Page 66 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Although there are usually some differences among competitors, each industry has its own set
of “rules of combat” governing such issues as product quality, pricing and distribution. This is
especially true in industries that contain a large number of firms offering standardized products
and services. As such, it is important for strategic managers to understand the structure of the
industry in which their firms operate before deciding how to compete successfully. Industry
analysis is therefore a critical step in the strategic analysis of a firm.
In a perfect world, each firm would operate in one clearly defined industry. However, many
firms compete in multiple industries, and strategic managers in similar firms often differ in
their conceptualization of the industry environment. In addition, the advent of Internet has
completely changed the way business is done. As a result, the process of industry definition and
analysis can be specially challenging when internet competition is considered.

The basic purpose of industry analysis is to assess the strengths and weaknesses of a firm
relative to its competitors in the industry. It tries to highlight the structural realities of particular
industry and the extent of competition within that industry. Through industry analysis, an
organisation can find whether the chosen field is attractive or not and assess its own position
within the industry.
4.3.1 Framework for Industry Analysis

Industry analysis covers two important components:
1. Industry environment
2. Competitive environment
The following are the aspects to be covered in the above analysis:

Industry Analysis

1. Industry features
2. Industry boundaries
3. Industry environment
4. Industry structure

5. Industry performance
6. Industry practices
7. Industry attractiveness
8. Industry prospects for future

Competitive Analysis

Competitive analysis basically addresses two questions:
1. Which firms are our competitors?

2. What factors shape competition in industry?

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