Assess and Measure Competitiveness to Stay Strong

Laura Patterson — January 2, 2017 Follow @LauraVEM

A Harvard Business Review article reminds us that today businesses face an environment where operating margins are increasing and market leadership is precarious. Being able to quickly read market signals and adapt is essential to sustaining a competitive advantage. Capabilities that lead to a competitive advantage in the past, may not continue to do so as market conditions and competitors change. Your sustainable advantage depends on how well your company delivers real, measurable benefits to customers, and produces solutions that are difficult for competitors to copy. With rapidly changing market, staying strong depends on regularly assessing and measuring your competitiveness.

Regularly Audit Your Competitiveness to Overcome Gaps

An internal audit is a good way to begin to review your competitiveness. Internal assessments or audits help uncover and highlight asset and people relationships key to positively impacting customers’ results.

The purpose of the audit is to assess your organization’s resources and capabilities. A good competitive asset assessment methodology requires two key ingredients, a champion and a framework:

• The champion is someone who has a vested interest in gathering information about the enterprises’ competitive assets. This person should be someone with no agenda with respect to the results and facilitates or monitors the process. It needs to be someone who can ask probing questions, and who can keep the process from getting derailed.
  
• The assessment is a collaborative effort, so there needs to be a framework that people in the organization can use that makes it easy to understand, implement and highlights the direction the business is taking.

Any assessment can only be called successful when it results in implementing initiatives and action plans that produce better solutions that address your customers’ problems and needs and value for your company.

Put an Effective Competitiveness Audit Framework in Place

Design your audit to capture your strengths and weaknesses. Then, categorize these in terms of how they align with your organization’s resources and capabilities. Evaluate each to determine the potential implications to your competitive advantage. Develop action plans for the weaknesses that need to be shored up and for strengths that can be further enhanced.

At a minimum evaluate these five primary capabilities in your audit:

1. Your ability to create and commercialize new solutions
   
2. Your ability to market and sell existing and new solutions to existing and new customers
   
3. Your ability to retain and grow talent
   
4. Your ability to use data and systems to make customer and market decisions
   
5. Your ability to service and support customers

A consistent process is essential to make regular audits effective and efficient. Build a process that incorporates these five steps:

1. Setup
   
2. Evaluation
   
3. Analysis
   
4. Initiative Development and Planning
   
5. Initiative Implementation

You’ve completed the internal audit, reviewed the results, identified some potential areas to address and are formulating an action plan. More than likely there are a number of areas to address. It may be easy to decide what to do first. If not, benchmarking can help bring focus by highlighting areas where you are close versus far off the mark.

How to Benchmark Your Competitiveness

Most companies do some elementary level of analysis and have a competitive database that includes, the similarities and differences between products/services, and a comparison of strengths and weaknesses of each of their products and services, and pricing. Some companies take competitive analysis so seriously they use benchmarks. Possessing both the comparable data and information about the drivers behind the performance generating the results can help you understand potential trade-offs.

Webster defines a benchmark as “something that serves as a standard by which others may be measured or judged.” Benchmarking is the process of identifying benchmarks to improve performance. Benchmarking is specific to products or processes that are currently in existence. There are many benefits and uses for benchmarking. One benefit is that benchmarking others performing similar activities helps you understand the possible range of performance. Another is that with benchmarks you identify where to improve and where to prioritize your efforts.

Good competitive benchmarking requires bringing companies together to share information with the promise that the measures will be shared. As result, a third party is often best for facilitating the benchmarking process.

Here are few steps to help move your benchmarking process forward:

1. Determine which functional areas are to be benchmarked
   
2. Identify the key factors and variables with which to measure those functions — usually in the general form of financial resources and product strategy.
   
3. Select the best-in-class companies for each area to be benchmarked — those companies that perform each function at the lowest cost, with the highest degree of customer satisfaction, etc. Best-in-class companies can be your direct competitors (foreign or domestic), or even companies from a different industry (parallel competitors with replacement or substitute products or services; latent competitors which might backwards- or forwards-integrate into your market; or, out-of-industry firms with whom you do not compete, but which have best-in-class areas to be studied such as FedEx or Wal-Mart in logistics).
   
