{"id":349,"date":"2021-11-19T18:32:57","date_gmt":"2021-11-19T14:32:57","guid":{"rendered":"https:\/\/gradmode.com\/?p=349"},"modified":"2023-02-06T21:58:32","modified_gmt":"2023-02-06T17:58:32","slug":"meaning-of-industry-analysis-and-its-importance","status":"publish","type":"post","link":"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/","title":{"rendered":"What is the Meaning of Industry Analysis (Definition, Example &#038; Template)"},"content":{"rendered":"\n<p><strong>Industry analysis refers to the application of strategic management tools to a specific industry for determining the competitiveness and attractiveness of the industry<\/strong>. With this explanation, the importance of industry analysis in strategic management processes should be quite clear. The purpose of this is to answer one major business question: <em>is this an attractive industry to be in?<\/em><\/p>\n\n\n\n<p>Using this knowledge, companies can try and develop suitable strategies to overcome the threats in the industry and increase the competitive advantages of the company. This would in turn help ensure the long-term sustainability and profitability of the business.<\/p>\n\n\n\n<p>If you stick with us until the end, we will fully explain what is included in industry analysis, what is its importance and how it can be applied in strategic management. We have also included a free industry analysis template with an example, which you can use to improve the presentation of your research.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-65f5dd9463f28\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #11376d;color:#11376d\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #11376d;color:#11376d\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-65f5dd9463f28\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#Purpose_and_objectives_for_doing_an_industry_analysis_audit\" title=\"Purpose and objectives for doing an industry analysis audit\">Purpose and objectives for doing an industry analysis audit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#What_is_industry_analysis_in_strategic_management\" title=\"What is industry analysis in strategic management?\">What is industry analysis in strategic management?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#What_is_industry_analysis_in_a_business_plan\" title=\"What is industry analysis in a business plan?\">What is industry analysis in a business plan?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#What_are_the_limitations_of_Porters_five_forces_model_in_industry_analysis\" title=\"What are the limitations of Porter\u2019s five forces model in industry analysis?\">What are the limitations of Porter\u2019s five forces model in industry analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#What_are_the_advantages_of_Porters_five_forces_model_in_industry_analysis\" title=\"What are the advantages of Porter\u2019s five forces model in industry analysis?\">What are the advantages of Porter\u2019s five forces model in industry analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#What_are_the_factors_included_in_industry_analysis\" title=\"What are the factors included in industry analysis?\">What are the factors included in industry analysis?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#1_Intensity_of_competitive_rivalry_in_the_industry\" title=\"1.&nbsp;&nbsp;&nbsp;&nbsp; Intensity of competitive rivalry in the industry\">1.&nbsp;&nbsp;&nbsp;&nbsp; Intensity of competitive rivalry in the industry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#2_Bargaining_power_of_buyers_in_the_industry\" title=\"2.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of buyers in the industry\">2.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of buyers in the industry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#3_Bargaining_power_of_suppliers_in_the_industry\" title=\"3.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of suppliers in the industry\">3.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of suppliers in the industry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#4_Threat_of_new_entrants_to_the_industry\" title=\"4.&nbsp;&nbsp;&nbsp;&nbsp; Threat of new entrants to the industry\">4.&nbsp;&nbsp;&nbsp;&nbsp; Threat of new entrants to the industry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#5_Threat_of_substitute_products_services\" title=\"5.&nbsp;&nbsp;&nbsp;&nbsp; Threat of substitute products\/ services\">5.&nbsp;&nbsp;&nbsp;&nbsp; Threat of substitute products\/ services<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#How_to_determine_industry_attractiveness\" title=\"How to determine industry attractiveness?\">How to determine industry attractiveness?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#Industry_analysis_template\" title=\"Industry analysis template\">Industry analysis template<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#Sample_industry_analysis_template_customizable\" title=\"Sample industry analysis template (customizable)\">Sample industry analysis template (customizable)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#How_to_use_the_sample_industry_analysis_template\" title=\"How to use the sample industry analysis template?\">How to use the sample industry analysis template?