

d1

Bran $350,000 38% 30% 5% 0.17 12%

d2

Bran $50,000 6% 45% 30% 0.67 13%

d3

Bran $20,000 2% 10% 1% 0.1 15%

d4
Source:
https://strategicmanagementinsight.com/tools/bcg-matrix-growth-
share.html