Strategic Management: An Overview of Industry Analysis

Knowledge of a competitor’s objectives facilitates a better prediction of the competitor’s reaction to different competitive moves. For example, a competitor that is focused on reaching short-term financial goals might not be willing to spend much money responding to a competitive attack. Rather, such a competitor might favor focusing on the products that hold positions that better can be defended. On the other hand, a company that has no short term profitability objectives might be willing to participate in destructive price competition in which neither firm earns a profit. This was a strategic vision for groups, to include businesses, business units, and teams.

Industry analysis, as a form of market assessment, is crucial because it helps a business understand market conditions. It helps them forecast demand and supply and, consequently, financial returns from the business. Some products are almost always sold through retail stores to consumers, and sometimes these are distributed by distribution companies that buy from manufacturers. In other cases, the products are sold directly from manufacturers to stores.

About industry analysis in strategic management

………… is the process we use to gain understanding and insight into our present situation. • The potential for union difficulties or adverse government regulations concerning product safety or the environment. “… the basic premise of unrelated diversification is that any company that can be acquired on good financial terms represents a good business to diversify into” . If written clearly so that outsiders understand, the company has better legal footing if challenged in court. • Policies and procedures enable the workforce to clearly understand individual and team responsibilities, thus saving time and resources. Everyone is working off the same page; employees can get the “official” word on how they should go about their tasks quickly and easily.

Industry analysis is explained as an evaluation of the relative strengths and imperfections of specific industries. Industries are conventionally categorised on the basis of products like steel, pharmaceutical oil and gas industries, textile, and cement. Such factors tell investors which are the threats that the pharma industry faces, which factors go in favour and the competitive landscape of the industry. Thorough industry analysis will help you to understand such unique aspects of any industry.

Large corporations may remain unaffected by this power since they have the resources to establish an extensive supplier network and create buyers’ bargaining power instead. This will help you understand how the company’s profits will be impacted in the long term. If the buyer has more similar products in the market and depends less on a particular supplier and if the switching cost is low. A renowned auto manufacturing company launches ungeared scooters in the market. Need heavy investment to maintain their position and finance their rapid growth potential.

For example, if there are 300 million people in a country and 65 million of them own cell phones, the market penetration of cell phones would be approximately 22%. In theory, there are still 235 million more potential customers for cell phones, or 78% of the population remains untapped. The penetration numbers might indicate the potential for growth for cell phone makers. A good example of forward integration would be a farmer who directly sells his crops at a local grocery store rather than to a distribution center that controls the placement of foodstuffs to various supermarkets. Or, a clothing label that opens up its own boutiques, selling its designs directly to customers instead of or in addition to selling them through department stores. • Various interest groups and stakeholders put considerable pressure on decision making process so as to protect their own interests.

Going beyond commonplace market research, an industry evaluation takes a deep dive on each aspect of your company and how it stacks as much as others. Taken at face worth, the United States’ economy is heading in the right direction. Business is selecting up, manufacturing is ramping up efforts and individuals are getting again to work. The drawback is that when the uncooked materials run out or the industry declines, the economic system lacks a broad diversification.

This type of vertical integration is conducted by a company advancing along the supply chain. It is clear that companies need to know what is and what is not legal in order to trade successfully and ethically. If an organisation trades globally this becomes especially tricky since each country has its own set of rules and regulations. In addition, you want to be aware of any potential changes in legislation and the impact it may have on your business in the future. Recommended is to have a legal advisor or attorney to help you with these kinds of things. This dimension of the general environment represents the demographic characteristics, norms, customs and values of the population within which the organization operates.

BCG Product-Portfolio Matrix

This 5 × 4 model offers strategy prescriptions according to the competitive position of an organization and stage of maturity of its market. A business giant in hotel industry decides to enter into dairy business. In consulting engagement with General Electric Company in the 1970’s McKinsey & Company developed a cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business units . A growth strategy where business aims to introduce new products into existing markets. A growth strategy where the business focuses on selling existing products into existing markets. A growth strategy where the business seeks to sell its existing products into new markets.

