Most of us are familiar with the financial metrics used to determine the health of ones business as compared to similar businesses (i.e. competitors) within an industry. Metrics such as the price earnings ratio, return on investment and a number of other financial measurements are well known. They are applied daily to determine the financial health and our competitive relationship with other firms in the same industry.
In this course, you are introduced to a business decision-making model referred to as the Simple Multi-Attribute Rating Technique model (SMART). The model is easy to apply by business decision-makers wanting to assess a company’s competitive position and its competitive strength vis-à-vis similar firms in the industry.
This model will assist you in determining:
- Whether the firm’s market position will remain stable or is likely to shift;
- The relative position of your firm in relation to other key rivals within the industry;
- The strengths and weaknesses of the firm’s current competitive advantage(s) or lack thereof; and
- The likelihood of the firm’s success or failure in defending its current position in the face of shifts in the ecosystem and emerging strategies of competitors.
To be successful in any industry, knowing how to measure success is essential. With research, we are able to identify with some degree of certainty, attributes known as key success factors (KSF). KSF are those attributes required by any firm wanting to succeed in the industry under consideration. One would normally expect to identify between one and three of these key success factors as a successful firm’s core competencies.
For example, if I asked you to research the Canadian airline industry and identify some key success factors that contribute to firms doing well within the industry, you might respond by saying low-cost, customer relationship, and corporate culture, on-time scheduling and other attributes. Can you think of a Canadian airline that possesses and builds upon these key success factors? Can you think of a Canadian airline that seems to ignore these success factors? I think most would readily consider West Jet as a candidate for the first response and Air Canada for the second.
Constructing a SMART Model.
Identify Key Success Factors. Having undertaking research into the industry and reviewed the attributes of companies that are both succeeding and doing poorly, identify 6 or 7 key success factors. If you have identified more than 10, you have identified too many. It is very unlikely that they all key success factors. Similarly, if you have identified fewer than 3, applying the model will be of little use. The firm would either have or not have these two or three attributes. There would be little value in applying this business model to assist in the decision-making g process.
Create a table. In the first column, under the heading Key Success Factors, list the identified attributes. (See Table 1.) Remember that the key success factors for the industry will normally include 1-3 of the firm’s core competencies and in rare cases a distinctive competency or two.
Weight the Key Success Factors. After considering the importance of each attribute upon a firm’s success within the industry, subjectively apply a weight to each key success factor. The attribute that is determined to be the most important is allocated the highest weight while the least important attribute is assigned the lowest weight. When all of the key success factor weights are totaled, they must equal 100.
The results of this model will be of little value if each key success factor is weighted equally. For example if you have five key success factors and subjectively allocate a weight of 20 points to each, thereby indicating that all of the attributes are of equal importance, the value of the model will be diminished. Equally, if one key success factor has a significantly higher weight (subjective value) than all others, i.e. between 50 and 70% of the 100 points, then the results would be of little value because the outcome would be so strongly influenced by the significant attribute. If such a key success factor exists in the industry, the attribute should simply be measured and a comparison made between the firm and the competitors.
Having undertaken research within the industry to understand how important the key success factors have been in contributing to the success or failure of other firms and having discussed this with your colleagues, subjectively determine the values to allocate to the key success factors and chart them on the table in the appropriate column. (See Table 1.)
Identify the Firms Being Compared. Across the top of the chart, record the names of the firm being evaluated. In the first column, identify the primary firm under consideration (your firm). In the remaining columns, record the names of the firms that your firm is being compared with (the rivals/competition). In Table 1, we have identified your firm as XYZ Co. and your Rivals as Rival One, Rival Two, Rival Three and Rival Four. The number of Rivals will be determined by your research.
Grade Each Key Success Factor. There are 10 possible grades that can be assigned to each KSF. A grade of 10 represents outstanding (walking on water) while a grade of 0 is the lowest possible grade (incompetence or non-existent). Considering the first key success factor – in our example quality/product performance – research and review the historical data to determine the quality of your product. Subjectively award a grade between 0 and 10 for this Key Success Factor. In our example, we have subjectively awarded a grade of eight to quality/product performance. Continue in this manner for each of the Key Success Factors that you identified in your model.
