The document discusses industry analysis and Porter's Five Forces model for evaluating the competitiveness of an industry. Porter's Five Forces includes the threat of new entrants, bargaining power of suppliers and buyers, threat of substitutes, and degree of rivalry among existing competitors. The model is used to identify the profit potential of an industry and forces that could impact profitability in order to develop strategies to maintain competitive advantage.

1. LIBR 230 WEEK 5
Industry Analysis

2. Why Analyze Industries?
• Is the industry attractive or healthy?
• Who are the competitors?
• Will it faces challenges that diminish its overall value?
• Political, Economic, Social/Cultural, Technological, Legal, Environm
ental
• Competition/rivalry

3. Porter’s 5 Forces
• Allows us to see the degree (level) and source (basis) of
competition
• Helps form an answer to the question: Is this industry
viable? In good shape? Worth my time?

4. Rules of
industry
competition
1. Threat of new
entrants
2. Bargaining power
of suppliers
3. Bargaining power
of buyers
4. Threat of
substitute
products or
services
5. Degree of rivalry
among existing
competitors

5. Objective
• Identify profit potential
• Identify specific forces that could harm profitability in the
future
• Protect and improve competitive advantage
• Anticipate changes in industry structure

6. Threat of New Entrants
• Easy for new
organizations to enter?
• Low or high ‘entry
barriers’:
• Costs
(marketing, personnel, etc.)
• Experience
• Distribution access
• Switching costs of
consumers (soft and hard)
• Government regulation
• Product differentiation

7. Bargaining Power of Suppliers
• Suppliers influence
costs, quality and
availability of product or
service delivery:
• Concentration of suppliers
overall
• Diversification of individual
suppliers
• Switching costs
• Organization
(cartels, guilds, unions etc.)
• Government is an informal
‘supplier’ in many industries
(land, licenses, rights to do
business)

8. Threat of Substitutes
From other industries!
• While there is a threat
from competition (e.g.
choosing a competitor’s
offering—dish soap?)
there is also a threat from
other industries providing
an alternative to yours
• May disrupt or displace
existing products

9. Degree of Rivalry
How intense is the competition?
• Market growth: High growth
reduces rivalry and vice versa
• Cost structures: High costs, low
demand intense rivalry! Low
costs, high demand, not so much
• Barriers to exit: Too high to exit
means rivalry intensifies
• Product switching: High
differentiation may allow for less
switching decreasing rivalry
• Diversity of organizations? Lots
of diversity, less rivalry, little
diversity (a few companies
companies of similar) much
rivalry

10. Porter’s 5 Pros and Cons
Pros Cons
• Helps identify main sources of • Doesn’t fully recognize
competition social, cultural and political
factors (You still need
• Helps organizations develop
PESTLE!)
strategies to maintain
• Underestimates core
competitive advantage differentiating strengths of a
• Predicts future negative company (think Apple)
changes in industries • Places too much emphasis on
• Assist in long range planning industry structures; These may
not be that important to a
specific company due to
diversification etc. (Again, think
Apple)

11. What does this look like in practice?
Cable Industry
• Threat of entry? High entry
barriers
• Threat of substitutes?
Medium to High
• Bargaining power of buyers?
Low due to government
• Bargaining power of
suppliers? Low to medium
but increasing
• Rivalry? Artificially low due
to government licenses and
contracts