Page 69 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 4: External Assessment

6. Industry performance: This requires an examination of data relating to: Notes
(a) Production
(b) Sales

(c) Profitability
(d) Technological advancements etc.

7. Industry practices: Industry practices refer to what a majority of players in the industry do
with respect to products, pricing, promotion, distribution etc. This aspect involves issues
relating to:

(a) Product policy
(b) Pricing policy

(c) Promotion policy
(d) Distribution policy
(e) R&D policy

(f) Competitive tactics.
8. Industry’s future prospects: The future outlook of an industry can be anticipated based on
such factors as:
(a) Innovation in products and services
(b) Trends in consumer preferences

(c) Emerging changes in regulatory mechanisms
(d) Product life cycle of the industry
(e) Rate of growth etc.

4.4 Competitive Analysis

The degree of competition in an industry is influenced by a number of forces. To establish a
strategic agenda for dealing with these forces and grow despite them, a firm must understand:
1. How these forces work in an industry?
2. How they affect the firm in its particular situation?

The essence of strategy formulation is coping with competition. Intense competition in an
industry is neither a coincidence nor a bad luck. It is rooted in its underlying economics. There
are two theories of economics – theory of monopoly and theory of perfect competition. These
represent two extremes of industry competition. In a monopoly context, a single firm is protected
by barriers to entry, and has an opportunity to appropriate all the profits generated in the
industry.
In a “perfectly competitive” industry, competition is unbridled and entry to the industry is easy.
This kind of industry structure, of course, offers the worst prospects for long-run profitability.
The weaker the forces collectively, however, the greater the opportunity for superior performance
in terms of profit.
According to Porter, “each industry’s attractiveness or profitability potential is a direct function
of the interactions of various environmental forces that determine the nature of competition”.

LOVELY PROFESSIONAL UNIVERSITY 63