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#How_to_do_industry_analysis_example_of_application\" title=\"How to do industry analysis (example of application)\">How to do industry analysis (example of application)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/#References\" title=\"References\">References<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Purpose_and_objectives_for_doing_an_industry_analysis_audit\"><\/span>Purpose and objectives for doing an industry analysis audit<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>It is important to perform industry analysis before developing a business plan, as it allows the planner (<em>i.e. the business or the market analyst<\/em>) to decide on the best possible strategies that will ensure long-term survival of the company in the given industry, by considering specific industry components or \u2018forces\u2019.<\/strong><\/p>\n\n\n\n<p>The following are some objectives for which doing an industry analysis audit might be helpful.<\/p>\n\n\n\n<ol type=\"1\">\n<li>Identify the key industry drivers and determine how the industry is structured at present<\/li>\n\n\n\n<li>Analyze how the industry structure affects the profitability potential of the business<\/li>\n\n\n\n<li>Understand how different forces of the industry will drive competition in the future<\/li>\n\n\n\n<li>Leverage on the industry attractiveness factors when formulating business strategy<\/li>\n\n\n\n<li>Develop strategies that can re-shape the industry-structure and favor business growth<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_industry_analysis_in_strategic_management\"><\/span>What is industry analysis in strategic management?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In strategic management, industry analysis draws from the work of Porter (1980) who suggests that there are five forces shaping an industry\u2019s structure and driving the competition, which can be analyzed to determine the profitability potential of conducting business in the said industry. Porter (1980) claims that \u201cthe collective strength of the forces determines the ultimate profit potential in the industry\u201d.<\/p>\n\n\n\n<p><strong>Porter\u2019s (1980) <a href=\"https:\/\/hbr.org\/2008\/01\/the-five-competitive-forces-that-shape-strategy\">five forces framework<\/a> can be used as an industry analysis template to assess the industry attractiveness, for launching new businesses as well as for tweaking the strategies of existing businesses<\/strong>. <\/p>\n\n\n\n<p>From a strategic perspective, the industry analysis forces as given by Porter (1980) are:<\/p>\n\n\n\n<ol type=\"1\">\n<li>Intensity of competitive rivalry in the industry<\/li>\n\n\n\n<li>Bargaining power of buyers in the industry<\/li>\n\n\n\n<li>Bargaining power of suppliers in the industry<\/li>\n\n\n\n<li>Level of threat of new entrants to the industry<\/li>\n\n\n\n<li>Level of threat of substitute products\/ services<\/li>\n<\/ol>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"609\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-1024x609.png\" alt=\"Porter's 5 forces model\" class=\"wp-image-350\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-1024x609.png 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-300x178.png 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-768x457.png 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces.png 1088w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>These forces are explained further below in the next sections, which can be applied for industry analysis in any order. However, from our experience coaching hundreds of students over the past decade, we have noticed that <strong>the practical application of the industry analysis template <\/strong>given by Porter (1980) through the five forces framework <strong>may be challenging to beginners<\/strong>, <strong>because of the lack of depth in their analysis<\/strong> <strong>as well as lack of strategic insight<\/strong>. That is why we recommend using our free in-depth industry analysis template, detailed in the \u201c<em>how to perform industry analysis<\/em>\u201d section below.<\/p>\n\n\n\n<p>(<em>Or you can generate the five forces graph of a single industry or even compare the attractiveness level of multiple industries of your choice \u2013 using our customizable and free <strong><a href=\"https:\/\/gradmode.com\/category\/theories\/strategy\/\" target=\"_blank\" rel=\"noreferrer noopener\">industry attractiveness template<\/a><\/strong><\/em>)<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_industry_analysis_in_a_business_plan\"><\/span>What is industry analysis in a business plan?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although industry analysis relies heavily on Porter\u2019s (1980) five forces framework, however, when developing a business plan, the industry must be analyzed holistically (i.e. the macro environment as a whole against the internal strengths\/ weaknesses of the company). That is why <strong>business plans must draw from <em>external environment analysis tools<\/em> such as PEST or PESTLE frameworks, along with <em>internal environment analysis tools<\/em> such as SWOT or TOWS matrix, in addition to the use of Porter\u2019s five forces framework as an <em>industry analysis tool<\/em>.<\/strong><\/p>\n\n\n\n<p>Here is an example of how to apply the PESTLE, SWOT and TOWS frameworks.