Based on your research, carry out a similar assessment and apply subjectively awarded grades for each attribute for Rival One. In Table 1, we have determined that Rival One’s quality/product performance is only worth a weight of five. Continue this exercise for all of the key success factors for Rival One. Similarly, complete the Model for each of the other Rivals. We have subjectively allocated all of the grades to the model as shown below in Table 1.
Compute the Weighted Scores. This is done with simple mathematics: Weight * Grade. For firm XYZ Co. multiply the weight allocated to the first Key Success Factor -quality/product performance by the grade we awarded to that Key Success Factor. The result is a value of 80. Record this resulting value on the chart. Continue this process of multiplying the weight by the grade for each of the attributes to the bottom of the column. Continue this mathematical exercise for Rivals 1, 2, 3 and 4.
Total the Weighted Scores. For each column, add the resulting values obtained in Step 5. In Table 1, we arrive at a total score of for XYZ Co. of 595 points, for Rival 1 – 750 points, Rival 2 – 685 points, Rival 3 – 210 points and Rival 4 – 370 points.
Remember, business models are not intended to make the decision for the business decision-maker but rather, to provide a logical sequence and process that will aid the decision-maker in carefully weighing all of the relevant factors and data in order to arrive at a well-informed decision.
Table 1. Simple Multi-Attribute Rating Technique Model – Competitive Analysis.
|Key Success Factors||
|Quality/Product Performance||10||8 = 80||5 = 50||10 = 100||1 = 10||6 = 60|
|10||8 = 80||7 = 70||10 = 100||1 = 10||6 = 60|
|Manufacturing Capabilities||10||2 = 20||10 = 100||4 = 40||5 = 50||1 = 10|
|Customer Service||15||5 = 75||7 = 105||10 = 150||1 = 15||4 = 60|
|Relative cost position||30||5 = 150||10 = 300||3 = 90||1 = 30||4 = 120|
|Financial Resources||10||5 = 50||10 = 100||7 = 70||3 = 30||1 = 10|
|R & D capability||5||9 = 45||4 = 20||10 = 50||5 = 25||1 = 5|
|5||9 = 45||4 = 20||10 = 50||5 = 25||1 = 5|
|Technological Skills||5||10 = 50||1 = 5||7 = 35||3 = 15||8 = 40|
|Total Weighted Scores||100||595||750||685||210||370|
Critical Thinking – What Can We Learn From the Model? Reflect for a moment on the information contained in this model. Are any messages emerging? Look at each comparison and ask yourself, “So what?”
It is clear from the model that XYZ Co. occupies the middle position when measured against the industries’ Key Success Factors. So what? It appears that XYZ Co. is not a market leader, may not be a market challenger, but more likely is a market follower. Having arrived at this conclusion, marketing strategies expected of market followers can be adopted.
For the Key Success Factor – Manufacturing Capability, the model indicates that XYZ Co. is ranked second from the bottom while Rival 1 placed first. So what? If manufacturing capability is a key success factor in the industry and the firm occupies the last place, then the model has identified Rival 1 as a significant threat and manufacturing capability as a weakness for the firm. Therefore, the model suggests that XYZ Co.’s manufacturing capability requires immediate attention and resources.
The first two Key Success Factors “Quality/Product Performance” and “Brand-Image” scored very well when compared to all of the Rivals except Rival 2. So what? This would suggest that the firm’s marketing and promotional materials should focus on these Key Success Factors. As in all things, we should play to our strengths.
The real value in models is this critical thinking process. It is rather straightforward to plug the data into the model. The hard part is critically thinking about and analyzing the messages that the model provides. As said before, business models are not intended to make the decision. They are an aid to assist the decision-maker in arriving at a well-informed decision. Keep seeking answers to the “so what” questions until no further “so what’s” emerge from an examination of the model.
