Industry Analysis: A Strategic Tool for Business Planning and Spotting Emerging Sectors

For example, all the companies manufacturing the cell phones collectively represent the mobile industry. These groups have industry analysis in strategic management very little in common and therefore, pay little attention to each other when planning for competitive moves. But the companies that manufacture smartphones (Windows, iOS as operating system), however, have a great deal of commonality with the manufactures of smartphones (Android as operating system). However, there may be many different characteristics on to which the strategic groups can be distinguished from each other, i.e. product quality, geographical coverage, service levels etc. Hence, the concept of strategic groups is helpful for the organisations to know more about their direct rivals and the basis on which the competitive rivalry is likely to take place within the groups.

The Strategy Method: Bridge aspiration to action

If new firms are able to come into an industry, the existing firms have to either share ceratin portion of the growing sales with a large number of competing firms or have to part off with some of it own market share. Either way, the existing firms have to face declining sales volumes and revenue, ultimately leading to fall in incumbents’ profits. Remember that the depth and complexity of your industry analysis may vary depending on your specific goals and the industry you are assessing.

• The goal is to identify opportunities to differentiate your business and gain a competitive edge.
• A mixture of strong and weak forces means there is profit potential, but there exist competitive forces within the industry that can dilute the profit potential.
• It means doing detailed market research to understand the details of a specific industry.
• Pursuing several of these moves simultaneously offers the best chance of substantially changing your company’s performance trajectory.

Subway faces fierce competition within the restaurant business, for example. This is illustrated by a quote from the man who built McDonald’s into a worldwide icon. 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.

• Among circuses, for example, the four largest companies collectively own 89% of the market.
• In today’s fast-paced and competitive market, however, understanding where your business stands within the industry is crucial.
• But low levels of rivalry certainly help build the profit potential of the industry.
• When uncertainty is low, Strategy Champions prioritize exploring value-creating bold moves, seeking or forging discontinuities that can present opportunities with an exceptional ability to find the right level of boldness.
• Primary activities directly contribute to creating and delivering a product or service, while support activities facilitate primary activities.

Industry Analysis and the Five Forces

From the perspective of record companies, however, Walmart is their biggest buyer. If the record companies were to refuse to do business with Walmart, they would miss out on access to a large portion of consumers. The purpose of Five Forces Analysis is to identify how much profit potential exists in an industry. If none of these five forces works to undermine profits in the industry, then the profit potential is very strong.

Competitive Force Model (Porter’s Five Forces)

Periodically updating the strategic analysis is key to keeping strategy dynamic. The Great Wall of China effectively protected China against potential raiders for centuries. The metaphor of a high wall as a defense against potential entrants is a key element in Porter’s Five Forces model. Industries with higher barriers to entry are in a safer defensive position than industries with lower barriers. Below we describe several factors that make it difficult for would-be invaders to enter an industry. The result of industry analysis provides you an insight into the future growth of your business.

You can unlock the full potential of your data with Appinio’s comprehensive research platform. Beyond aiding in data collection, Appinio simplifies the intricate process of data interpretation and analysis. Our intuitive tools empower you to effortlessly transform raw data into actionable insights, giving you a competitive edge in understanding your industry. Effectively navigating business strategy requires a clear understanding of uncertainty, as prediction-focused methods can be perilous when the future is truly ambiguous. In such periods, Strategy Champions’ most distinctive capabilities shift from exploring bold moves to aligning on the strategic challenges.

Diving Deep into Porter’s Five Forces

Studying the market trends and the competition level is important for businesses because it helps them to lay out their future strategies. By applying industry analysis effectively, businesses can adapt, innovate, and thrive in their respective sectors. In summary, industry analysis is a fundamental process that empowers businesses to make informed decisions, stay competitive, and navigate the complexities of their respective markets.

It means doing detailed market research to understand the details of a specific industry. By examining competitive forces, rules, and other important factors, businesses can get good ideas for their strategic decisions. It provides a comprehensive view of the business’s current and future potential. By conducting a SWOT analysis, businesses can identify areas for improvement and develop a strategic plan.

If these competitive forces within an industry are high, then the profit potential in that industry is low. Strong forces indicate high competition for the profits within that industry, making it a less desirable industry to be in. Conversely, if the forces within an industry are generally weak, this indicates a stronger potential for profit and a desirable industry to be in. A mixture of strong and weak forces means there is profit potential, but there exist competitive forces within the industry that can dilute the profit potential. Upon doing Porter’s Five Forces Analysis, companies should make an informed decision on entering that market, and how they might compete, given the various strengths of the forces. Every industry is unique to some degree, but some general characteristics help to predict the likelihood that buyers will be powerful relative to the firms from which they purchase goods and services.

As depicted in the 2008 movie Flash of Genius, Kearns dreamed of manufacturing the wipers and selling them to Detroit automakers. An angry Kearns then spent many years trying to hold the firm accountable for infringing on his patent. Kearns eventually won in court, but he paid a terrible personal price along the way, including a nervous breakdown and estrangement from his family.

DIRECTV used to be an important customer of TiVo, the pioneer of digital video recorders. This situation changed, however, when executives at DIRECTV grew weary of their relationship with TiVo. DIRECTV then used a backward vertical integration strategy and started offering DIRECTV-branded digital video recorders. Profits that used to be enjoyed by TiVo were transferred at that point to DIRECTV. When dealing with a large company, a small supplier can get squashed like a bug on a windshield. That is what college professor and inventor Dr. Robert Kearns found out when he invented intermittent windshield wipers in the 1960s and attempted to supply them to Ford Motor Company.

From identifying competitors to mitigating risks and formulating competitive strategies, this guide has equipped you with the tools and knowledge needed to navigate the complexities of the business world. Industry analysis provides the overarching context, highlighting macroeconomic factors and market dynamics, while competitor analysis offers the granular details necessary for tactical decision-making. Together, they offer a holistic view of the market and help businesses develop effective, well-rounded strategies. By integrating insights from both analyses, companies can better navigate the competitive landscape and position themselves for long-term success.

Strategic Analysis: A Deep Dive for Business Leaders

Industry concentration is the extent to which a small number of firms dominate an industry (Table 3.10). Among circuses, for example, the four largest companies collectively own 89% of the market. Their advertising does not lampoon one another, and they do not put on shows in the same city at the same time.

When the tariff policies were announced, I participated in a gathering of chief supply chain officers from some of the world’s biggest companies. Markets are always shifting due to new technology, changing what consumers want, and economic changes. It should be a continuous effort that keeps up with the latest trends and information. Overall, industry analysis gives businesses a clear view of the state of competition in their area. This knowledge helps them make smart choices about investing, expanding, developing products, and marketing while keeping pace with the market.