Industry Analysis Top 3 Methods to Assess and Analyze an Industry

industry analysis in strategic management

The changes of being successful would be then chance based and not based on any plan. Industry Environment Analysis is a study or exercise done to assess the current industry environment. This exercise helps understand the various aspects and predict trends of the industry better, and helps in many other ways. Generally, industry analysis is done by external research agencies, consulting firms or businesses themselves. Industry analysis helps an entrepreneur or a startup company to comprehend the position of a business relevant to the other competitive businesses in the industry. Most importantly, it helps you to recognize the upcoming threats and opportunities and how you can handle them with your strong points.

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If fixed costs are high, and value added is low, the industry
is at or near maturity, and the product/service is most likely a commodity. This
increases rivalry and makes the industry unattractive. An industry
characterized by high rivalry is unattractive because it limits the ability to
achieve above normal economic rents. At the other extreme, industries with no
rivalry are usually dominated by a few major firms which could limit strategic

Understanding Porter’s Five Forces

Performing an industry analysis is important to better understand your niche. Essentially, industry analysis is a look into your market to see how your business compares to your competition. Conducting an industry analysis is the best way to understand your competition and any opportunities in the market. Porter’s 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential entrants and substitutes of that industry. With a very detailed study of the industry, entrepreneurs can get a stronghold on the operations of the industry and may discover untapped opportunities.

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The reason Porter’s model became so widely adopted is that it forces companies to look beyond their own immediate business and to their industry as a whole when making long-term plans. Porter’s still plays a vital role in that, but it should not be the sole tool in the toolbox when it comes to building a business strategy. The risks relevant to your industry are an essential component of your industry analysis. You want to identify the risks, define them, and describe how you will overcome them. When evaluating your industry risks, you want to look at social, legal, political, and economic risk factors. Think of your industry analysis as a process of peeling an onion to get to the center.

#3. Broad Factors Analysis

Most importantly, you should study the macro-environmental factors that could impact your industry. Like the technological development, the latest tech trends, and technology innovation would impact many businesses worldwide. Industry analysis allows you to have an insight into the competitive business environment. The weaknesses of your competitors would be your strong suits. You can integrate such information to make the marketing plan to grow your business.

industry analysis in strategic management

Examples include patents on pharmaceuticals and
copyrights on software. B.
Segments  Identify the
segments of the industry, and specifically state the focus of the paper. Almost
every industry has segments � some have too many, such as the computer
industry. Students can not be expected to do all segments within one semester. In what follows
at this URL, I cover in some detail the outline for the industry.

Customer loyalty more often also gives rise to competition in the industry. Industry analysis is conducted by the business entity or specifically an entrepreneur to identify the factors which are influencing the sector that they have already or thinking about investing in. The industry analysis should focus on the particular industry in question and understand the various dynamics of the industry. For instance, if your focus industry is aluminum, then you should be aware of the per capita consumption within the industry along with production and total consumption. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade.

If the report tells you upcoming threats, then you can take preventive measures to avoid them. The complete opposite happens when the bargaining power lies with the customers. If consumers/buyers enjoy market power, they are in a position to negotiate lower prices, better quality, or additional services and discounts.

Industry Overview and Target Market

The easiest way to answer
the question is through an interview. If pull through exists, this gives the
industry power over the buyer. An example would be the cereal industry, which has
established pull through such that major grocery chains have to carry major
brands. This pull through gives the cereal industry power over the buyers,
making the industry attractive.

Industry analysis, for an entrepreneur or a company, is a method that helps to understand a company’s position relative to other participants in the industry. It helps them to identify both the opportunities and threats coming their way and gives them a strong idea of the present and future scenario of the industry. The key to surviving in this ever-changing business environment is to understand the differences between yourself and your competitors in the industry and use it to your full advantage. While we were
concerned about threats in the “entrants” section, here we are concerned with

  • For example, in Datamonitor reports accessed through Business Source Complete, sections on market segmentation often discuss the geogrphic segmenation of the industry.
  • Industry analysis helps to know about the skills and knowledge your company needs to move forward.
  • ClearPoint can link strategic data from an operations system.
  • How do these two trends pair together, and why will it be successful?
  • To
    what extend are foreign firms able to penetrate the US market?