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"716\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-PEST-1024x716.png\" alt=\"Relationship between Porter's 5 forces and PEST framework\" class=\"wp-image-351\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-PEST-1024x716.png 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-PEST-300x210.png 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-PEST-768x537.png 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/5-forces-PEST.png 1075w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>For a thorough business plan, the application of these tools must not stand alone, but instead, they should complement each other. <strong>For example, external environmental threats can be mitigated using internal strengths as well as by exploring the opportunities present within the industry structure<\/strong>.<\/p>\n\n\n\n<p>Additionally, when developing a business plan, the downsides to Porter\u2019s (1980) five forces framework for industry analysis must also be taken into consideration, so that the possibility of any shortcomings are not overlooked.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_limitations_of_Porters_five_forces_model_in_industry_analysis\"><\/span>What are the limitations of Porter\u2019s five forces model in industry analysis?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"683\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-1024x683.jpg\" alt=\"Limitations of porter's five forces model in industry analysis\" class=\"wp-image-454\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-1024x683.jpg 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-300x200.jpg 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-768x512.jpg 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-1536x1024.jpg 1536w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-2048x1365.jpg 2048w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/rob-wicks-QGgKtX6VMGw-unsplash-1-scaled.jpg 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Some of the criticisms of Porter\u2019s five forces framework, which reduce the meaningfulness of the model are listed below.<\/p>\n\n\n\n<ol type=\"1\">\n<li>In an economic sense, <strong>Porter\u2019s five forces framework assumes the forces to act in a classic perfect market<\/strong>. However, in reality, the more regulated an industry is, the less meaningful insights for strategy can be gained from the model.<\/li>\n\n\n\n<li><strong>Porter\u2019s five forces model is best applicable for analyzing simple market structures<\/strong>, as comprehensive description and analysis of all five forces becomes difficult in complex industries with multiple interrelations, by-products and segments.<\/li>\n\n\n\n<li><strong>Porter\u2019s five forces assumes market structures to be relatively static<\/strong>, which is hardly the case in today\u2019s dynamic markets. For instance, technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times, which will hardly provide meaningful advice for preventive actions.<\/li>\n\n\n\n<li><strong>Porter\u2019s five forces model is based on the idea of competition<\/strong>. That is, it assumes companies exert competitive advantages over one another in the markets and also over suppliers or customers. As such, it doesn\u2019t really take into consideration the possibilities of business strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or other such collaborative strategies.<\/li>\n\n\n\n<li><strong>Porter\u2019s five forces doesn\u2019t clearly consider other market and industry factors<\/strong> such as advancements in IT\/Digitalization, unstable economy, government laws, globalization, customer expectations, environmental conditions, etc.<\/li>\n\n\n\n<li><strong>Porter\u2019s five forces relies heavily on external industry structure<\/strong> that are outside the operations of the company, <strong>while ignoring the internal capabilities, resources and assets of the firms<\/strong>, which differ from one firm to another. (<em>Read more about this in our article exploring RBV &#8211; Resource-based view of strategy<\/em>)<\/li>\n\n\n\n<li>There are situations in which a company is pushed towards an <a href=\"https:\/\/gradmode.com\/what-is-externally-imposed-strategy-meaning-and-examples\/\">externally imposed strategy<\/a> &#8211; this happens when the company is driven by strong environmental forces or factors. In such situations, the use of the five forces model may be restricted or skewed towards more towards some of the five forces.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_advantages_of_Porters_five_forces_model_in_industry_analysis\"><\/span>What are the advantages of Porter\u2019s five forces model in industry analysis?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol type=\"1\">\n<li>The key advantage of the Five Forces Model is <strong>ease of use<\/strong>. Using this model <strong>does not require technical skills or special training<\/strong>.<\/li>\n\n\n\n<li>Secondly it is <strong>more specific compared to SWOT and PEST<\/strong>. This centers on the fact that this model provides a framework for determining the level of competition in a particular market and how external forces affect a company`s performances.<\/li>\n\n\n\n<li><strong>Compatibility with other analytical tools<\/strong> is another advantage of this Model. As a framework for external situational analysis, it <strong>can be used to further substantiate a SWOT or PEST analysis<\/strong>.