industry overview manual

INDUSTRY OVERVIEW IO-MODEL

By Michael Nesheim & Mia Thomsen

19.03.12

By Michael Nesheim & Mia Thomsen 19th of March 2012 Africa

www.BusinessAfrica.info page 1 of 11

INDEX Industry Overview (IO) Manual ................................................................................................................. 2

1st part: Background .............................................................................................................................. 2

2nd part: Sorting ..................................................................................................................................... 4

3rd Part: Analyzing.................................................................................................................................. 6

4th part: Presenting ................................................................................................................................ 7

Critique of IO-Model ............................................................................................................................... 11



Industry Overview (IO) Manual

When doing research on a developing country, it can be difficult to incorporate and follow known

models, because of the lack of valid information available, it has been necessary to think in other

directions and use the models in other ways than traditional. Elements of known models can be

applied however there might be need of using a mix of different models used in market research. In

the following you will find a model which can be used in market research on developing countries.

The purpose of the IO model is to provide a concise visual overview of an industry or industry sector.

The end product of an analysis gives the presenter a tool for presenting and comparing industries or

comparing an industry across nations. Also it can be used to measure the performance of an industry

and compare the result with a sector of the industry, showing how matured the sector is compared to

the industry.

As shown in the third step of the model in the layout below, this model incorporates internal and

external factors of the company, sector or industry involved in analysis. Also it considers risk

assessment and the future through forecasting.

Figure 1.1 below gives an overview of the process, when doing market research on developing

countries.

Figure 1 - Industry Overview Model

1st part: Background

The basic information needed for the model is based on case relevant information, gathered from

primary and secondary sources. When working with the data collected, elements in the PESTEL model,

general industry screening and Porters Diamond can be used. For later analysis it is important to



include relevant risk factors and forecasting. The gathered information should contain current, short

term and long term data or information making it possible to assess future perspectives and

development.

The data collected should be filtered and sorted, making it easier and faster to process for analysis in

the next steps of the model. Keep in mind to stick to the point and avoid second rating information

and thereby focusing on need to know basis.

STRUCTURE

When choosing the written structure one should consider the following steps of the model easing the

use of collected data. It eases the process when from the beginning the data is separated into internal

and external factors for the companies involved in the survey.

Working with an industry it is advisable to divide the information into each step of the vertical

structure, e.g. raw material, basic processing, production of consumer goods. Working with a sector of

an industry it is recommended to divide into specific companies or groups of equal companies.

Working with more industries or sectors in one country, it is recommended making a common section

containing information which applies in general (e.g. the subject “infrastructure” may be the same for

all industries, writing it only once will suffice). The order of information should be appearance friendly

and keeping the structure of the input models is not of great concern.

CONTENT OF BACKGROUND

Industry structure should give a thorough insight in how the industry/sector is built. Working with

more than one level of industry (primary, secondary, etc.) this section will be a descriptive view of the

supply chain. Using the companies and organizations present will make it possible to identify

strengths, weaknesses and development.

Working with a sector of an industry there may still be focus on the vertical structure to gain insight on

supply chain, but the focus will of course be on only one part of the industry.

Macro environment can broadly be covered by the use of PESTEL. Be critical assuring the chosen

information is important to your industry as less relevant information may cluster your view in later

use.

Infrastructure should contain all appropriate information regarding relevant infrastructure to the

industry (roads, railways, power, etc.).



Markets should be divided in to appropriate categories as domestic, near markets and distant markets

(For a Danish company another separation may be more fit, as; Scandinavia/Nordic countries, EU, USA

and other markets). It is important to look at development in these markets which includes

macroeconomic development, demand and competition.

General factors and facts may be applied. The mentioned topics below may not grasp the total of the

industry and topics or information that does not seem to fit the model but is important or even critical

to explaining the industry should of course be included. These topics could be education, special

governmental or non-governmental initiatives, research initiatives or projects, etc.

+ Forecasting and risk – Once again it is important to encompass these factors in all subjects to gain a

full perspective of the industry.

2nd part: Sorting

In this part of the model the researched data is being prepared for use. The basic idea of a SWOT

model is used to think internal and external regarding the relevant industry/sector. If the data has

been properly organized in the 1st part, you will need no reorganizing of data in this part. Besides

organizing in internal and external, the data is sorted into current time, short term and long term.

Before doing so you should define the timeframe of short and long time. In the example below,

showing the internal part of sorted data, short term has been defined as a maximum of 2 years due to

working with the bauxite/aluminum industry in Ghana, 2012, with a fast development leading to rapid

changes. Working with a more developed country you may want define short time as up to 5 years

time.

Figure 2.1 shows an example from Ghanaian bauxite/aluminum sector.



