A Framework for Competitive Analysis

I was tasked to develop a strategy for one of my former clients and clearly, competitive analysis forms part of the input into any strategy. This particular client was and still is a service provider and I thought I’d share the framework of the competitive analysis that I performed as part of this project.

The results of this analysis were that we identified some areas of tactical weaknesses which were then strengthened, and also identified the key direction for the company to take to differentiate itself in a crowded market.

Weaving a web

I solicited from my client’s management team the top companies that they felt impinged on their chosen market. There was a fairly lengthy list of 36 companies! Naturally the first point of reference were these companies’ websites and, assuming their websites were an accurate reflection of their service catalogue (why wouldn’t they be?) then it should be a fairly straightforward exercise to identify all services offered by all competitors in “the market”, including my client.

In my view it’s essential to always include what you do as a benchmark to what your competitors do. For some reason, this is an aspect that is often forgotten about in competitive analysis.

It took quite a while to go through all pages of all 39 companies’ websites, but by the end of it I’d acquired a lot of information and some strong impressions about these companies. Some of these sites were well designed, with some great information. Others had good information, but the user journey was diabolical. Others were just plain amateurish.

The matrix

I’m a firm believer that a picture says a thousand words, but I also recognise you’ve got to have the right picture. With the information I now had, the names of competitors and an exhaustive list of services they said they provided, I had two axis to create an impactful “heatmap” in Excel.

To do this I created a column on the left of a spreadsheet containing the competitor’s names, and a row across the top containing the full list of services offered by all of the service providers. This created a 36 (competitors) x 45 (services) grid, which I populated with a simple formula in each cell. The formula was a multiplication of the number of services offered by a given competitor by the number of competitors offering that service.

I then sorted the matrix in descending order left to right and descending order top to bottom, so that the highest score (the most competitive) would be top left, and the lowest score (least competitive) bottom right.

I then applied conditional formatting by colour to create what I called the Competitive Heat Map – see below:

Competitive Heat Map - Service Portfolio

A catalogue of errors

A couple of of features that were noticeable were that the top 8 competitors (in the red box) all offered the same top 8 services. From a service portfolio point of view, this is an intensely competitive area, and all services listed rightwards on the service axis are added by way of differentiation.

Fragmentation in service portfolios offered starts with Competitor 9 and more pertinently to this project, my client had a gaping hole in their service portfolio (indicated by the red oval). However, this was not in fact the case. My client did offer these services, they simply didn’t mention them on their own website!

This happens a lot and it puzzles me as to why it's allowed to happen. In this instance it was a combination of "We of course we do that, everyone knows it" and a new technical capability being built up by a single individual in the team, with the best of intentions, solving a problem for a single customer, but now realising the commercial value of what he'd done.

The result of this was an incomplete service catalogue so valuable expertise was missing from their service offerings on their website, which means that prospects looking for this capability wouldn't know to discuss it with this company. 

To resolve this, it was a simple matter to codify or define their versions of these services, add them to their service catalogue, add them to a newly designed website and ensure all internal teams were informed about them.

On sales

This service portfolio matrix, while being useful, only describes the various service portfolios, but there is much more to the competitive landscape than this. For example, this matrix assumes all these service providers are equal in all other respects, but of course they are not and because of this, not all competitors are direct competitors, but some are indirect competitors.

One way of distinguishing direct competitors from indirect competitors is to look at the size of these companies. Size of a company can be measured in various ways such as by revenues, margin, number of customers, number of employees…

The working assumption I made was that a company turning over £100m wouldn’t be a direct competitor to my client, as my client’s turnover at the time was circa £10m.

The reason for this assumption was due to the nature of the market my client operated in. For a company to have such huge revenue streams, they would have to be winning very large contracts and very large contracts fell outside of the scope of the typical customer in which my client specialised. As a rule of thumb, large companies struggle to manage relatively small contracts profitably, and smaller companies can’t scale their operation to effectively manage large scale contracts.

