Libr230 Week 5 Industry Analysis

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Libr230 Week 5 Industry Analysis

  1. 1. Industry Analysis Week 5
  2. 2. Understanding Industries <ul><li>Gives us context </li></ul><ul><li>Shows competitive strength/advantage or weakness/disadvantage </li></ul><ul><li>Two commonly used analytical models: </li></ul><ul><ul><ul><li>Porter’s Five Forces </li></ul></ul></ul><ul><ul><ul><li>PEST, PESTLE, STEP </li></ul></ul></ul>
  3. 3. Porter’s Five Forces <ul><li>Gauges industry ‘attractiveness” </li></ul><ul><li>Five forces: </li></ul><ul><ul><li>Threat of new entrants </li></ul></ul><ul><ul><li>Bargaining power of suppliers </li></ul></ul><ul><ul><li>Bargaining power of buyers </li></ul></ul><ul><ul><li>Possibility of substitution or replacement </li></ul></ul><ul><ul><li>Degree of rivalry </li></ul></ul>
  4. 4. The 5 forces show us <ul><li>Profit potential overall </li></ul><ul><li>Potential forces that could harm profitability </li></ul><ul><li>Sources of competitive advantage </li></ul><ul><li>Predicted change in industry structure </li></ul>
  5. 5. Threat of New Entrants <ul><li>Entry price could be high (automobiles?) </li></ul><ul><li>Incumbent retaliation (education?) </li></ul><ul><li>Experience of existing companies means increased competitiveness compared to new companies (grocery stores?) </li></ul><ul><li>Distribution access </li></ul><ul><li>Switching costs are high for customers so new entrants have to differentiate/encourage switching </li></ul>
  6. 6. Bargaining Power of Suppliers <ul><li>Raw material costs that are high have an impact on profitability </li></ul><ul><li>Few suppliers concentrated in one area can drive up supplier costs enormously (lithium!) </li></ul><ul><li>Government is considered a ‘supplier’ and can have a significant impact upon profitability (expansion for example) </li></ul>
  7. 7. Bargaining Power of Buyers <ul><li>Quality </li></ul><ul><li>Differentiation </li></ul>
  8. 8. Degree of Rivalry <ul><li>Costs structures </li></ul><ul><li>Market growth </li></ul><ul><li>Product switching </li></ul><ul><li>Barriers to exit (asset specialization, emotional attachment, market importance) could make it difficult to leave, intensifying rivalry </li></ul>
  9. 9. How to Analyze with 5 Forces <ul><li>Collect information related to the 5 forces </li></ul><ul><ul><li>Rate on a scale of 1-5 is common </li></ul></ul><ul><li>Assess and Evaluate </li></ul><ul><li>Develop Strategy/Make Decisions that ensure fit between external environment and what organization will deliver </li></ul>
  10. 10. Example: Airlines <ul><li>Threat of Entry: 4 (HIGH) </li></ul><ul><ul><li>Deregulation </li></ul></ul><ul><ul><li>Can lease aircraft </li></ul></ul><ul><ul><li>Use secondary airports </li></ul></ul><ul><li>Threat of Substitutes: 3 (MEDIUM) </li></ul><ul><ul><li>Could drive </li></ul></ul><ul><ul><li>Use technology etc </li></ul></ul><ul><li>Bargaining Power of Buyers 4 (HIGH) </li></ul><ul><li>Bargaining Power of Suppliers 4 (HIGH) </li></ul><ul><li>Degree of Rivalry 5 (HIGH) </li></ul>
  11. 11. Environmental Analysis <ul><li>Internal Environment </li></ul><ul><li>Operating Environment (suppliers, competitors, partners) </li></ul><ul><li>General/External Environment </li></ul><ul><ul><li>Huge impact on the success or failure of an organization </li></ul></ul><ul><ul><li>Includes customers and the forces that shape them (social, economic, technological etc.) </li></ul></ul>
  12. 12. What’s in a Name <ul><li>PEST </li></ul><ul><li>STEEP </li></ul><ul><li>PESTLE </li></ul><ul><ul><li>Social </li></ul></ul><ul><ul><li>Technological </li></ul></ul><ul><ul><li>Economic </li></ul></ul><ul><ul><li>Ecological/Environmental </li></ul></ul><ul><ul><li>Political/Legal/Regulatory </li></ul></ul>
  13. 13. Why do it? <ul><li>Relates trends to business issues </li></ul><ul><li>Allows for decision makers to forecast future direction </li></ul><ul><li>By understanding these influencing factors an organization can predict and refine its products/services and maintain relevancy to the marketplace </li></ul>
  14. 14. How? <ul><li>Data gather </li></ul><ul><li>Apply </li></ul><ul><li>Decide </li></ul><ul><li>Subjective to a degree but the idea is simple: Inform, Inform, Inform </li></ul>

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