Potential analysis

Companies that shape their future with vision are more successful than their competitors. However, in order to define and achieve strategic goals, one’s own strengths and weaknesses must first be known. This is especially true in comparison to the competition. The potential analysis supports you in identifying unused opportunities. This makes it possible to precisely determine the position of your company. The analysis shows in which areas you need to improve in order to secure the competitiveness of your organisation in the long term. At the same time, it becomes clear where your strengths, abilities and unique selling points are which also play a significant role in the success of your company. In principle, a potential analysis can be carried out with simple means. However, in order for it to be successful, a number of aspects must be taken into account.

In addition to a basic explanation of terms, this guide shows how to prepare a potential analysis professionally, select suitable criteria and perform a meaningful comparison with the competition. In addition, you identify which data sources you should use to obtain a meaningful information.

The term “potential” literally stands for “existing opportunities and competences”. In a business context, a potential analysis represents the identification of utilised and unutilised opportunities for the success of a company (or a business unit). As an instrument of strategic corporate management and corporate planning, the potential analysis shows which strengths and weaknesses an organisation possesses. Using a defined procedure, strategic indicators of success are presented in detail step by step. First, the organisation’s individual situation is examined, followed by a comparison with competitors. This reveals the points in which one’s company differs from its market competitors. Transparency is created with regard to which potentials are already being used and where improvements should be made. The potential analysis also reveals essential unique selling propositions that are of high importance for long-term success.

There are potentials in every company. However, it is often not known to what extent they have already been utilised. The key question is therefore: Where does my company rank in comparison to others at the moment? Of course, this question always refers to a comparison with the (strongest) competitors. Only if your company is overall better prepared than the competition will it succeed on the long-term market and generate higher profits.

In order to be able to carry out this positioning, not only internal information on one’s own strengths and weaknesses must be available. A systematic collection of data from the company’s environment is also necessary. In particular, market and competition analyses as well as certain information on the clientele should be noted. In particular, all internal and external aspects that can influence and affect the company’s success must be known. These also include technological and economic developments, changes in society and legislation as well as political aspects.

The goal of the potential analysis is to transform identified weaknesses into strengths in order to expand the company’s success. In addition, the already existing strengths can also be improved and developed further.

If you would like to conduct a potential analysis in your company, certain framework must first be created. A basic and important prerequisite is the commitment of the management. The management must support the instrument so that it leads to success. Next you need a team, ideally consisting of two to three employees from different areas. The managing director or his representative should be the project leader.

A start date should be set as well as the project duration and budget. It is not uncommon that other companies need an average of four to six weeks to conduct the analysis. More time should be planned without experience in performing the analysis. Once the official start has been made, the operational implementation follows. If it is you’re the first time, it is sensible to call on an external consultant. Especially in the assessment phases, a neutral moderator is often helpful to avoid ” territorial fights”.

In principle, the staff should be informed transparently about the project goals in order to avoid uncertainties. It should also be mentioned that the potential analysis does not necessarily have to be carried out for the entire company. Individual products, business areas or departments can also be analysed. Especially for companies that have little experience, it is advisable to start with a single product or department.

Once the preparations have been made, you need to define criteria’s that can be used to determine the utilisation of potential. In most cases, it is not necessary to have hard figures, such as those from controlling. Rather, it is a matter of “soft facts”, which are gathered in form of freely accessible information and assessments. The basic rule of thumb is: if possible, only select criteria for which competitive data is also available. Sensitive information such as margins or liquidity is therefore not usually included and should be concealed.

Furthermore, make sure that the number of assessment criteria remains manageable. At the beginning, 10 to 20 aspects should be more than sufficient. Some common examples are the following:

• Product quality
• Degree of innovation, number of patents
• Customer satisfaction
• Quality of customer service
• Market share, market growth
• On time delivery, readiness to deliver
• Degree of automation
• Personnel (e.g., qualification, competence and friendliness)
• Pricing structure
• Online presence
• Brand image

Of course, there are many other criteria that are useful and can be used according to your individual needs. Regardless, it is important that you describe each aspect in elaborate detail to ensure a uniform understanding throughout the project.

Obtaining information about your own business is usually not a problem, as you can draw on numerous sources such as controlling, employee surveys, statistics or polls. It is much more difficult to obtain substantial data about a competitor. Nevertheless, there are methods with which this is possible. There is usually quite a bit of information that is publicly available. By the way, your own employees – especially from sales and purchasing – know the competitive environment very well and even have contacts to market companions. Use this source as well.

Some examples of data sources concerning competitors are:

• Catalogues and price lists
• Product tests
• Trade fairs
• Cooperation partners and suppliers
• Surveys by agencies and market research companies

Another important question is: with whom do I want to compare myself? It is most useful to carry out a comparison with the market leader, since this obviously utilises its potential best. If your company is the market leader itself, carry out a comparison with the “runner-up” or the quickest-growing straggler.

The most important phase of the potential analysis is the assessment. You should carry out the assessment on a scale, for example from -3 to +3. -3 stands for unused potential, while +3 expresses particularly good performance. The competitor’s position is shown in the form of the Zero-Base line. This means that if your own rating is better than zero (base line), you are superior to the competitor in this respect. The evaluation itself is the result of careful discussions with the staff of the departments and with the managers. Estimated values are sufficient here. However, it has to be very clear whether your company scores better or worse than the competitor on a certain criterion.

The result of the potential analysis is a profile of strengths and weaknesses in relation to the competition. Prepare this graphically in an attractive form. For all criteria in which you are on a par with the compared company or perform worse, the causes must then be investigated and appropriate measures derived. Set clear priorities so as not to get tangled up in the process. On the one hand, the goal must be to reduce the most significant potential deficits. On the other hand, it is important to secure or even further expand potential advantages.

Incidentally, the results of the potential analysis can also be used to identify unique selling propositions. You may have by far the highest customer satisfaction or the lowest price. Use these arguments in your customer communication.

Last but not least, it should be mentioned that a potential analysis will only have a long-term positive effect if it is repeated regularly. Therefore, if possible, conduct it once a year. This will enable you to recognise effects and changes from which operational and strategic measures can be derived.