INDUSTRY ANALYSIS• A firm operates in an industry

• You need to compare your company’s operations with others especially your best-in-class rivals

• Look at the current level of competition, technologies employed, the influences/forces from other industrial stakeholders, and Key Success Factors of your chosen industry among other key issues.

• Look at the key sectors in the industry in relation to;

– Customers

– Suppliers

– Competitors

Industrial trends in line with your industry’s life cycle from introduction to decline stage should be looked at in line your goals and objectives, your strategy, and your competitors stage in this cycle.

Customers:• Who are they in terms of characteristics

and behaviours?• How manageable are their needs,

wants ,expectations, tastes and preferences?• Why do they buy/what they value most?• When/how do they buy? Where do they buy?, etcDo all these trends/factors/developments

favor/benefit us (opportunities) or really scare/are against us (threats)?

Suppliers;• Do we have alternative sources of

suppliers?• Can we rely on these suppliers to

provide our needed inputs in the right quantities ,quality, at the right time and place?

• If the answer is yes , those are opportunities. While no shows a threat (s)

• What are their costs?

• What are their terms of delivery and/or payment?

• How powerful are they?

• What is their rate of entry and exit?

• Which supplier is the best?

Which supplier (s) will give us competitive advantages (opportunities) or not/scare us( threat)?

Competitors;• How many competitors of our size

and competence are we facing? Few-opportunity, many-threat

• What market share do they hold/how strong are they? Smaller/weaker-opportunity, Big/strong- threat

• Cost of the available substitutes? Find out

• What are their competitive behavior?

Friendly/cooperative- Opportunity, Un

friendly-Threat

• What are the entry and exit barriers for

these competitors? Easy for new rivals to

join but difficult for the current ones to

leave the industry-threat, Difficult to enter

but easy to exit-favorable/opportunity

• Before joining an industry, a firm should consider;

Industry size, structure, profitability, long term attractiveness, life cycle

Competitive situation analysis

Level of technology in the industry

Competitive position of the firm

Ease of entry in the industry

Michael Porter’s model• Michael E. Porter of the Harvard Business

School developed this framework which helps managers with the task of analyzing the competitive forces in an industry in order to identify the opportunities and threats confronting their company (ies).

• To him the stronger the 5 competitive forces, the more serious the threat and vise versa because you can not increase prices anyhow meaning the profits are being depressed

• However through strategic change you can alter the strengths of such forces

Cont-

• Need to understand the forces in the industry, their impact/seriousness, how and when they benefit or be against you, and their sources.

• Confirm which forces favour your business success (opportunities) or scare your business success (threats)

• Suggests five competitive forces;–Rivalry within the industry

–Threat of new entrants

–Threat of substitute products

–Bargaining power of buyers–Bargaining power of suppliers

Relevancy and Limitations

Limitations• Limited availability of the required information i.e high

level of secrecy in government bodies and some business associations

• The available information may not be up-to-date, or be irrelevant or even inaccurate

• The model ignores other trends like changes in demand, technology used in production, and the market growth/attractiveness

Points to note

• External environmental analysis is aimed at identifying/anticipating opportunities and threats

• Opportunities/external friends are favourable factors( trends/developments/unruly forces) in the external environment

• Threats/external enemies are unfavourable trends/factors in the external environment

• You not only end at external environmental analysis because in order to competitively face such challenges, you should know your strengths and weaknesses through organizational/internal analysis

3)Portfolio Analysis (PA)• A biz portfolio may be any a

brand/branch/budget/product division/income generating asset

• PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)

• Helps managers to in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic time

• A firm should always strive to not only to diversify/retrench but to also have a balanced portfolio (minimize risk and maximize return) of all portfolios

Portfolio Analysis Models:• The B.C.G model (Growth/Share matrix)

• The G.E Multi-factoral model (competitive

strengths/Attractiveness matrix)

• Contribution Margin Analysis (how much profit

margin does that biz portfolio contribute?)

Question marks

Cash cows Dogs

Industry/ market

growth rate

Relative market share

High

Low

The BCG(Boston Consulting Group) model

High Low

Stars

Industry/ market

attractiveness

Competitive Strengths

High

Low

The GE model

Strong Average

Medium

Weak

Determinants of industry attractiveness

• Market growth and size

• Industry profitability

• Seasonality• Porter's five forces

• Technology & Capital requirements

• Economies of scale• Emerging

opportunities and weakness

• etc

Determinants of competitive strengths

• Relative market share

• Production capacity

• Company Image

• Profit margins

• Technological capabilities

• R & D strengths• Market and

customer knowledge

• Employee committment

• Etc.