By using a service such as “Creditsafe”, it’s a simple matter to find out revenues and profits from disclosed full accounts, which a company has to do if it meets certain thresholds:  if they employ more than 50 people, or have a turnover exceeding £5.6m or have a nett asset position of £2.6m.

Companies smaller than this were also generally deemed to be indirect competitors as they were too small for the majority of my client’s contracts, although there was one exception to this, a specialist service provider that focussed on just one of the services my client provided.

The size of revenue also serves as a proxy for the strength of the sales team.

Sales Strength Factor

As you can see there’s a huge range of revenues in this list of competitors and competitors, 1,2,3 and 15 are vast organisations for which even my client’s largest customers would be problematic for these organisations to service profitably. So I classified these as indirect competitors, but would keep a watching brief on them. In fact, one of these large service providers was something of a channel to market for my client due to some specialist skills my client had and which they lacked.

So the direct competitors became much clearer. To create some kind of benchmark, I gave my client a score of 1 for their revenue, then on a pro-rata basis came up with an index or factor of "sales strength" for these companies, as shown in the above table.

Using this as a filter to the original superset of competitors in the Competitive Heat map, I produced a heat map focussing on just these companies:

Competitive Heat Map - Direct Competitors

It might have been better to use profit for this, as this would also measure the “operational efficiency” of the entire organisation. Maybe next time I’ll use profit instead, although it maybe harder to find the profitability of third party organisations.

Technical strength

My client’s market is a very technical one, and they rightly pride themselves on their technical prowess. Again, from the information I obtained from these 36 competitive websites, I created a “Technical Strength Index” based on these organisations' certifications from their suppliers. I think this is a reasonable thing to do. Most of these technical accreditations require a considerable amount of investment in time and training to achieve, particularly the Silver, Gold, Platinum or equivalent higher graded ones. 

Technical Strength Factor - click the image for a larger version

There was a total of 62 accreditations across all 36 companies, some of which were multi-tiered. I created another matrix showing which accreditations the 10 direct competitors had that I'd previously identified from the financial analysis. I then applied a weighting factor, so that the higher-level or harder to achieve accreditations scored more – to reflect the greater technical knowledge needed to attain these accreditations. Then I totalled these, as shown in the right hand of the table above, to provide an overall score.

Top Trumps

Having compared sales strength, portfolio strength and technical strength, it seemed appropriate to measure marketing strength (despite sounding like a game of Top Trumps), especially as the internet is such a prevalent marketing tool these days.

I encourage my clients to create a “social media ecosystem” comprising a Search Engine Optimised website, surrounded by LinkedIn, a Facebook page for business, YouTube and Twitter. I felt that for this exercise, the pertinent factor was website page rank as the purpose of this social media ecosystem is to achieve the highest possible page rank.

I measured this for all the direct competitors using Alexa, and from there created a “Marketing Strength Index” as represented by the following graph:

Marketing Index Graph

Marketing Index Graph

I recognise all the issues around Alexa and page rank, however at the time it provided a convenient and cheap scale which at least was representative of these companies' websites. Tools such as Hubspot use a melange of metrics to asses the performance of websites.

Who’s the strongest of them all?

So to recap, we’ve looked at:

  • Service Portfolio strength
  • Sales Strength
  • Technical Strength
  • Marketing Strength

So what I needed to do next was to create an overall view that brought all of this together. To do this, I created an Overall Competitive Index based on all the factors discussed above, as shown in the table below:

Overall Competitive Strength Index

Overall Competitive Strength Index

Putting this into a hierarchical order, I ended up with this graph:

Overall Competitive Graph

Overall Competitive Graph

Result

The hole in my client's service catalogue and outward-facing service portfolio was rapidly filled, allowing them to compete for these services and monetise a previously unexploited skillset.

We also distilled the essence of what became the new strategy with new messaging that created clear differentiation between my client and the otherwise crowded, commoditised "me too" market fiercely contended by their direct competitors.