It is also important to understand that industry analysis is somewhat subjective and does not always guarantee success. It may happen that incorrect interpretation of data leads entrepreneurs to a wrong path or into making wrong decisions. The economic forces that have an impact include inflation, exchange rates (FX), interest rates, GDP growth rates, conditions in the capital markets (ability to access capital), etc. If the industry relies on a small number of suppliers, they enjoy a considerable amount of bargaining power. This can particularly affect small businesses because it directly influences the quality and the price of the final product. An inspection made by the management for an organization about the finance, market, and other function is referred to as an audit.

Geographic Scope and Economic Characteristics

there more or fewer buyers than firms in the industry? There is only one U.S. based buyer for commercial aircraft parts � Boeing. Therefore, the buyers for the commercial aircraft parts industry are
concentrated, giving the buyers power, making the commercial aircraft parts
industry unattractive. Are
there more or fewer suppliers than firms in this industry?

Explain why customers will choose your product over theirs. You will want to identify where organic restaurants are the most lucrative and explain why those markets are the most appealing to your industry. You may decide on a location because health and organic products are a part of the local culture. This could mean that the consumers are willing to pay a bit more if the food you source is organic, maybe even locally produced. When you select your target market you want to clearly describe why it is the most advantageous market for your industry.

  • While this industry changes regularly, at the
    time of writing, only the central processing unit (CPU) is a key input.
  • I must approve all choices prior
    to the student beginning work.
  • This makes it less likely that a buyer would switch readily
    from, say, Excel to Lotus.
  • A.
    This is to be a general introduction to the particular nature of the
  • You will be more knowledgeable and better prepared to leverage opportunities and stop any threats in their tracks.

quantitative analysis is required, provide average industry numbers expressed as
ratios. Where qualitative analysis
is required, provide citations to support your arguments. Given these
challenges, I use � among other classroom techniques � case analysis. Students are required to provide analysis and discussion for a number of short
cases throughout the semester. All are taken from current publications such as, Business Week, Fortune, Forbes
and The Economist. I find that textbook cases do not provide the
currency necessary.

#3. Sustainability of business –

The following industry analysis example focuses on the education industry in the US. This is one of the sections that allows real evaluation of the
students� analytical ability, and the ability to work with team members. As is
obvious, industry analysis in strategic management fixed costs to value added is a very rich topic providing the
instructor an opportunity to take a variety of approaches. More importantly, the
student has an opportunity to integrate a number of significant concepts.

industry analysis in strategic management

Once a company analyzes its industry, it can implement marketing and advertising strategies designed to circumvent the competition. To plan your business strategies efficiently, you need to first identify your position compared to your rivals in the market and industry. By analyzing your competitors with the help of industry analysis, you will have a better understanding of the market niche and understand what your target consumers want. Conducting an extensive industry analysis is crucial for business leaders to attain success in the competitive business realm.

Disadvantages of Industry Analysis

governmental or environmental factors
An example would be the periodic efforts of the government to
regulate auto gas mileage and emissions. A.
This is to be a general introduction to the particular nature of the
industry. A brief history, key players, and general information are required to set the
stage. Note carefully the form of the conclusion provided in each section. A decision matrix should be provided at the end of each section, and an overall
matrix provided in the conclusion section. Think about a time when you put all your energy and effort into something, only for someone else to do it better or do it first.

You want to look at the many layers of your industry so that you can best understand what is occurring, and how it may influence your business for good or bad. The point here is to narrow the list
down to items that are really important within an industry. For the auto
industry, being a low-cost provider is important, as is quality of products. These can be measured by the student from industry data. Another factor is
reputation, as Ford found out with the Explorer problem.

industry analysis in strategic management

Lower utilization means that the industry is susceptible to
intermittent overcapacity. This increases rivalry as firms attempt to maintain
revenues. If the industry is over the normal range, this indicates that they may
lack the capital investments necessary to meet unexpected demand. As the business
cycle, or life cycle, progresses, there is a tendency for consolidation to occur
within industries. At the beginning of the 20th century, the US had
around 300 firms in the auto industry.

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