This is a partial preview of the document found here: https://flevy.com/browse/business-document/competitive-comparison-analysis-74 Description: The Competitive Comparison Framework is a summary of analytics and other information comparing competitors along key criteria. Its structure should be tailored to our specific industry and will commonly include the following pieces of information: *Background information on the company *Key financials *Market position *Product portfolio *Competitive strengths and weaknesses This business framework can be used to identify the number, names, and focus of key players in the industry. It can be used to identify strengths and weaknesses of the various players. Furthermore, it can be used to identify the gaps in our company’s portfolio and capabilities, as well as the relative strength of our company.

1. Competitive Comparison Framework
Business Strategy Framework
May 24, 2012

2. Contents
• Competitive Comparison Framework
- Overview
- Benefits & Limitations
- Key Competitive Questions
- Competitor Identification
• Competitive Dimensions
- Financial Performance
- Market Performance
- Costs
- Capabilities
- Strategies
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3. The Competitive Comparisons Framework has a tradeoff between its
benefits and limitations
Competitive Comparisons Framework – Benefit & Limitations
BENEFITS LIMITATIONS
 Provides direction for further analysis  The results are often complex and difficult to use
 Efficient way to capture vital data on competitors effectively in presentations
 Gives overview of competitors’ attributes along – It is necessary to extract key messages and
multiple axes display using other tools
– Requires effort to summarize
 Often focuses on the present, rather than the future
– It is difficult to surmise the competitors’ strategic
shifts
Be sure to communicate the intended insights and conclusions from this analysis.
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4. Our questions boil into a SWOT analysis of our competitive landscape
Key Competitive Questions (2 of 2)
Competitive analysis helps answer 4
important questions
These key questions can be answered
Strengths? Weaknesses?
through analyzing competitors along the
 What does our company  What do competitors do following competitive dimensions:
do better than others? better than us?
 What results have been  What have been the
achieved? results 1 • Financial Performance
2 • Market Performance
3 • Costs
Opportunities? Threats?
4 • Capabilities
 What are some possible  What are the risks we
products or services that face in our business? 5• Strategies
are currently not being
 How can we overcome
offered?
them?
 How can we take
advantage of the
situation?
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5. Contents
• Competitive Comparison Framework
- Overview
- Benefits & Limitations
- Key Competitive Questions
- Competitor Identification
• Competitive Dimensions
- Financial Performance
- Market Performance
- Costs
- Capabilities
- Strategies
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6. 1
Assessing financial performance is critical, as it provides
Financial
Performance
2 Market
perspective on how competitors are achieving their results 3
Performance
Costs
4
Capabilities
Competitive Dimension – Financial Performance 5 Strategies
Competitor
Financial Analysis
Current Historical Ratio
Performance Trends Analysis
WHAT TO LOOK AT
• ―Common size‖ financial measures— • Time series of key financial • Profitability measures
view as a percent of sales or assets measures • Productivity measures
• Growth rates • Market measures
WHAT TO LOOK AT
• Understand overall relative position • Identify how performance has • Determine possible sources of
and performance changed differential performance
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7. 1
Cost and profitability analysis has many implications for strategic
Financial
Performance
2 Market
decisions 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Overview) 5 Strategies
By analyzing cost and profitability of a company, we can gather information that
drives numerous strategic decisions, including:
• Prioritization of customer and product segments
• Determination of the appropriate measures of performance (i.e. cost drivers)
• Decisions to invest in new products or new customer segments
• Conclusions on which processes or activities to keep in-house, outsource, or
partner with
Cost analysis is arguably the most important competitive dimension in the Competitive
Comparison Framework.
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8. 1
Profitability is driven by 3 primary components: costs, pricing,
Financial
Performance
2 Market
and sales volume 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Profit Formula) 5 Strategies
Profits = (Price – Variable Costs) x Volume – Fixed Costs
• Companies may have significant differences in profitability within customer
segments or products
• Analyzing product profitability is important because individual companies tend to earn different
returns in their different businesses
• Analyzing segment profitability is important because different segments have different needs and
therefore different costs associated with serving them—it is not uncommon for a few key customers
may represent the majority of profit
• Profitability on financial statements is rarely indicative of real product or segment
profitability
• Cost allocations are made for financial statements, not for strategic decisions
• More accurate allocations of costs will change how profitable a product of a segment appears
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9. 1 Financial
Performance
2 Market
Determine and analyze cost drivers and their impacts 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Cost Drivers, 2 of 2) 5 Strategies
• Key cost drivers may be identified by examining the value chain
• Determine the cost of doing activities that create value
• Cost drivers provide different perspectives on profitability
• Product profitability – how are activities related to each product?
