Dedicated to the advancement of knowledge on world competitiveness
METHODOLOGY AND
CONCEPTUAL FRAMEWORK
Business Competitiveness Ranking
Pioneers in
competitiveness
since 1989
The aim this ranking is to assess the
competitiveness of firms at the country level.
This implies the construction of factors which
enable us to conduct such an assessment.
Relevant factors include both contextual
variables and intrinsic variables that are firmspecific. While undoubtedly statistical data is
useful in the assessment of competitiveness,
the practice of heavily relying on that data
does not provide a complete picture of the
competitiveness of firms. Statistical data, for
example, cannot capture the intricacies of
the governance of a particular firm. For this
reason, the methodology herein presented
emphasizes the use of a survey, the Business
Competitiveness Survey, in order to obtain
company-specific insights that lead to better
understanding of internal behaviors and
dynamics of firms.
CONCEPTUAL FRAMEWORK
Business competitiveness is the capacity of a
firm to sustain its long term profitability. There
are two aspects to such a capacity, general and
intrinsic dimensions. The general dimension
refers first to structural elements that define
the context in which a firm operates (i.e.,
country level), for example, the regulatory
framework of a given country and level of
international trade. A second component of
the general dimension is industry-related
variables; for example, the level of investment
on R&D in a particular sector or the degree of
industry concentration.
The intrinsic dimension refers to the behaviors
and practices of firms which allow them to
sustain their performance in the long-term.
The intrinsic dimension includes governance,
organizational,
functional,
sustainability,
talent development and digital factors. The
governance factor concerns all the practices,
processes and structures necessary for the
effective governing of the firm; for example, the
fulfillment of the board of directors’ strategic
role. The organizational factor refers to
practices and processes that allow for the wellfunctioning of the management of a company,
for example, ability of the management team
to adapt the firm’s strategy to market changes.
The functional factor is related to the firm’s
operational processes; for example, marketing
strategies and innovation.
The sustainability, talent development and
digital factors concerns processes that
enable firms to ensure the effectiveness of
its governance, organizational factor and
functional factors; for example, practices that
enable firms to remain dynamic vis-à-vis its
competitors (e.g., level of digitization) and the
ability of firms to build an organizational culture
that fosters collaboration among its members.
Figure 1 represents our conceptualization of
business competitiveness.
The performance of the firm seems to be an
outcome of structural, industry and intrinsic
factors. That is to say, the intrinsic factor
includes the capabilities of a particular firm,
which in combination with the structural and
industry factors impact the performance of the
company. Indeed, the correlation among these
factors may be strong but this is not surprising
because it reflects that firms exhibiting high
level of competitiveness function in contexts
that facilitate the conduct of businesses,
implement certain practices and develop
internal processes which have a strong impact
in their performances.
Figure 1 : Elements of Business Competitiveness
Our selection is limited, first, by the length of the
questionnaire that is feasible for participants
to complete within time-constraints; and
second, by our emphasis on capturing specific
aspects of firm capabilities. In this sense, the
selection of intrinsic factors is a summary of
the capabilities that firms can build upon in
order to sustain their long-term profitability.
Data related to the general dimensions
of business competitiveness are available
from the World Competitiveness Online
dataset. In the case of the industry factor, we
complement statistical data with survey data.
The list of general dimension’s variables is
presented in Table 1. We utilize the Business
Competitiveness Survey to obtain data on
intrinsic factors. Table 2 presents the set of
intrinsic variables.
BUSINESS COMPETITIVENESS
VARIABLES
In line with the above structure, we use the
following criteria for the construction of the
Business Competitiveness Ranking. It is
important to point out that the Ranking is
dynamic and thus in the future will incorporate
new variables that will to increase its
robustness. In this sense, the list of criteria
under the general dimension is not exhaustive.
Similarly, in terms of the intrinsic dimension,
there are objective variables, such as the
number of board meeting per year, that are
not included in the current list due to data
availability.
