INDUSTRY ANALYSIS

A firm operates in an industry

You need to compare your companys operations with

others especially your best-in-class rivals

Look at the current level of competition, technologies

employed, the influences/forces from other industrial
stakeholders, and Key Success Factors of your chosen
industry among other key issues.

Look at the key sectors in the industry in

relation to;

Customers

Suppliers

Competitors

Industrial trends in line with your industrys life cycle

from introduction to decline stage should be looked at
in line your goals and objectives, your strategy, and
your competitors stage in this cycle.

Customers:
Who are they in terms of characteristics
and behaviours?
How manageable are their needs, wants
,expectations, tastes and preferences?
Why do they buy/what they value most?
When/how do they buy?
Where do they buy?, etc
Do all these trends/factors/developments
favor/benefit us (opportunities) or really
scare/are against us (threats)?

Suppliers;
Do we have alternative sources of
suppliers?
Can we rely on these suppliers to
provide our needed inputs in the
right quantities ,quality, at the right
time and place?
If the answer is yes , those are
opportunities. While no shows a
threat (s)

What are their costs?

What are their terms of delivery and/or

payment?

How powerful are they?

What is their rate of entry and exit?

Which supplier is the best?

Which supplier (s) will give us competitive

advantages (opportunities) or not/scare
us( threat)?

Competitors;
How many competitors of our size
and competence are we facing? Fewopportunity, many-threat
What market share do they
hold/how strong are they?
Smaller/weaker-opportunity,
Big/strong- threat
Cost of the available substitutes?
Find out

What are their competitive behavior?

Friendly/cooperative- Opportunity, Un
friendly-Threat

What are the entry and exit barriers for

these competitors? Easy for new rivals to
join but difficult for the current ones to
leave the industry-threat, Difficult to enter
but easy to exit-favorable/opportunity

Before joining an industry, a firm

should consider;
Industry size, structure,
profitability, long term
attractiveness, life cycle
Competitive situation analysis

Level of technology in the

industry
Competitive position of the
firm
Ease of entry in the industry

Michael Porters model

Michael E. Porter of the Harvard Business

School developed this framework which helps
managers with the task of analyzing the
competitive forces in an industry in order to
identify the opportunities and threats
confronting their company (ies).
To him the stronger the 5 competitive forces, the
more serious the threat and vise versa because you
can not increase prices anyhow meaning the profits
are being depressed
However through strategic change you can alter the
strengths of such forces

ContNeed to understand the forces in the

industry, their impact/seriousness, how
and when they benefit or be against
you, and their sources.
Confirm which forces favour your
business success (opportunities) or
scare your business success (threats)

Suggests five competitive forces;

Rivalry within the industry

Threat of new entrants

Threat of substitute products

Bargaining power of buyers

Bargaining power of suppliers

Relevancy and Limitations

Limitations
Limited availability of the required information i.e
high level of secrecy in government bodies and
some business associations

The available information may not be up-to-date, or

be irrelevant or even inaccurate

The model ignores other trends like changes in

demand, technology used in production, and the
market growth/attractiveness

Points to note

External environmental analysis is aimed at

identifying/anticipating opportunities and threats
Opportunities/external friends are favourable
factors( trends/developments/unruly forces) in the external
environment
Threats/external enemies are unfavourable trends/factors in the
external environment
You not only end at external environmental analysis because
in order to competitively face such challenges, you should
know your strengths and weaknesses through
organizational/internal analysis

ORGANIZATIONAL
ANALYSIS

The central challenge of using our managerial

competences to create particular/specific competitive
advantage (s)-In terms of financial performance,
individual departmental capabilities, appropriateness of
our organizational structure, goal contract, customer
value adding activities, identifying/anticipating
performance gaps etc
You should examine the competence/incompetence of
your functional areas / departments in relation to your
competititors
Identify those critical strengths and weaknesses in each
of these departments (functional analysis)

1)Financial Performance Analysis

Basing on the financial ratios from the trend analysis, has our
financial standing improved or deteriorated over time? What is
the financial health of our business?

Are we financially stronger compared to our rivals in the

industry at this point in time? If so, can we continue
maintaining this position? Key stakeholders need to be sure of
this before deciding to/continuing to deal with.

You have to combine leverage, liquidity, activity, and

profitability ratios in order reasonably establish your firms
financial standing and performance

Continuation

1.

2.

3.
4.

You can not fully rely on financial ratio analysis because;

The analysis is based on past records which rarely consider
the currently situation on ground
Different organizations use/follow different accounting
standards and procedures even when using ISs (in
determining materiality)
Bases on quantitive data ignoring qualitative data
The source documents may not be accurate hence giving a
wrong picture

2)Functional Area Analysis

Key activities of the companys function areas

have to be analyzed to identify those areas
where we are performing well (strengths), and
where we need to improve (weaknesses)
Barriers between departments should be
avoided for synergy
Both resource &competence- related tangible
and intangible factors should be considered

Marketing Department

Responsible for identifying, anticipating,& satisfying the

right customer needs and expectations.