This approach is based on developing strategies by picking propitious niches in which the organization wishes to operate. A ‘niche’ is a sub-segment of a major market segment that no other firm has chosen to enter directly. For example, a particular buyer group, geographical area, or segment of the production line. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology.

SWOT analysis is a tool for organizational and environmental appraisal necessary for formulating effective strategies. The specific moves and their expected strength can be estimated using information gleaned from the analysis. The result of the competitor analysis should be an improved ability to predict the competitor’s behavior and even to influence that behavior to the firm’s advantage.

Porter’s Five Forces Analysis

The internet has created an enormous impact on the state of industry information. Today at click of button, loads of information is accessed by anybody. Two decades back, dealing with information was more of a problem of sorting through it all than of finding raw data. A broad industry analysis necessitates a small business owner to take an impartial view of the primary forces, attractiveness, and success factors that define the structure of the industry. Firms must comprehend its operating environment to formulate an effective strategy, position the company for success, and make effective use of the limited resources of the small business.

A PESTEL analysis or PESTLE analysis is a framework or tool used to analyze and monitor the macro-environmental factors that may have a profound impact on an organization’s performance. This tool is especially useful when starting a new business or entering a foreign market. It is often used in collaboration with other analytical business tools such as the SWOT analysis and Porter’s Five Forces to give a clear understanding of a situation and related internal and external factors. PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental, and Legal factors. In other words, it is the foundation for evaluating the internal potential and limitations and probable/likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that affect success.

Michael Porter’s Five Forces is one such tool which can be used to evaluate the five important factors regarding the growth of the industry. It helps the entrepreneur to get to know about the environment surrounding the industry and the necessary steps to be taken to get success in this market. The check list approach is useful, but the skill in interpretation comes from looking at the interaction of all the factors. What gives the buyer an advantage may be offset by another factor that favours the industry firm. It is an all-weather tool and can be used in business, personal life, or anything. Since we are talking about industry analysis here, let’s understand how this tool can come in handy for our purpose.

To summarize, industry analysis is a feasible procedure that enables company to understand its status relative to other companies that produce alike products or services. It is a systematic process of gathering and analysing, information about industry on a global and domestic basis. Factors include economics, trends, social and political factors, and changes in technology, and the rate of change. If company understand the forces at work in the overall industry, then it will help to formulate strategies, and do strategic planning. There are five forces developed by popular theorist Porter which help to conduct efficient industry analysis and enable company to gain competitive advantage. Industry analysis is a strategic tool designed for market assessment to provide a business with an idea about complexity of a particular industry.

The strategic analysis process establishes the company’s feasibility and significance and also helps in increasing the credibility of the company. Therefore, the funds applied to the company have a high probability of making profits. An analyst must go through the available reports of the relevant industry to get an idea as to how the developments have panned out over a period of time. It is not advisable though to depend on the existing reports alone as industries change over a period of time. Needless to say, the information available in the industry research reports should be absolutely latest, otherwise it would not show the findings in true light. To understand an industry you need to have knowledge regarding the total market demand as well as supply for the particular product or service.

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Another way for assessing strengths and weaknesses is to make a comparative analysis of these factors with those of the competitors. For the assessment of organizational strengths and weaknesses, some techniques or tools like financial analysis, key factor rating, and functional area profile and resource-development matrix have been developed. Economic factors are determinants of a certain economy’s performance. Factors include economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers and unemployment rates.

Endogenous development could make sense when we think about the world as a complete. However, a small country might take the expansion of productiveness in the world economic system as exogenous, and seek for an optimum allocation of production across sectors to increase its total value of output. In an advanced financial system, the vast majority of manufacturing and employment is in the tertiary sector. The GE 9 cell or GE Business Screen technique looks at industry attractiveness and competitive position parameters. Though it is also represented through a matrix, it tries to overcome some of the limitations of the BCG matrix by looking beyond the growth-share combinations. The strategic analysis process allows the strategic marketer to effectively meet organizational goals.

