Applying Industry Analysis
This analysis is used to forecast industry profitability in the future, to
position the firm in relation it the competitive forces it faces and,
finally, to find ways of changing industry structure for the better.
Describing Industry Structure
The first stage of industry analysis is to identify the key elements of
the industry’s structure. It requires identifying who are the main
players—the producers, the customers, the input suppliers, and the
competitors—then examining some of the key structural
characteristics of each of these groups that will determine
competition and bargaining power.
Forecasting Industry Profitability
To predict the future profitability of an industry, our analysis proceeds
in three stages:
1. Examine how the industry’s current and recent levels of
competition and profitability are a consequence of its present
structure.
2. Identify the trends that are changing the industry’s structure. Is
the industry consolidating? Are new players seeking to enter?
Are the industry’s products becoming more differentiated or
more commoditized?
3. Identify how these structural changes will affect the five forces
of competition and resulting profitability of the industry. Will the
changes in industry structure cause competition to intensify or
to weaken? Rarely do all the structural changes move
competition in a consistent direction—typically, some factors
will cause competition to increase; others will cause competition
to moderate.
Positioning the Company
Recognizing and understanding the competitive forces that a firm
faces within its industry allows managers to position the firm where
competitive forces are weakest.
Effective positioning requires the firm to anticipate changes in the
competitive forces likely to affect the industry. Between 2006 and
2008, the pornographic video industry suffered a massive revenue
decline as customers turned to free web sites that featured user-
generated content.
Strategies to Alter Industry Structure
The first issue is to identify the key structural features of an industry
that are responsible for depressing profitability. The second is to
