Industry analysis strategy - Strategic Management

Industry analysis is relevant both to corporate-level and business-level strategy.

  1. Corporate strategy is concerned with deciding which industries the firm should be engaged in and how it should allocate its resources among them. Such decisions require assessment of the attractiveness of different industries in terms of their profit potential. The main objective of this chapter is to understand how the competitive structure of an industry determines its profitability.
  2. Business strategy is concerned with establishing competitive advantage. By analyzing customer needs and preferences and the ways in which firms compete to serve customers we identify the general sources of competitive advantage in an industry – what we call key success factors.

The basic model appears in Figure. 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.

A problem with industry analysis which Porter does deal with is the need to determine the appropriate competitive arena. This has two dimensions, one of geography and the other of product. Anyone who analyses an industry has to decide whether the right basis of analysis is the world. At the product level it is an easy trap to take a market segment as the industry.

Basic-elements affecting industry profitability

There are a number of general principles that can be determined for each box in Figure, and it is possible to say that if a certain condition occurs, it is likely to lead to more or less aggressive behaviour between competitors, or to move the balance of advantage from the industry to a buyer or a supplier. 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.

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