These include firms in the Financial and Consumer Discretionary sectors. Late in an economic cycle, when development is slowing, defensive sectors similar to Utilities and Telecommunication Services usually outperform. Maturity for consumer electronics products occur when there is limited room for growth and going forward the sales will be driven by repeat purchases as the products are durable only for a certain period of time. However, in order to sustain in the highly fragmented industry, firms move towards further differentiation.

The quaternary sector contains companies in the intellectual pursuits, such as academic businesses. Many growing countries in Africa have remained poor, regardless of being rich in raw materials. A large primary sector is not enough by itself to lead to economic development. Numerous alternatives of products and services act as a substitute to satisfy the customer’s needs. C) The third force in the industry structure is the industry suppliers.

Market penetration can also be used in developing strategies employed to increase the market share of a particular product or service. Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization’s present products or services. Conglomerat diversification occurs when the firm diversifies into an area totally unrelated to the organization current business.

Or Explain the dynamics of the external environment (PESTLE ANALYSIS) (

Along with intuition, personal judgment is also a necessary element in this approach. The strategies developed by each of them over the years may be attributed to their intuition and judgment. The organisation’s environment dictates the opportunities, constraints, and threats that must be identified before a mission statement is developed.

An industry analysis in strategic management life cycle typically consists of five stages — startup, growth, shakeout, maturity, and decline. Industry analysis is relevant both to corporate-level and business-level strategy. The complete opposite happens when the bargaining power lies with the customers. It’s easy to enter some industries while very difficult to enter other industries.

• An analyst must go through the available reports of the relevant industry to get an idea as to how the developments have panned out over a period of time.
• The market life cycle model differentiates between the various stages of market development, like launch, growth, maturity, and degradation.
• The firms fall in this quadrant compete in slow-growth industries and have weak competitive positions.
• Man doesn’t exist in isolation, he is a part of the universe at large.

For this, strategic analysis allows the organization to understand, forecast, analyze, and formulate various strategies to face the challenges. Often customers may find an alternative way to fulfil their demands and they no longer have the necessity to buy these products or services. More the number of substitute products available in the market, lesser is the demand for the products. The threat of getting substituted can not only cause an impact on the prices of the products but can also raise the question of sustainability in some cases. Creating and maintaining relationship with customers is become an inseparable part of business.

Not only there is the threat of the direct rivals, but there is also the threat of new firms entering into the picture and causing a major craze in the market. This can harm the sales of products and weaken your position in the market. Free entry markets tend to suffer more in such situations and thus the need for a few entry barriers are a necessity to reduce competition with new firms. In the industry market, the number of competitors, as well as their potential, has a major impact. If a newly launched product has a lot of competition, then it might be a problem as the buyers will have a lot of options for purchasing. Every person in business usually does a lot of research and makes a lot of plans before starting a business.

• Drucker has depicted the role of an entrepreneurial manager as that of a systematic risk-maker and risk-taker, looking for and finding opportunity.
• Today the tertiary sector has grown to such an enormous measurement that it is generally additional divided into an info-based quaternary sector, and even a quinary sector based on human services.
• For example drug regulations and patenting, demand situation of medicines, FDA regulations and more.
• The scope of industry analysis states the boundaries of the business, i.e., the products and markets.
• The assumptions that a competitor’s managers hold about their firm and their industry help to define the moves that they will consider.
• There are various ways from which you can perform industry analysis and one of them is Porter’s five forces.

An industry report contains graphs, charts and tables, generally supported by written commentary. This enables even non-professionals to get an understanding of the industry. Clarify areas where strategic changes will result in the greatest payoffs. This version is a little different from Porter’s original in that it is set within the environmental diagram, which was described in full in earlier chapters. In any given economy you can find industries under various categories such as manufacturing, construction, durable, non-durable, heavy, light, domestic, foreign etc.