4. Measure the performance of the best-in-class companies for each benchmark being considered — search the SEC, the companies themselves, articles in the press or trade journals, analysts in the market, credit reports, annual report, suppliers, trade associations, the government or from interviews with other organizations willing to share their prior research or “swap” it with you.
   
5. Measure your own performance for each variable.
   
6. Begin comparing the results in an ”apples-to-apples” format to determine the gap between your firm and the best-in-class examples.

From this process you can identify the gaps between your company and the best-in-class examples. Once you have this information, develop an action plan that will enhance those areas that show the greatest opportunity to surpass the competition. Set specific improvement targets and deadlines. Establish a competitiveness metric. Monitor and report.

Create Your Competitiveness Metrics

Marketing dashboards are comprised of metrics that facilitate decisions and help you mitigate risk. We have a number of posts and articles on metrics and marketing dashboard, including the categories for your metrics. One of the categories you should include is related to competitiveness. A metric associated with competitive worth measuring and tracking is known as the Competitive Value Index (CVI).

A CVI provides a snapshot of your company’s competitive value picture. It defines your company’s position with regard to its ability to create and deliver competitive solution. A VI is founded on the idea that the reason customers buy from a company is based on the value they receive. Therefore, a CVI can be a useful metric for measuring your company’s ability to create and deliver the needed value. It can be used as a predictor of future growth because it explains a company’s competitive position.

Customers buy a product or service because they think it will be of value to them. How do we measure this value? A CVI attempts to provide insight into your customers’ value driver needs (represented by your company’s Value Proposition), your company’s ability to create that value, and your company’s ability to deliver the value.

Your particular CVI essentially measures the effectiveness of your value proposition. The components used to measure the CVI cover a wide range of business value drivers to create a complete picture of a company’s competitive value position.

Using primary research, you will need to establish the ideal performance for your attributes in three areas:

1. Customers’ requirements
   
2. Company’s ability to create value that satisfies the requirements, and
   
3. Company’s ability to deliver that value

Through your primary research, capture your customers’ rating of your performance and your competitors for each of the components. You will use the results to create the index. As a result of the process you will know how you stack up against each component as well as your overall value index. By performing the process to get your CVI, you will a better idea as to which value components are strong and which need strengthening.

Creating your CVI depends on selecting the right competitive value drivers, or ”key success factors”, and their evaluation criteria. Choose drivers that cover customer needs – knowledge like quality goals, geographic considerations, and custom requirements, and knowledge about your company’s operations, e.g. project management skills, innovation process, communication tools, and resource and time management.

Picking the right questions can add to the usability of the measure. Here are 10 questions to get you started:

1. How much competitive value do we have for the marketplace and how much do we want to have or want to keep?
   
2. How much more value is out there that we can procure for competitive advantage? Where is it? And do we know what it looks like?
   
3. Value wise, where are we now and where do we want to go? Do we have the right value strategies and tactics or do we need to change direction? What do we know about our company, its value assets, and what don’t we know?
   
4. What value must be changed or eliminated? Have our current value sources worn out? Are we attempting to fit established products and services to contemporary problems?
   
5. Do we have a viable value creation process (or system)? Knowing that value creation drives activities, are we collectively and constantly thinking about creating (new) value? Do we have value creation goals? How are decisions about value/value position made?
   
6. Do we have enough resources to pursue opportunities?
   
7. Is there a viable market for our new and existing products and services?
   
8. Can we continue our success with the skills we have, or do we need to change or add to them?
   
9. How do we prevent turnover within our core competencies?
   
10. Are we delivering our products and services in a timely manner to meet our customers’ needs?

Once you’ve selected your value drivers, score each against three dimensions (you’ll need to set up a scoring methodology):

1. Effort applied to make it successful.
   
2. Compliance to the criteria.
   
3. Value it adds to overall value position.

Then multiply the ratings that result from the assessment to determine your CVI.

Summary

Competitive advantage is fleeting. Regular assessments are needed to keep you focused on improving your competitive value in order to survive and thrive. Win/loss analysis and ecosystem maps provide insight into which competitors to include in your audits.

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