Industry analysis
By the time you have completed this chapter, you will be able to:
◆ Appreciate that the firm’s industry forms the core of its external environment and
understand that its characteristics and dynamics are essential components of strategy
analysis.
◆ Recognize the main structural features of an industry and understand how they impact the
intensity of competition and overall level of profitability in the industry.
◆ Apply industry analysis to explain the level of profitability in an industry and predict how
profitability is likely to change in the future.
◆ Develop strategies that (a) position the firm most favorably in relation to competition and
(b) influence industry structure in order to enhance industry attractiveness.
◆ Define the boundaries of the industry within which a firm is located.
◆ Identify opportunities for competitive advantage within an industry (key success factors).
From Environmental Analysis to Industry Analysis
The business environment of the firm consists of all the external influences that
impact its decisions and its performance. Given the vast number of external influences, how can managers hope to monitor, let alone analyze, environmental conditions? The starting point is some kind of system or framework for organizing
information. Environmental influences can be classified by source, for example,
into political, economic, social, and technological factors—what is known as PEST
CHAPTER 3 INDUSTRY ANALYSIS: THE FUNDAMENTALS 65
analysis. PEST analysis and similar approaches to macro-level environmental scanning can be useful in keeping a firm alert to what is happening in the world. The
danger, however, is that continuous, systematic scanning and analysis of such a
wide range
