Judging Industry Analysis and Competitive Strategies
Judging Industry Analysis and Competitive Strategies
Judgments about what strategy to pursue should ideally be grounded in a probing assessment of a company's external environment and internal situation. Unless a company's strategy is well-matched to the full range of external and internal situational considerations, its suitability is suspect. This section examines the techniques of industry and competitive analysis, the terms used to refer to external situation analysis of a single-business company. Industry and competitive analysis looks broadly at a company's macroenvironment.
The Methods of Industry and Competitive Analysis
Industries differ widely in their economic characteristics, competitive situations, and future outlooks. The pace of technological change can range from fast to slow. Capital requirements can be big or small. The market can be worldwide or local. Sellers' products can be standardized or highly differentiated. Competitive forces can be strong or weak and can center on price, quality, service, or other variables. Buyer demand can be rising briskly or declining. Industry conditions differ so much that leading companies in unattractive industries can find it hard to earn respectable profits, while even weak companies in attractive industries can turn in good performances.
Industry and competitive analysis utilizes a toolkit of concepts and techniques to get a clear fix on changing industry conditions and on the nature and strength of competitive forces. It is a way of thinking strategically about an industry's overall situation and drawing conclusions about whether the industry is an attractive investment for company funds. The framework for industry and competitive analysis hangs on seven probing questions:
1. What are the chief economic characteristics of the industry?
2. What factors drive change in the industry, and what impact will they have?
3. What competitive forces influence the industry, and how strong are they?
4. Which companies are in the strongest/weakest competitive positions?
5. Who will likely make what competitive moves next?
6. What key factors will determine competitive success or failure?
7. How attractive is the industry in terms of its prospects for profitability?
The collective answers to these questions build understanding of a firm's surrounding environment and form the basis for matching strategy to changing industry conditions and to competitive forces. Let's see what each question involves and consider some concepts and techniques that help managers answer them.
Identifying the Industry's Dominant Economic Characteristics
Because industries differ significantly...