Strategic Management: Formulation and Implementation

Analysis Of The Industry

The word industry is used to refer to a group of firms whose products are sufficiently close substitutes for each other that the member firms are drawn into competitive rivalry to serve the same needs of some or all the same types of buyers.

In analyzing an industry, it is also useful to determine if the industry is a global industry, that is, an industry that requires global operations to compete effectively

Industries differ widely in their economic characteristics, competitive situations, and future outlooks. Understanding industry structure is the logical starting point for strategic analysis at the business level.

The key concerns in the industry environment are as follows:

  1. The elements of the industry structure
  2. The stage in the life cycle of products in the industry.
  3. The direction the industry is headed (for example, overcapacity, requiring rationalization).
  4. The forces (for example, political, social, economic, technological) driving the industry in a particular direction.
  5. The underlying economics and performance of the business (for example, cost structures, profit levels).
  6. The key success factors (for example, cost, delivery).
  7. Demand segments and strategic groups

The second environment to consider is the competitive environment. The key concerns in the competitive environment are as follows:

  1. The forces driving competition in the industry (which is a function of industry structure.
  2. The differences in the competitive approaches of rival firms (for example, price competition, advertising battles, increased customer service).
  3. Strategies, positions, and competitive strength of market leaders and close rivals.
  4. Why some rivals are doing better than others.

The value chain is an important tool for analyzing how a company is faring relative to its competitors. The issues of competitive environment and the value chain are described in Chapter 9.