Industry Analysis Flashcards
define the term Industry.
= a group of organisations producing a similar product or service.
what are the three perspectives we analyse the industry from?
- structure (elements of a particular industry)
- dynamics (how industry is evolving over time)
- conditions (how harsh the environment of the industry is for a company)
how do we analyse industry sturcture? + 3 characteristics
Porter’s five forces.
- why certain industries are successful and others are not
- strength and importance of forces and changes through time.
- it helps to improve a company’s comptitive position.
define Porter’s five forces (and from which perspective it’s built).
it’s built from a perspective of an incumbent company (an already established one).
- bargaining power of buyers
- bargaining power of suppliers
- threat of new entrants
- threat of substitutes
- rivalry amongst existing firms
what are the barriers are there for new entrants?
- qualities already established companies have (economies of scale, access to distribution, learning curve advantages)
- legislation and government cations
- cost or quality advantages
expected retailiation from encumbents
customer / supplier loyalty
capital requirements
when is bargaining power of suppliers high? (5)
- large, few in number
- small buyers, many of them
- no substitutes
- suppliers’ products are critical
- high swtiching costs
when is bargaining power of buyers high? (5)
- large, few in number
- small suppliers, many of them
- substitutes available
- supplier’s products are not critical
- no high switching costs
when is threat of substitues high? what does account for a substitute?
- low switching costs
- low substitute prices
a product from DIFFERENT industry that satisfies the SAME need
when is rivalry amongst competitors high?
- slow industry growth / declining
- low differentiation opportunities
- high exit barriers (transfer of knowledge)
- high industry concentration
how can a company gain strategic advantage?
- low cost
- —- broad competitive scope: cost leadership strategy
- —- narrow competitive scope: cost focus - differentiation
- —- broad: differentiation
- —- narrow: differentiation focus
state the process of Porter’s 5 forces analysis (6 points)
- define industry (scope, geographical)
- identify participants
- evaluate forces
- analyse recent and likely changes in each force
- possible industry changes by competitors/new entrants
- strategic positions to exploit the advantages
how does Value Net differentiate from P5F?
it adds another force (complementors), since it critiques P5F about being a ‘zero sum game’ = not allowing anyone else to make a profit when I make one. that’s why there’s coopetion = both cooperation and competition in one
how do we analyse industry conditions?
what are the main three characteristics of the analysis?
with the Strategy Palette.
- 5 types of BE (critique P5F: only works in 1)
- differ by predictability, malleability (ability to influence the industry), and harshness
- different strategies required
state the 5 industry environments and what approach they require.
- classical (mature) -> low cost or differentiation
- adaptive (volatile growth) -> adapting and change
- visionary (white space = no concentration, they are not yet established = blue oceans) -> innovation
- shaping (no dominant player) -> cooperation
- renewal (low growth) -> renewal
how do we analyse industry dynamics? explain the analysis.
shorturl.at/lrKP4
with the industry life-cycle.
- development
- growth
- maturity
- decline
how do we know how competitive an industry is?
we analyse it using Porter’s diamond. it tells us why certain industries are more successful than others.
state the elements of Porter’s diamond (4)
- factor conditions (national environment)
- firm, strategy, structure, and rivalry (company-wise)
- demand conditions (industry-wise)
- related and supporting industries (industry-wise)
state 3 characteristics of the development stage of industry life cycle.
- — very risky
- — very few players, high differentiation
- — low or no regulation
state 4 characteristics of the growth state of industry life cycle.
- — easy to get capital (fav of venture capitalists)
- — high growth
- — weak buyer power
- — low entry barriers (undeveloped regulation)
state 4 characteristics of the maturity state of industry life cycle.
- — positioning is based on price
- — standardisation (companies become similar)
- — high entry barriers
- — first time high rivalry
state 4 characteristics of the decline state of industry life cycle.
- — extreme rivalry
- — only way to gain advantage is to take customers from competitors
- — negative growth
- — cost advantage strategies
state 6 examples of Porter’s diamond factor: factor conditions
natural and human resources
capital, infrastructure, know-how, tech, …
state 2 examples of Porter’s diamond factor: demand conditions
which markets create more successful companies?
size and nature of home market demand
customer needs and pressures
—-> more demanding and competitive markets create more successful companies
state 2 variables of Porter’s diamond factor: related and supporting industries
what is knowledge spillover?
GEOGRAPHICAL presence of related industries, suppliers
GEOGRAPHICAL availability of skilled workforce
—-> knowledge spillover = knowledge transfer amongst companies (happen in clusters such as Silicon Valley)
