This document provides an overview of conducting an industry analysis using Porter's Five Forces model. It explains that an industry analysis involves examining customers, suppliers, competitors, and industry trends to identify opportunities and threats. Porter's model analyzes five competitive forces: rivalry within an industry, threat of new entrants, threat of substitutes, power of buyers, and power of suppliers. The document provides details on how to assess each force and determine whether it presents an opportunity or threat. Understanding these industry forces helps companies identify strategic changes needed to improve their competitive position.

1. Makerere University
Business School
Strategic Management Course
ENVIROMENTAL ANALYSIS - COMPLETION

2. INDUSTRY ANALYSIS
• A firm operates in an industry
• Need to compare a company’s operations with
others
– Especially “the best-in-class” rivals
• Current level of competition
– Technologies
– Competitors’ Key Success Factors, among other key
issues.

3. Industry components
• Customers
• Suppliers
• Competitors
• Industrial trends
– In line with your industry’s life cycle
– In line your goals and objectives, your strategy

4. 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)?

5. 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)

6. • 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)?

7. Competitors;
• How many competitors of our size
and competence are we facing? Few-
opportunity, 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

8. • 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

9. • Before joining an industry, a firm
should consider;
Industry size, structure,
profitability, long term
attractiveness, life cycle
Competitive situation analysis

10. Level of technology in the
industry
Competitive position of the
firm
Ease of entry in the industry

11. Michael Porter’s model
• Michael E. Porter of the Harvard
Business School
• Suggested five competitive forces
model;
– Rivalry within the industry
– Threat of new entrants
– Threat of substitute products
– Power of buyers
– Power of suppliers

13. Rivalry determinants
• Mutual dependence
• Concentration of competitors
• Number of competitors
• Industry growth rate
• Cost structure
• Diversification by competitors
• Differentiation and switching costs
• Exit barriers
• Capacity utilisation

14. Entry barriers
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Distribution channels access
• Government policies
• Expected retaliation

15. Substitution determinants
• Price relativity
• Switching costs
• Buyer propensity to substitute

16. Customer power determinants
• Intrinsic strength
• Buyer volume
• Switching costs
• Buyer information
• Backward integration ability
• Substitute products
• Price sensitivity
• Impact on quality
• Brand identity

17. Supplier power
• Importance to supplier
• Knowledge of product value to buyer
– Brand
– Quality
• Standardisation and differentiation
• Switching costs
• Threat of forward integration

18. Model Basics
• Helps managers to identify the
opportunities and threats
confronting their company (ies).
• The stronger the 5 competitive
forces, the more serious the threat
and vise versa.
• Through strategic change you can
alter the strengths of such forces

19. Porter’s Model – Cont.
• Need 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)

20. 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