Strategic Guide on How to Conduct an Industry Analysis

Finally, the relevant data collected should be compiled and divided into different topics before moving forward to the next step. State what you consider to be the opportunities
and threats for firms that would enter this industry. Use a decision matrix to
support a final argument as to whether we should or should not enter this
industry. If so, they have found market niches and this
reduces rivalry. If they are all following the same strategy, they are fighting
for the same markets and this increases rivalry, making the industry
unattractive. Students have been exposed to Porter�s
generic strategies by this point.

• Spotting trends and patterns in the data and evaluating them will inform your organization’s long-term plan.
• The technological aspects that have an impact on the industry include development and advancement that can change the way of operating a business and even the way people now live their lives.
• It doesn’t mean that you should completely rely on such published reports.
• This slideshow is for the business entrepreneur considering how to create a business model.
• Plot a graph
  comparing industry profitability against inflation.

Students are
required to work in teams to complete the two major case write-ups. I require teams because the most
difficult part of management is the management of human resources. By setting
specific guidelines for students I make their grade contingent on their
management abilities as well as their ability to complete the projects. The learning objective for the course is to
understand how the top manager (CEO) is responsible for ensuring the long term
survival of the firm within its competitive environment. The challenges
for the instructor are interesting to say the least. First, there is the need
for the instructor to understand the intent of each of the primary business
management disciplines as well as what the student can be expected to
accomplish.

Strategic Industry Analysis

With the help of industry analysis, a business
can get an insight into the company’s position and also determine the position
of the company’s competitors. It gives them an insight into the opportunities
and threats and predicts future trends so that they can take the required
measures. If you want
to learn how to conduct an industry analysis, then continue reading. An industry analysis enables new business organizations to understand the current market conditions.

Industries are classified into several types but there are two main classes of industries- manufacturing and service industries. Once you learn how to conduct an internal audit, other things involved in industry analysis are systematic study and assessment of the industry environment in which the industry operates. All small businesses must analyze their industries or markets to determine the strength of the competition. A company must also understand the government regulations that affect its industry.

Industry Environment Analysis – Meaning, Importance & Example

If the percentage
of revenue is high, then the stakes are high, and this would increase rivalry,
making the industry unattractive. This requires
judgment on the part of the student, and quantitative support for the argument. If
the industry is running between 80% and 85% capacity utilization, this is a
normal range.

Midway Airlines, a small regional carrier,
competed head-to-head with American and USAir, and went bankrupt. Southwest has
survived nicely by avoiding the markets dominated by larger airlines such as
American and United. This is one of the high barriers to entry for the major
segment of the airline industry. One common
complaint about this approach to case writing is that a student working on one
section of the paper will not learn about the other sections of the paper. Every
approach to case writing has a limitation, but I think that this one is
manageable. First, the intent is not to teach students about one particular
industry.

Second, there is the need for instruments that will provide the
necessary integration and opportunity for application of the knowledge they have
acquired. Third, there is the reality that students do not always remember all that they
should. This leaves a great deal to be accomplished within one semester. The points outlined above are an excellent starting block to understand your business and where it stands in the market. But there are some industry research and analysis models designed to take it even further. PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental and technological factors pertaining to that particular industry.

Strategic Analysis: What It Is & How To Do It Effectively

The Five Forces model is named after Harvard Business School professor Michael E. Porter. Given the pace of change in the business world, I strongly believe you need strategy at the center of your management process to ensure you’re achieving your goals. Done correctly, this analysis is a valuable tool for improving business performance; it can also prompt organizations to be more innovative with their strategy.

While this industry changes regularly, at the
time of writing, only the central processing unit (CPU) is a key input. All
other items industry analysis in strategic management are commodity in nature and would not be discussed. Evaluate
the following elements only for the key item or items in the industry.

Benefits of industry analysis

Carrying out an industry analysis is
crucial for business strategists as it helps them to learn about various
aspects of the industry and develop innovative solutions for problems. It
is necessary to demonstrate whether fixed costs and value added are high or low. If fixed costs are high, this usually means that economies of scale are possible
in the industry.

If someone wants to operate in a location where the minimum wage is two times the federal average this will affect the cost of menu items. If the price you have to pay employees forces the price of your menu items above what consumers are willing to pay, you may need to reconsider your strategy. You’ve waited many years for the opportunity to franchise your fast casual organic restaurant. Somehow you just knew that restaurants that provide quick food in a classy environment were bound to pick up!

I want
them to do their own research and make discoveries along the way. Correctness � if such exists � is a product of the logic
used in the analysis. For example, two measures of economies of scale are
required. What matters is that the
student reasons through the problem and finds a means of justifying a position. If I give too much detail it limits the imagination of the student and prevents
discoveries that could be significant. Conducting an industry analysis requires more than doing a simple search.

The degree of competition is important to recognize when developing a competitive strategy. Strong value proposition helps the business in its plans of growth. It needs to know about its competitors their products and strategy to keep up with them. Industry analysis offers a framework that will keep the business sustainable for at least the next decade. The number of already established rival companies, no product differentiation, high fixed costs, and slow growth are the factors that impact the competition in an industry. A company’s power is also affected by the force of new entrants into its market.

This helps businesses to prepare the necessary strategies to respond to potential threats and develop competencies to undertake future opportunities. Understanding the market condition also helps in building competitive advantages over competitors to provide unique products and services. Before proceeding with understanding what industry analysis means, let us understand the meaning of industry first. The industry is a type of economic structure that comprises a group of businesses or enterprises that deal in similar products or services. This suggests that the goods and services they offer are designed to meet the same goals and needs of their customers.

These are directly affected by all the factors mentioned above. Lack of differentiation in products tends to add to the intensity of competition. High exit costs such as high fixed assets, government restrictions, labor unions, etc. also make the competitors fight the battle a little harder. Strategy management and analysis should be the big gear that drives all the smaller gears doing operations, data analytics, and more. Two of the most commonly used methods are SWOT and PESTLE.

Assess their importance based on the likelihood of them happening and their potential impact on the company. Also, consider whether management has the intention and ability to take advantage of the opportunity/avoid the threat. According to Porter, analysis of the five forces gives an accurate impression of the industry and makes analysis easier. In our Corporate & Business Strategy course, we cover these five forces and an additional force — power of complementary good/service providers.

Key characteristics of the industry include geographic scope of the industry, the boundaries of the industry, and the dominant economic characteristics of the industry. Through your industry analysis, you also need to identify the potential for profitability. Through this section of your industry analysis, you’re given the opportunity to define what makes your business unique.

If
concentration does not exist, then balance is not an issue. Assuming that the industry is concentrated, then look for
balance. If the two largest firms have market shares within 10% of each other,
then the industry is balanced. This increases rivalry, making the industry
unattractive.