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_factors_included_in_industry_analysis\"><\/span>What are the factors included in industry analysis?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Building on the external environmental analysis such as PESTLE analysis, <strong>industry analysis focuses on the industry components that can impact business operations<\/strong>. At the heart of the analysis, a \u2018balance of power\u2019 is seen to drive competition, as we attempt to identify whether the business is in a strong or weak position within the industry.<\/p>\n\n\n\n<p>The industry analysis components or the \u2018five forces\u2019 given by Porter (1980) must be analyzed in detail in order to gain meaningful strategic insights. Therefore, <strong>industry analysis factors within each force must be looked at, in order to determine whether these factors can act as sources of threat and drivers of competition<\/strong>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"683\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-1024x683.jpg\" alt=\"organization of thoughts and analysis of factors\" class=\"wp-image-456\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-1024x683.jpg 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-300x200.jpg 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-768x512.jpg 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-1536x1024.jpg 1536w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-2048x1365.jpg 2048w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/kelly-sikkema-ml1IgjV8OvY-unsplash-scaled.jpg 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Intensity_of_competitive_rivalry_in_the_industry\"><\/span>1.&nbsp;&nbsp;&nbsp;&nbsp; Intensity of competitive rivalry in the industry<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>This force is used to understand the level of threat exerted by competitors in the industry<\/strong>, which may ultimately reduce firm profitability. High competitive rivalry can arise from several sources such as:<\/p>\n\n\n\n<ul>\n<li>Low barriers to entry<\/li>\n\n\n\n<li>High control from buyers and\/ or suppliers<\/li>\n\n\n\n<li>Likelihood of customers substituting the product<\/li>\n\n\n\n<li>Balance of power among competing firms<\/li>\n\n\n\n<li>Low differentiation among industry products<\/li>\n\n\n\n<li>Slow market growth (e.g.: harder to compete in mature markets than developing markets)<\/li>\n\n\n\n<li>High exit barriers (e.g.: high costs for leaving the industry)<\/li>\n<\/ul>\n\n\n\n<p>In order to determine the intensity of competitive rivalry, <strong>analysts must look at all the factors within the industry that can drive competition between companies <\/strong>(particularly those offering same or very similar products to the same groups of customers).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Bargaining_power_of_buyers_in_the_industry\"><\/span>2.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of buyers in the industry<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>This force is used to determine whether companies can effectively sell their products at high profit margins to buyers in the industry<\/strong>. Note: The buyers in an industry need not necessarily be end-customers (e.g.: buyers of Procter &amp; Gamble products such as shampoos are supermarkets, not household users). Under the prevalence of certain conditions, buyers may possess higher bargaining powers, such as:<\/p>\n\n\n\n<ul>\n<li>Limited number of buyers in the industry<\/li>\n\n\n\n<li>Switching costs between companies is low among buyers<\/li>\n\n\n\n<li>There are a large number of companies competing for buyers<\/li>\n\n\n\n<li>Possibility of backward vertical integration among buyers (e.g.: Samsung electronics)<\/li>\n<\/ul>\n\n\n\n<p><strong>Analysts should focus on whether the overall power of buyers can shape the competition within the industry, <\/strong>as high threat from buyers can diminish industry profitability and increase rivalry.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Bargaining_power_of_suppliers_in_the_industry\"><\/span>3.&nbsp;&nbsp;&nbsp;&nbsp; Bargaining power of suppliers in the industry<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>This force is used to understand the balance of power between the supplier and the operating firm<\/strong>, within the industry<strong>, which can affect the profit margin of companies<\/strong>. If certain factors are favorable, suppliers in the industry may possess higher bargaining powers, which makes the industry less attractive, such as:<\/p>\n\n\n\n<ul>\n<li>Limited number of suppliers in the industry (e.g.: due to monopoly)<\/li>\n\n\n\n<li>Switching costs between suppliers are high (e.g.: due to contracts)<\/li>\n\n\n\n<li>The supplier brand is powerful, with many customers<\/li>\n\n\n\n<li>Forward integration by the supplier is possible (e.g.: travel agent)<\/li>\n\n\n\n<li>Customers are fragmented with low bargaining power<\/li>\n<\/ul>\n\n\n\n<p><strong>Analysts should focus on how the power of suppliers can affect the companies in the industry and drive competition<\/strong>,thereby pointing out the overall threat level from suppliers.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Threat_of_new_entrants_to_the_industry\"><\/span>4.