by: Joseph Mann
I think you can never have too many tools for keeping an eye on the competition. One benchmarking tool I developed to do this I like to call the “Competitive Threat Index” and with it you can plug in values based on certain criteria and then charting them to provide a quick visual overview of whom you need to be watching at any given time.
Basically the Competitive Threat Index (CTI) is an assessment of the strength of competition relative to your own based on 5 criteria, each criteria having a 0-5 rating (five is the strongest), and then averaging them all together to arrive at a chartable CTI number. You could really use any criteria that are important to your business and have more than five criteria, but it seemed that much beyond that just became a needless exercise in complexity.
The five criteria I use are:
- Stability (How well funded are they?), based on earnings. I prefer net earnings since I think it’s a better indicator of how much free cash they have on hand to reinvest in the business rather than gross sales
- Similarity of Offering (How closely do their services match ours?)
- Critical Mass (How big are they?), based on number of employees
- Longevity (How long have they been in business?)
- Media Presence (How well is their brand saturating the mediaspace?) This category can get a little murky and subjective, but do the best you can to individually rate and then average media presence for subgroups such as: Print Advertising, Electronic Advertising, Press Releases, TV/Radio, Web Site, Search Engine Placement, Conferences, Speaking appearances, etc.
The formula for calculating each company’s CTI then is:
Simple. After this, enter the CTI numbers for your company and all competitors into a spreadsheet and some really interesting things can happen. If you chart the CTI’s against Annual Sales, for example, you get a chart like that shown below. The sizes of the spheres represent the CTI for each. Interestingly this chart also shows, as you might expect, that sales volume alone does not necessarily make a close competitor. Competitor C, while far outshining Your Co. in sales, does not have a close competitive match, all things considered. Competitors A & B are far greater threats by this chart.
So test your own version of the Competitive Threat Index, track it over time to see whether the competition (and you) are trending up or down…and don’t forget to sleep with one eye open.