• Customer profitability – how are activities related to each customer segment?
• Costs should be compared with competitors and related companies (e.g.
companies outside the industry, but with similar business issues or requirements)
• However, higher costs in one area (e.g. distribution) does not necessarily indicate
poor performance
• Additional cost may translate to greater value
• Higher costs in one area of the value chain may be reducing costs by a greater amount elsewhere
in the value chain
Analyzing cost drivers and their impacts on profitability can reveal underlying
sources of competitive strength.
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10. 1 Financial
Performance
2 Market
The allocation method should be based on the chosen cost drivers 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Allocation Methods, 2 of 2) 5 Strategies
ACTIVITY COSTS COST DRIVERS COMMENTS / DETAILS
 Discounts and  Actual costs  Commissions are directly assignable and most
promotion  Weight expenses are directly assignable
Purchasing
 Product cost  Costs are driven by number of transactions
processed, which is indicated directionally by the
 Administrative number of units, but both items appear on many
labor invoices
 Freight costs  Cubic feet  Three drivers of freight cost: mileage, weight,
 Weight size of load
Shipping
 Miles
 Distribution  Cubic feet  Can and bottles can be stacked
Distribution centers  Bottles cannot be stacked as high as cans
 Labor hours
Handling
 Store handling  Cubic feet  Cans and bottles can be stacked
Store labor  Labor hours  Bottles take up more shelf space
Handling
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11. 1
Understanding the product costs and profitability provides
Financial
Performance
2 Market
critical information when making strategic decisions 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Product Profitability, 1 of 2) 5 Strategies
• Understanding product costs helps to make informed decisions, such as:
• Product pricing
• Product rationalization or product range expansion
• Investment allocation
• Is not a self-contained decision tool—in order words, there may be strategic
reasons for retaining a product that is losing money
• For example, if profitable clients request us to maintain product as a condition for them to remain
buying other products from us
• Need to factor in where we are in the product life cycle and to determine if it’s reached critical mass
• Sometimes, a product is sold at a loss to make money on related high-margin products (e.g. printers
are often sold at a loss to sell high-margin printer ink; video game consoles are sold at a loss to sell
high-margin video game cartridges)
• Also, we may be able to lower the product cost by redesigning critical processes
Product cost and profitability is powerful information—but strategic decisions should not be
made solely based on this information.
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12. 1
Collecting cost data is often a challenge—even when data is
Financial
Performance
2 Market
available, sometimes it is difficult to compare different data sets 3
Performance
Costs
4
Capabilities
Competitive Dimension – Costs (Challenges) 5 Strategies
The process of collecting cost data can prove challenging in many organizations—below
are 2 sets of common challenges
• Finance departments can be overly protective since ―knowledge is
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power‖—this is more common in a larger, more political corporate
Getting the Raw Data environment
• Cost data probably does not exist in the form that meets our needs
• Data on competitors is even harder to obtain!
• Differences in definitions of cost categories, e.g. which are allocated and
2 which are not
Comparing across Companies
• Treatment of gains and losses, especially unrealized
and/or through Time
• Differences in product and/or customer mix
• Inflation
• Exposure to foreign exchange fluctuations
• Differences in value chain segments that each company competes in
• Period covered may be full year or part year
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13. 1
Companies leverage capabilities to achieve better performance
Financial
Performance
2 Market
than competition… 3
Performance
Costs
4
Capabilities
Competitive Dimension – Capabilities & Strategies 5 Strategies
• Capabilities flow from strategy
• Understanding what functions a competitor is trying to improve can tell you where they believe they
can add value
• Capabilities can be powerful competitive weapons, which enable companies to
grow
• For instance, Honda’s strength in small engine manufacturing allowed it to move from selling
motorcycles to selling small cars, pump, and lawn mowers
• Another example, Wal-Mart’s strength in distribution allowed it to…
• Expand from small towns to more heavily populated areas
• Successfully launch Sam’s Club, which overtook Price Club in just 4 years
Understanding capabilities is central to identifying strategic opportunities.
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