&nbsp;&nbsp;&nbsp;&nbsp; Threat of new entrants to the industry<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>This parameter is used to analyze the likelihood of new companies entering the industry, which <\/strong>can increase competitiveness, thereby threatening the profit potential in the industry as it becomes less attractive. The likelihood of new firms entering the industry<strong> depends on various entry barriers<\/strong>, such as:<\/p>\n\n\n\n<ul>\n<li>Capital requirement for entry<\/li>\n\n\n\n<li>Access to distribution channels\/ networks<\/li>\n\n\n\n<li>Economies of scale advantage<\/li>\n\n\n\n<li>Cost advantage, regardless of size (i.e. via \u201cexperience curve\u201d)<\/li>\n\n\n\n<li>Possibility of retaliation from existing industry players<\/li>\n\n\n\n<li>Legislative or governmental actions<\/li>\n\n\n\n<li>Differentiation in the industry<\/li>\n<\/ul>\n\n\n\n<p><strong>Analysts should focus on the barriers to entry<\/strong> <strong>that prevent or promote other players from entering<\/strong> <strong>the industry<\/strong>, in order to determine the overall level of threat from this force.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_Threat_of_substitute_products_services\"><\/span>5.&nbsp;&nbsp;&nbsp;&nbsp; Threat of substitute products\/ services<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>This force is used to understand if there is a likelihood for customers to use substitute products<\/strong> (usually from other industries) <strong>as alternatives<\/strong> that can suffice their needs. Note: substitute products are not similar products from competitors \u2013 instead, they are a different category of products that can offer similar benefits (as an Android phone is not a substitute for an iPhone, but a smart watch or tablet can act as a substitute to a mobile phone). The likelihood of customers switching to substitute products can be gauged by:<\/p>\n\n\n\n<ul>\n<li>Looking outside the industry for substitute products<\/li>\n\n\n\n<li>Considering the cost of substituting the product for buyers (switching cost)<\/li>\n\n\n\n<li>Evaluating the performance and price points of substitute industry products<\/li>\n\n\n\n<li>Checking the likelihood of customers opting for substitute products (even if it is expensive)<\/li>\n<\/ul>\n\n\n\n<p>In order to determine the possibility of substitutes threatening the company profitability, <strong>analysts must identify the factors that can drive customers towards substitute products<\/strong>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_determine_industry_attractiveness\"><\/span>How to determine industry attractiveness?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The attractiveness of an industry is determined by the relative significant of each of the above factors. If the overall power, threat or rivalry are fairly low, then the industry is considered attractive.<\/p>\n\n\n\n<p>Industry analysis is performed with 5 key questions in mind:<\/p>\n\n\n\n<ol type=\"1\">\n<li>What are the major forces shaping the competitive environment of the industry?<\/li>\n\n\n\n<li>What are the underlying driving factors that increase competition?<\/li>\n\n\n\n<li>Will competitive forces change in the future?<\/li>\n\n\n\n<li>How are competitors positioned with respect to the competitive forces?<\/li>\n\n\n\n<li>What strategies can influence competitive forces (such as building entry barriers or reducing the intensity of rivalry)?<\/li>\n<\/ol>\n\n\n\n<p>An industry analysis framework such the one we have been discussing so far can be applied to answer these questions analytically. We can then use our findings and inferences to plan suitable business strategies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Industry_analysis_template\"><\/span>Industry analysis template<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>We have developed a sample industry analysis template, adapted from Dobbs (2014) as a free resource for performing in-depth industry analysis.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sample_industry_analysis_template_customizable\"><\/span>Sample industry analysis template (customizable)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Five industry analysis templates, adapted from Dobbs (2014), are given below as a free resource to students for performing an in-depth industry analysis. We explain how to use this in the next subsection.<\/p>\n\n\n\n<iframe loading=\"lazy\" width=\"700\" height=\"750\" frameborder=\"0\" scrolling=\"no\" src=\"https:\/\/onedrive.live.com\/embed?resid=70FFE2B6429F2078%21690&amp;authkey=%21AJiZtI3BmCldpzk&amp;em=2&amp;AllowTyping=True&amp;Item=Sheet1!Print_Area&amp;wdHideGridlines=True&amp;wdDownloadButton=True&amp;wdInConfigurator=True\"><\/iframe>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_use_the_sample_industry_analysis_template\"><\/span>How to use the sample industry analysis template?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There are 5 templates corresponding to the five forces, which share the same format. The components of the sample template are explained below.