Market share (strength & competitiveness in the market),

and size of our loyal customer/corporate account base?

Our marketing information systems efficiency

&effectiveness?

Level of market research and development (in relation to

customers, markets, & competitors)

Product/brand positioning & corporate image?

Branding and packaging (are they unique and preferred by
our target customers?)

Customer service/care and customer

loyalty programs? Doing it wellstrength, Need to improve-weakness
Promotion effectiveness? Giving us
competitive advantages-strengths, a
competitive disadvantage to usweakness
Appropriateness of our pricing
strategies to our customers?
Appropriateness of our distribution
channels?
Etc

Finance and Accounting

Responsible for ensuring the
financial soundness
Financial strengths and stability
(financial ratios)?
Financial planning capabilities
(strengths), incapability
(weakness) ?

Finance & A/cing-continues

We avoid some taxes without evading taxes

(strength), dealing mainly in taxable transactions
(weakness)
We can raise additional capital when needed by
appropriately balancing own vs debt sources
(strength), if not (weakness)
Accuracy, Completeness, and Timeliness of
financial statements/reports?
How good are our relationships with our
stockholders?

Human Resource Dept.

Responsible for attracting and maintaining the right/competent

(and compatible) human resources / employees and managers in
the right positions, at the right time, for achieving organizational
goals

Organization structure, climate, and culture give us a competitive

advantage (strengths)-inappropriate to the companys strategic
direction (weakness)

We have qualified and experienced/competent staff who are

compatible with our business (strengths),
unqualified/inexperienced/incompatible staff who need training or
to be transferred (weakness

Is the staff morale enough, sense of goal contract, and team work?

Stable workforce/is our labour turn over low?

Conti

Our staff are proud of working for our

organization-strength, if not-weakness
Productivity of staff/our record for
achieving objectives compared to our
rivals? Better-OPP, Poor-Weakness
Is there an HR Strategic Fit ? ,i.e are
our HR policies and programs compatible
with our human capital? Core
competence-OPP, No fit-Weakness

Production and operations

Responsible for turning the product design/ideas/raw materials into the

right finished products (services) to be sold to our customers.
Benchmark with WCM practices or even trend set.

Are we producing high quality products/operating at lower overall costs

compared to our rivals?

How efficient and effective are our production processes, systems, and
strategies?

Can we produce the required capacity to meet our customers demand

(s)?

Strategic location and layout of facilities (the plant, offices, equipment,

raw materials, information, etc)?
Plant and equipment maintenance (including its age)

Inventory control systems/relationship with our

suppliers?

Quality control measures-are they customer

oriented?

Do we have a high (weakness) or low level

(strengths) of rejects?

Flexibility in operations-do we have alternatives

like generators, a pool of casual staff, compatible
staff, and alternative systems of production?

Are our lead times especially during peak

periods? Delays-weakness, quick service-strength

TASK:
Analyze the following;

Procurement and supplies dept.

Research and development
Top managements/CEOs/General Managers
Department
IT/Information systems department
Other units in case of product/customerbased/market/project organizational structures.
Etc.

Procurement & Supplies Dept

Securing products and services at the right quality,

quantity, price, place, and from the right sources
How high/low are our procurement costs (e.g. cost per
order or overall procurement costs)?
What is / is our relationship with our core suppliers
improving?
Are we effectively controlling our supply chain?
Is our procurement documentation accurate enough for
auditing purposes?
How much procurement bypasses the department/is done
out of contract/is there appropriate contract compliance?

Continuation

If we are using e-procurement, how are those ICTs

interoperated/compatible with our other procurement
systems?
After placing in a requisition, how long does it take to
receive the goods?
Can the system used provide management with realtime visibility of the procurement activities?
Does the system ensure Corporate governance
(transparency, accountability, disclosure, and trust)?

3)Portfolio Analysis (PA)

A biz portfolio may be any a

brand/branch/budget/product division/income
generating asset
PA is usually applied to firms with multiple SBUs (more
than one product/services, customer categories,
markets , divisions)
Helps managers to in taking decisions regarding which
SBUs to allocate more or less resources to at a given
strategic time
A firm should always strive to not only to
diversify/retrench but to also have a balanced portfolio
(minimize risk and maximize return) of all portfolios

Portfolio Analysis Models:

The B.C.G model (Growth/Share matrix)

The G.E Multi-factoral model (competitive

strengths/Attractiveness matrix)

Contribution Margin Analysis (how much profit

margin does that biz portfolio contribute?)

The BCG(Boston Consulting Group) model

High
Industry/
market
growth rate

Stars

Cash cows

Question
marks
Dogs

Low
High

Low

Relative market share

The GE model
High

Medium
Industry/
market
attractivene
ss Low
Strong

Average

Weak
Competitive Strengths

Determinants of industry attractiveness

Market growth
and size
Industry
profitability
Seasonality
Porter's five forces

Technology &
Capital
requirements
Economies of scale
Emerging
opportunities and
weakness
etc

Determinants of competitive strengths

Relative
market share
Production
capacity
Company
Image
Profit margins

Technological
capabilities

R & D strengths

Market and
customer
knowledge
Employee
committment
Etc.