This model can be built upon to assist the decision-maker in considering market entry strategies. There are almost 200 nations in the world with which we might consider establishing a trading relationship. How can so many possibilities be examined? Dropping them into a funnel and having them go through a filtering process so that only the “gold” falls out of the bottom would be helpful. The SMART model can be used as that funnel.
Adapting the model used in Table 1, add new rows to the top. Title these rows with “Go/No Go” attributes – those attributes that are absolutely necessary for a host country to possess before you would consider establishing a trading relationship. Many would consider the Rule of Law (or its absence), currency export restrictions, high tariffs, a non-English-speaking population, political instability and so on as attributes that are so important, so critical to the decision, that if they were not favourable then there would be no further need to consider those countries as a possible host.
The SMART model can be used to assist in determining which country might be a better fit for the firm.
After careful consideration, “Currency Export Restrictions” and “Political Instability” have been subjectively selected as the “Go/No Go” attributes. If they exist, then the country will not be considered further.
The Key Success Factors/attributes necessary to be successful in the industry in the host country have been listed on the chart. They are the presence of technological infrastructure, the rule of law, cross-cultural considerations, the GNP and educational demographics.
The steps outlined in the first model are followed to conduct the necessary research, discuss with colleagues and subjectively complete the model as shown in Table 2.
Table 2. Simple Multi Attribute Rating Technique Model – Market Entry
|Key Success Factors (Country Attributes)||Weight||Hungry||Nigeria||China||East Timor||India|
|Currency Export Restrictions||Go – No Go||Go||No Go||Go||Go||Go|
|Political Stability||Go – No Go||Go||No Go||Go||No Go||Go|
|Technological Infrastructure||15||7 = 105||Failed on the go-no go test so no further consideration||4 = 60||Failed on the go-no go test so no further consideration||7 = 105|
|Rule of Law||20||7 = 140||5 = 100||8 = 160|
|Cross-cultural Consideration||10||6 = 60||4 = 40||7 = 70|
|The GNP||30||8 = 240||6 = 180||4 = 120|
|Educational Demographics||25||6 = 150||4 = 100||6 = 150|
The model suggests that Hungary might be the best choice to host our business, followed by India with China being the last choice. These results have been based on current data obtained by our research. But what would the results be 5 years from now? Do you think the results might be different? Would China be a better option for mid- to long-term foreign direct investments?
The values and conclusions that have been drawn were based on the evidence that the research produced for the present. This model could also be used for future planning. Although we will not provide a model here, it is straightforward to apply the same model with data that is believed to reflect the weights and grades that are deemed to be appropriate for five years from now.
Notice the value allocated to China for the “rule of law” attribute in Table 2. Most would conclude that this value would be higher in five years time. Having undertaken the process of assigning values to reflect where we think the countries will be 5 years out, new totals will be generated and consequently new conclusions will be drawn from the SMART model.
In addition, these emerging trends and shifts could be plotted on X- and Y-axis. Graphically, it can be shown where the firm and its rivals are now and where they are likely to be in 5 years time. This modeling would help justify why a developing country might be selected for market entry despite its current low evaluation.
Another use of this SMART model is the ability to establish the “threshold” that must be achieved by the “rivals/countries” before further research and evaluation takes place. In this example, the CEO might determine that only those countries that achieve a weighted score of at least 600 points be considered. In Table 2, only Hungary and China would be further analyzed as possible host countries.
The model reveals which country would seem to be the best fit for a host country as well as the country that appears to be the least attractive.
Can you see how this model could be used as an aid to purchase a photocopier, a new automobile or even how a graduate school could select whom to admit from among 3,000 applicants? Photocopier key success factors/attributes might be pages per minute, brand/service reputation, cost etc. Automobile attributes such as safety features, kilometers per liter, service, warranties etc. Graduate schools “go – no go” would include GPA averages, and possession of an undergraduate degree.
The SMART model is a valuable tool that has many applications and is simple to apply. Rather than rhetoric, it provides the decision-maker with some evidence-based reasoning. It is a useful and effective model. Use the SMART model in completing this assignment.
The SMART model fits with the Strategic Group \Map… the SGM post will be up shortly… watch for it…