Strategic Guide on How to Conduct an Industry Analysis
Table of Content
What is Meant by an Industry Analysis?
Before proceeding with understanding what industry analysis means, let us understand the meaning of industry first. The industry is a type of economic structure that comprises a group of businesses or enterprises that deal in similar products or services. This suggests that the goods and services they offer are designed to meet the same goals and needs of their customers. Industry analysis is an effective tool for assessing the market in which an industry operates along with assessing various other important aspects of an industry that impacts the growth and development of an industry. Industries are classified into several types but there are two main classes of industries- manufacturing and service industries.
Carrying out an industry analysis is crucial for business strategists as it helps them to learn about various aspects of the industry and develop innovative solutions for problems. It helps in gaining comprehensive insight into the various aspects of an industry, and its general environment and provides new knowledge about different subjects that help business analysts and business strategists to devise great strategies, address the problems that may arise and select the best course of action.
Industry analysis involves systematic study and assessment of the industry environment in which the industry operates. Strong industry analysis helps in identifying the problems, determining every possibility to solve those problems and determining risks, opportunities and threats, and helps business managers to anticipate the future and understand the present scenario of the industry.
With the help of industry analysis, a business can get an insight into the company’s position and also determine the position of the company’s competitors. It gives them an insight into the opportunities and threats and predicts future trends so that they can take the required measures. The key to sustaining and flourishing in this dynamic and competitive business environment is to get a good grasp of your company and your competitors in the market and to use it to gain a competitive edge. If you want to learn how to conduct an industry analysis, then continue reading.
Significance of Conducting an Industry Analysis
The factor that influences an industry’s operations the most is the environment it operates in. The industry environment immensely impacts the operations and strategies of the business. Hence, it becomes extremely vital for an industry to develop strategies according to the industry environment. Without a detailed industry analysis, a company cannot develop effective business strategies. And hence, without good and effective business strategies, a company will find it very difficult to sustain the competitive environment.
That is why it is recommended to conduct a detailed industry analysis so as to develop better and more efficient strategies for the business. Conducting an industry analysis gives relevant and vital information about the industry environment, its current scenario, the company’s current position and much more. The business strategists and managers acquire the much-needed insight into various elements of the industry with the help of industry analysis. Here is some important information that is acquired with the help of industry analysis:
- All sort of economic factors influences a company- supply and demand curve, market size, demographics, market growth potential, profit-making prospects, new technology, etc.
- The competitive and financial position of the competitors in the market.
- Main driving forces influencing the industry and competitive pressures.
- Strategies taken up by competitors.
- Key factors that are leading to the company’s success.
- Degree of future uncertainty.
- Opportunities and threats that the company faces.
The management can attain multiple objectives by acquiring information on the following aspects:
- Discovering niche markets and identifying business opportunities.
- Establishing a benchmark against which the company can be assessed concerning its competitors and according to that, develop required skills and competencies.
- Determining and choosing the marketplace of the industry
- Reducing the time taken by the company to react to competitor moves.
- Encouraging organizational development through frequent executive interactions during the assessment.
- Limiting or anticipating competitors’ strategies.
- Assisting the company in gaining a competitive advantage by identifying any areas where the company can improve.
- Gaining valuable and in-depth knowledge about the industry enables managers to develop better strategies and implement them properly.
- Improving organizational learning by allowing managers to learn about their employees’ ideas and actions.
Types of Industry Analysis
There are several types of analysis when it comes to talking about industry analysis. Here, we have discussed the most important types that must be conducted to determine the company’s position and performance in a given industry.
1. Industry Sector Analysis:
Industries are classified into various types: finance, education, food, transportation, manufacturing, healthcare, information technology, mining, oil and natural gas, retailing etc. All these are called industry sectors and these different sectors comprise industries that deal with goods and services that are closely related. For instance, a consumer durable sector of the industry comprises the leather industry, paper industry, furniture industry, silk industry, rubber industry etc.
Business researchers and analysts analyze a particular industry sector by identifying the common objectives, opportunities gained and threats faced by the industries in the sector. Conducting an industry analysis involves assessing the industry sector or analyzing the company’s parent body. As a part of the analysis of an industry, analyzing the industry sector is important as the objective of a particular industry is developed from the industry sector. Several analytical frameworks are implemented in the industry sector analysis like competitive analysis, SWOT analysis, goal analysis, PEST analysis, ABCD analysis etc. These analytical tools enable the researchers to obtain insights into the current prospects, threats and constraints, and future potential.
2. Competitor Analysis – Porter’s Five Forces Analysis Model:
Studying the rivals within a particular industry and understanding their strategies to find out how they can influence your company is of utmost importance. Competitions within an industry affect the performance of other companies in a given industry and the overall performance of that particular industry. Through competitor analysis, one can understand how their business rivals work and perform and know their place in the industry. Using Porter’s Five Forces Model, the researchers can evaluate the company’s competitors and this helps the managers to devise strategies to outperform other companies in the sector. Porter’s Five Forces Model assists in analyzing the following competitiveness:
- The possible threat of new firms in the industry
- The threat of substitute products, services or technology
- The intensity of market competition- how the rivalry within the industry impacts the growth, profitability and overall performance.
- Bargaining power of suppliers- it directly impacts the price and quality of the final good.
- Bargaining power of the consumers- it affects the price, quality of the product or service, and additional services.
3. Broad Factors Analysis – PEST Analysis:
This involves the assessment of the four broad components- political, economic, social, and technological. This is also popularly known as PEST Analysis. It analyzes the major external environmental factors that impact a company and industry.