Figure 2 - Example of internal and external factors from Ghanaian bauxite/aluminum sector



3rd Part: Analyzing

After making the internal and external analysis in current, short (<2 years) and long term (+2 years)

time period, the risk analysis can now be done.

Risk analysis should contain all the risk topics and assess them in a time perspective; current, short

term (< 2 years) and long term (+2 years). Further the risk should be valued on a scale from 1 to 5. This

may take some discussion and comparison to international and national factors and may include some

grade of own interpretation. If possible this rating can be done with the help of existing ratings.

Using the same structure from the 2nd part will make the process of risk assessment easier. This way it

is only needed to rephrase the already sorted information into risks as seen in the example Figure 3

below showing risk assessment for the mining section

Figure 3 - - Example of a Risk Table from Ghanaian bauxite/aluminum sector

Forecast will be a remake of what is already in the 2nd part. This part will be filtered from all non

forecast information and will be more of a summarized product.

Internal factors should contain the relevant information from the 2nd part. Further the information

should be valued or rated on a scale from 1 to 5 as in the risk analysis. The idea origins from the GE



model or matrix and inspiration for quantitative measuring can be gathered here. When using this

model and not having access to specific knowledge of a company’s preferences for what is more or

less important when choosing suppliers or markets to enter, the weighted rating system from the GE

model is not advised. This is due to the risk in the output, the more times you assess the values and

afterwards multiply them the higher the risk of inaccurate data as the possible faultiness is multiplied.

Working from a company or industry perspective the total value system of the GE model can be used,

using weighted value and rating system.

External factors have the same approach as internal factors.

4th part: Presenting

This is the last part of the model and will turn the collected and analyzed data into a visually presented

conclusion.

RISK TABLE

The first tool for presenting is a table containing relevant risk topics. The topics will differ from case

and is therefore not specified below, except for the two examples to show the use. The risks have

already been valued on a scale, in 3rd part, and only needs to be plotted in the table using color and a

descriptive comment. The table will give a fast overview of the specific risks and also contains an

average risk of the industry, calculated in the bottom. The average value is only calculated for current

time since it is a less liable indicator, especially when calculated for future risks, and only the current

average risk is being used in the following matrix. The table also has a timeline incorporated, which

shows risk development within the topics as a forecast.

Note that the average value should be calculated with two decimals. This way it will be more fair to the

uncertainty incorporated in the value. Example if the risk rating is thought of as divided intervals, i.e. 1-

1.99; 2-2.99 etc. it may be important for the overall conclusion to know if an industry rated 2 is only

few decimals from one rated 3 as they might carry equal risk then.



Figure 4 - Example of use of the Risk Table



INDUSTRY OVERVIEW MATRIX

The second tool for presenting, which is the main part containing most information, is the IO-Matrix.

The matrix functions as a visual conclusion for the research. The matrix is built on the general idea of

the GE-matrix, here using the internal and external factors of a company, sector or industry. It is

possible to show more than one result at a time. Plotting more than one information in the matrix can

also be relevant when assessing all sectors of an industry, where you can plot the total industry and all

the sectors and easily compare these visually. The matrix should be presented with the risk table to

clarify the coloring of the circle and also showing how secure the current, short term and long term

picture painted in the matrix is.

Figure 5 - Industry Overview Matrix



The circles position indicates the current strength of the industry based on internal and external

factors, which by rating has given the average rating indicated by both axes.

The color of the circle indicates the current average risk level on a scale of 1-5. This information should

be backed up by the risk table.

The Arrow indicates future development and rate; low, moderate and high rate by size of arrow. The

direction shows the grade of internal/external positive or negative development.



Critique of IO-Model

The IO model is largely based on the principles of the GE/McKinsey model. The major differences are

that the GE model is working with internal/external factors based on a business unit’s performance in

a market, the IO model uses internal/external factors based on a company/sector/industry in relation

to surroundings. The GE model incorporates Porters Five Forces to describe a market and the IO

model uses Porters Diamond to describe an industry. The GE model has been criticized for not

valuating the realization of various factors. The IO model is circumventing this problem by not only

having a matrix but also a table with risk valuation on all topics used to calculate the positioning of the

circle in the matrix, also there is an average risk value in the circle showing the likeliness of the

positioning of the circle to change position in very short time perspective, but this should not be

considered stand alone information and should always be backed up by the risk table.

As the GE model, the IO model is using a high degree of quantification. This may be criticized due to

the people doing the quantification. More often the people behind the quantification may not be

specialists on country and/or industry and therefore in some degree misinterpret the data. In other

terms the people doing the analysis will most often be the biggest source of inaccuracy in the results.

Also when working with the full rating system of the GE model using weighted values the persons

weighting should have expert insight in the value of each topic. Why it may be advices only to use the

simplified version not to excess critical amount of inaccuracy.

industry overview manual

Documents