Importance of Industry Analysis
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“When an industry with a reputation for difficult economies meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation.” Warren Buffet
Why Industry Analysis?
Why should you, as an entrepreneur, be interested in industry analysis?
- It helps you understand the primary factors that affect your profitability.
- It helps you understand areas of strength or weakness that can be exploited.
- It helps you discover market niches not currently being serviced by other companies.
- It helps you determine where your company is or should be, positioned in the industry.
- It helps you support decisions on whether and where to make investments.
- It provides some direction on the future of your industry and the companies within it.
Here’s an Industry assessment example
The iPhone is one of the leading smartphones in the world. Looking beyond face value, the smartphone industry is attractive for the following reasons: There are few available substitutes, and these substitutes such as landlines, home lines, and public phones have little or no portability. Barriers to entry are high, due to the differentiated product, unique design, strong brand, cost advantages, and high set-up costs. Buyers have low power because there are many customers and large costs incurred in switching from one brand to the other. Suppliers have moderate power because there are few Operating System suppliers but many component suppliers. Competitive rivalry from Samsung and other large competing firms is high
Questions for Your Business:
- What industry do you compete in?
- How easy is it for a new competitor to enter your industry?
- What barriers to entry exist within your industry?
- What has been the experience of recent new entrants to your industry?
- Who are the primary suppliers to your industry?
- What are the main drivers of their power?
- What strategies can your company employ to mitigate the power of suppliers?
- Who are the primary buyers in your industry?
- How powerful are they vis-a-vis you and your competitors?
- What strategies can you employ to mitigate the power of buyers?
- What is the fundamental need being satisfied by your industry’s products or services?
- Can that need be satisfied through different means?
- What can you do to mitigate the threat of substitutes?
- How intense is the rivalry among competitors in your industry?
- What is the basis of competition within your industry?
- What strategies can you employ to mitigate the effects of intense rivalry in your industry?
- Based on all five forces, what is your overall assessment of this industry?
- Just how attractive or unattractive is it?
If your industry is a poor performer overall, are there persuasive reasons why you’ll fare differently? If not, move on.