PEST Analysis helps in the evaluation of the following aspects:
- Political: This comprises any changes in the political factors like tax regulations, tariffs, labor laws, trade policies, environmental regulation, governmental policy etc.
- Economic: Changes in economic factors such as demand and supply, inflation, deflation, interest rates, exchange rates, GDP growth rates, changes taking place in the capital market etc. affects the operations of an industry.
- Social: This comprises changes in the lifestyle, trends, cultural changes, demographics etc.
- Technological: This involves transformation in the technological arena, if there is a new technology, if there is an advancement in the existing technology, the trends and developments of technology impact the business operations.
4. Industry Trend Analysis:
As the name suggests, this involves evaluation of the current trends and also facilitates predicting future trends. Changes in the industry environment, economy, technology, changes in social and political affairs, growth trends etc., impact the operations and performance of a company. Analyzing the industry trends and also analyzing the market involves assessment of past trends and understanding how they have affected the industry and this enables the researchers to anticipate future trends and possible changes. This further enables the managers to forge effective strategies and plan to modify their business model according to the changing scenarios. To analyze the industry trends, operational research techniques, financial analysis, marketing research studies etc., are undertaken.
5. Financial Performance Analysis:
The financial performance analysis involves the assessment and interpretation of financial statements of companies lying under a particular industry sector. It analyzes the overall profitability and financial soundness of the companies. It also assesses the decisions related to the corporate capital structure including the use of financial leverage to amplify shareholder value and reduce threats. It also involves assessment of initial investment, average return on investment, working capital, maintenance expenses, the anticipation of profitability and growth and future investment possibilities and their returns.
6. SWOT Analysis:
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This is one of the most popular assessment tools used for industry analysis. Identifying the strengths, determining the areas where you need to make improvements, identifying the opportunities that you can capitalize and identifying the challenges that your company may face, will help your company gain a competitive advantage and will help your company stay ahead in the competition and make necessary alterations in the business strategies that includes marketing strategy, product strategy, pricing strategy and more and decide the best course of action that will help the company grow.
7. Market Demand Analysis:
Market demand analysis, as the name suggests, helps in determining the prevailing market demand by studying the demand patterns and other factors that influence market demand. Market demand means the total demand for a particular product in a given market. If your company is a startup then it will help you gain insight into the market dynamics and help you understand the demand quantity of a particular product or service and whether you can secure a firm foothold in the market by generating adequate profits or not. It involves studying product niche, demand and supply trend, growth potential, identification of market, competition analysis etc.
How to Conduct an Industry Analysis?
The steps to conducting an industry analysis are discussed below:
1. Conduct preliminary research:
To understand your market better, conduct extensive preliminary research on your industry and market rivalry. You can determine whether you want to research the entire sector or a particular subset. Identify the questions you would like to analyze and find the answers to them. By studying the strategies of your potential competitors, industry trends, market trends, and growth patterns, you will attain adequate knowledge of the several industry aspects that influences your company. Make a list of the potential competitors and identify how you can do background research on them.
2. Gather relevant information:
Gather information that will assist you in answering your questions related to your market and the industry your business is operating in. To have a better understanding of the recent market developments, consult the most recently available industry analysis studies from your organization or others. To learn about your competitors’ profits and target group of customers, you can analyze their marketing strategies, product strategies and placement including public financial data.
Secondary sources like government data and statistics, journal articles, promotional campaigns, etc., can be used to gather further knowledge on the industry or other issues for which you require more information.
3. Evaluate the information you have collected:
To examine the information of you have gathered, implement one form of the industry analysis tool. You can compare and contrast your goods and marketing strategies with those in the competition. Compare and contrast the strengths with your competitors to see how they stack up. During examining your information, consider the following elements that may have an impact on the figures:
- How globalization impacts your market
- Customer inclination
- Impact of technological advancements
- Regulatory requirements
- Possible market expansion
4. Compose your evaluation:
Prepare a written report on your analysis to make them easier to understand and discuss. You can use a format to compose and publish your observations and theories, which should include:
- Introduction: Begin by providing a summary of your industry, rivals, and any historical facts or patterns you have discovered throughout your investigation.
- Objective: Clearly state the objective of your evaluation and provide pertinent questions or background.
- Information: Present the information you have compiled in the form of charts, statistics, graphs, and words to provide context for your research.
- Results: Record what you have found and observed, the results and theories that you have developed through your study.
- Conclusions: Draw conclusions based on your study. Write the short-term and long-term effects on the organization, as well as prescribe solutions to possible future problems that may occur.
- Synopsis: Summarize your entire research and analysis.
- Review: Revise your report and make necessary changes before submitting it for discussion or publication.
5. Assess your company:
Make a decision based on your report and analysis. Assessing the organization will enable the leaders to decide on the best plan of action to achieve the objectives of the organization. For instance, if you undertake an industry analysis to determine how fast a rival’s business is developing and you discover that they are developing at a rate of 15% per year then you have to consider ways to outperform their growth. If you still have issues after finishing your research, you can conduct a further study that focuses on a different industry component.
Need Help with Your Industry Analysis?
To plan your business strategies efficiently, you need to first identify your position compared to your rivals in the market and industry. By analyzing your competitors with the help of industry analysis, you will have a better understanding of the market niche and understand what your target consumers want. Conducting an extensive industry analysis is crucial for business leaders to attain success in the competitive business realm. If you need help with your industry analysis, then we can help. PenMyPaper is a reputed and the most reliable research paper writer having team of academic professionals who can conduct an industry analysis for you and prepare a report on it easily. PenMyPaper provides excellent research paper writer service and with our help, you will achieve the best scores in your research paper assignments.