Admittedly thus the list of intrinsic factors can
be longer than the set of variables developed.
Table 1. General dimensions indicators
Structural factor
Industry factor
>> Country overall productivity—real growth
>> Economic performance (by sectors: agriculture,
industry and services)
>> International trade: exports (by sectors)
>> Employment (by sectors)
>> Regulatory framework
>> Shareholders’ rights
>> Labor productivity
>> Labor cost
>> Labor relations
>> Quality of physical country infrastructure
>>
>>
>>
>>
>>
>>
>>
Size of industry
Industry concentration
Capital/labor intensity
Vertical integration
Level of regulation
R&D investment
Productivity (by sectors)
Firm performance factor
>>
>>
>>
>>
>>
>>
>>
Assets
Revenues
Return on sales and return on equity
Profit margin
Business processes outsourcing
International expansion (M&A)
Job creation
Table 2. Intrinsic dimensions indicators
Governance factor
Functional factor
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>> Dynamic strategy
>> Alignment of strategy and objectives
>> Customer centricity
>> Understanding of competitors
>> Understanding of customers
>> Access to high-quality suppliers
>> R&D expenditures/innovation
>> Use of digital technology
>> Development of methods of production
>> Adoption of technology/further productivity
>> Use digital technology/build organizational
capabilities
>> Adapt product-services/external opportunities
>> Encourage employees’ creativity
>> Integration of operations (processes and
technology)
Size of the board
Number of board meetings
Board structure (committees, CEO/chair roles split)
Oversight role of the board
Strategic role of the board
Support role of the board
Board tenure
Director retirement age
Limited number of board seats (other firms) to be held
Independent directors
Board diversity
Director skills development
Directors succession plan
Related party transactions (evaluation/disclosure policy)
Constructive partnerships (management/board)
Organizational factor
>> CEO succession plan
>> Systemic evaluation process
>> Accountability lines
>> Performance accountability
>> Organizational changes/productivity
>> Transparency (information)
>> Transparency (decisions)
>> Strategy implementation
>> Structured top management activities
>> Code of conduct (compliance)
>> Effective risks controls
>> Alignment of skills of management team and
risks/opportunities
>> Accessibility of executive team
Sustainability factor
>> Integrate new knowledge/value-creating strategies
>> Value-creating strategies (no reproduced)
>> Market responsiveness
>> Constant improvement (products/services)
>> Innovative solutions
>> Alignment of skills and innovation (orientation)
>> Alignment of skills and innovation (behaviours
and processes)
>> Work force’s skill development (support)
>> Mentoring partnerships (potential candidates)
>> Talent retention
>> Employees’ “on-the-job happiness”
>> Employees empowerment
>> Encouragement of dissent
>> Environmental-friendly outputs
>> Community engagement (social media)
METHODOLOGY
Survey
series of
companies’
evaluation
respondents
evaluate
a
statement in regard to their
behavior and practices. This
follows the following scale.
Strongly Disagree = 1
Disagree = 2
Neither agree nor disagree = 3
Agree = 4
Strongly Agree = 5
Survey responses are then normalized to the 0
to 1 range of values; for example, an average
response of 2 is equivalent to 0.40. The objective
is to bring survey results and all relevant hard
statistics into proportion with one another
in preparation for the construction of the
factors’ scores. The first methodological step
is thus to collect and map the data following
the structure presented in the conceptual
framework section. Subsequently, relevant
raw scores need to be generated in order to
develop the overall ranking.
The steps required for the construction of the
ranking are the following:
1. Collect all indicators: survey responses
(numeric values) and hard data variables
2. Produced raw scores by aggregating each
individual criteria (i.e., survey responses and
hard statistical variables)
3. Normalized raw scores of all variables
4. Aggregate normalized scores into factors
using averages
5. Construct the final ranking by aggregating
all factors (each has equal weight) into an
overall score
We then subject the data to a series of statistical
tests (e.g., factor analysis) to identify possible
biases and errors.
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