<\/p>\n\n\n\n<ol type=\"1\">\n<li>On the top-right is the <strong>\u201ctitle\u201d of the main force<\/strong> being analyzed<\/li>\n\n\n\n<li>Below the title is a list of <strong>6-8 sub-factors or sources of threats <\/strong>&nbsp;that can drive competition<\/li>\n\n\n\n<li><strong>The level of threat for each sub-factor<\/strong> is marked on a scale of 1 to 10 (by considering the given metrics\/ measures on either sides of the scale, indicating low and high threats, respectively)<\/li>\n\n\n\n<li>All the <strong>major driving factors (DF)<\/strong> for the particular force is marked with a \u201cY\u201d in the second column (as not all sub-factors may have significant impacts on competition)<\/li>\n\n\n\n<li>The noted driving factors <strong>(DF) is analyzed in the notes<\/strong> <strong>section<\/strong> below the table to deduce the overall level of threat from the main force (such as competitive rivalry or new entrants)<\/li>\n\n\n\n<li>At least 2 <strong>main threats<\/strong> <strong>are noted<\/strong> in the next row, <strong>followed by<\/strong> identifying <strong>opportunities<\/strong> that can mitigate the threats (as the purpose of industry analysis is to formulate business strategies)<\/li>\n<\/ol>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"474\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained-1024x474.png\" alt=\"Explanation of industry analysis template\" class=\"wp-image-353\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained-1024x474.png 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained-300x139.png 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained-768x356.png 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained-1536x711.png 1536w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-explained.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_do_industry_analysis_example_of_application\"><\/span>How to do industry analysis (example of application)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"444\" src=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-example-1024x444.jpg\" alt=\"Example of industry analysis of North American Spectator Sports\" class=\"wp-image-354\" srcset=\"https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-example-1024x444.jpg 1024w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-example-300x130.jpg 300w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-example-768x333.jpg 768w, https:\/\/gradmode.com\/wp-content\/uploads\/2021\/11\/Template-example.jpg 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><strong>In this example, the competitive rivalry template is used to assess North American spectator sports<\/strong>, where the industry is largely comprised of four major sports (American football, basketball, baseball and hockey), which are played at both major and minor leagues, as well as other team sports (such as golf, tennis and soccer).<\/p>\n\n\n\n<p>The <strong>threat level indicator columns<\/strong> are used to <strong>assess possible threat sources<\/strong> in the industry that can affect industry attractiveness. For example, <strong>four sources of threats are identified as driving factors<\/strong> of competitive rivalry in the industry. The thinking behind the assessment is further explained in the notes section, and subsequently, the <strong>key threats and opportunities are also discussed<\/strong>. <strong>They can<\/strong> then <strong>be incorporated into a SWOT analysis<\/strong> or TOWS matrix, <strong>to derive sustainable business strategies<\/strong>.<\/p>\n\n\n\n<p>Note: the level of rigor and documentation in the analysis may vary as the template is customizable. For instance, the analysts can add sources\/ citations and quantitative measures such as market volume, industry revenues, etc.<\/p>\n\n\n\n<p>Please refer to our other guide if you&#8217;re looking to do <a href=\"https:\/\/gradmode.com\/how-to-make-comparisons-across-industries\/\">comparisons across industries<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"References\"><\/span>References<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Porter M. E. 1980. Competitive strategy: techniques for analyzing industries and competitors. Free Press: New York.<\/p>\n\n\n\n<p>Dobbs, M.E., 2014. Guidelines for applying Porter&#8217;s five forces framework: a set of industry analysis templates. <em>Competitiveness Review<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Industry analysis refers to the application of strategic management tools to a specific industry for determining the competitiveness and attractiveness of the industry. With this explanation, the importance of industry analysis in strategic management processes should be quite clear. The purpose of this is to answer one major business question: is this an attractive industry &#8230; <a title=\"What is the Meaning of Industry Analysis (Definition, Example &#038; Template)\" class=\"read-more\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/\" aria-label=\"Read more about What is the Meaning of Industry Analysis (Definition, Example &#038; Template)\">Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":417,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is the Meaning of Industry Analysis (Definition, Example &amp; Template)<\/title>\n<meta name=\"description\" content=\"Industry analysis refers to the evaluation of the attractiveness of industries and adjusting business strategies accordingly.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/gradmode.com\/meaning-of-industry-analysis-and-its-importance\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is the Meaning of Industry Analysis (Definition, Example &amp; 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