4)Value Chain Analysis

1.
2.
3.

4.

What do our current and potential customers value

most?
Are our primary and supportive value chain
activities creating customer value?
Primary Value Chain Activities-in bound logistics,
production/operations, out bound logistics,
marketing and sales, after sale service
Supportive Activities-Company infrastructure, HR
management, procurement, value-adding
technology

Some questions to answer

How can we best provide that customer value at reduced cost

and make better profits?

Which activities are now core or non core in relation to

creating better customer value?

Which ones are we known to have competence in/give us a

competitive advantage (core competence)?

How can we strategically manage such activities either by

ourselves or through well controlled out-sourcing to competent
firms?

Strategic Gap Analysis

A futuristic strategic gap in performance

Involves some proactive control/management

If it is there, what new strategies to we need to correct

this gap

Adjust the tactics or change the strategy in place?

Cont
1.
2.
3.
4.
5.
6.

The analysis is in stages

Consider the past trend and project into the future in
relation to your goal/objective
Why might the future trend be that way?, with
reasons adjust your projection
What assumptions are we basing on , and how do
they affect our projection?
If corrective action is taken, what do we now
predict?
Consider other factors besides the initial one
If there is a gap, when is it likely to occur ?

Key Success Factors

Things your company must be good/excel at in

order to succeed in a given industry
Premising/bench marking with those best-inclass rivals helps you to identify them
They differ from one industry to another under
different conditions
Different from Key Result Areas

Chief Executives

1.
2.
3.

Strategic level managers

Strategic planning and policy formulation as
directed by the board of directors
They also provide effective leadership , are strategic
information bearer, advisers to the board among
other roles
Issues to analyze may among others include;
Their responsiveness and adaptability
Attitude to risk
Generic skills and experiences ,etc

Next

From the external/environmental analysis, you will

identify all the available opportunities and threats
From the internal/organizational analysis, you will
identify all your internal strengths and weaknesses
Match all those results using through SWOT analysis
remembering that some of those
trends/developments/changes/factors may not be of
significance to you

SWOT ANALYSIS
Is usually required when;
When formulating your strategic direction
Drawing strategic/business/marketing plans
Convincing creditors, investors, and top
management about the firms future or
strategic direction
When making your strategic choice/when
modifying the existing strategy or its
tactics/crafting (formulating) a new
strategic

Internal assessment:
Strengths
Weaknesses
External assessment:
Opportunities
Threats
Which of these are of important or not,
urgent or not, relevant or not in relation
to your strategic direction, strategy to be
used, resources available (feasibility?),
and values of top management?

A firm needs to:

Respond to / take advantage of those golden
opportunities
Cope with and encounter those potentially frustrating
threats
Correct weaknesses
Exploit / capitalize on its strengths
This matching of the SWOT variables/issues results
into SWOT matrix that guides the appropriateness of
your future strategic choice
Develop a SAP chart for Strengths and weaknesses,
and an ETOP chart for Opportunities and Threats
to decide on the appropriate tactics (actions) to use in
your chosen strategies

A firm should single out those SWOT

facts that are more urgent, important
and most likely to influence its
strategy/approach to your strategic
direction.
A firm should also match its strengths
and weaknesses, to its opportunities
and threats in the environment in form
of a SWOT matrix.

Before your SWOT matrix ,ask

yourselves internally

In what areas have our strengths improved within this period,

and to what extent?
Where have we managed to counter our weaknesses?
In which areas of weakness are we continuously deterioting?
Are we too weak, strong enough, or stable? Are these areas of
importance to us?
What can we then do with our strengths, and about our areas
of weaknesses?
Not ignoring those relevant Opportunities and Threats, after
answering those relevant questions, go a head with your
SWOT matrix

OPPORTUNITIES
-Growing market for
our products
-Tax holidays
-Competent-willing
suppliers

THREATS
-Better competititors
-Future hostile takeover
-Political instability
-Inferior product
range

STRENGTHS
-Strong capital base
-Many loyal customers
-Competent and
customer-centered
staff

WEAKNESSESES
-Low market share
-Uncommitted staff
-High production
costs

Strengths

Weaknesses

Correcting
Opportunit Using strengths to
exploit opportunities weaknesses to
ies
exploit
opportunities

Threats

Using strengths to
combat threats

Correcting
weaknesses to
combat threats

Strengths

Weaknesses

Strategies
Opportunit Strategies
Expansion/diversify Acquisition of the
ies

Threats

ing
Controlled outsourcing to such
suppliers
Tax Consulting

rival/team work
Use a white
knight/poison pill
Product
innovations/
developments

Controlled
expansion

MBO
Overall Cost

Tasks

1.

2.

Read about

Identify the strengths and weaknesses of

such a model using all the models above.
Use a firm of your choice
Discuss-understand and pass SM highly ,
become a world class business
competititor, and put God first because
he is the best strategist.