Analysis for Managers: Industry Analysis
The next important analysis to undertake around your business is an industry analysis. This is where we look at the entire landscape of the economic branch in which your business operates. To do this we’ll use a well-known and effective tool, called the “Porter’s Five Forces,” which helps a manager to understand the current and future profitability outlook of his/her business. Figuratively and literally, each of these “forces” presses/suppresses profit margins within a given industry.
So, grab some paper, a notepad, or a open new Word doc and let’s answer some questions.
- Industry rivalry—How intense is the competition in your industry? Do you feel like you’re “one-of-a-kind” or are you working hard to get others’ customers?
- Threat of substitutes —How easy is it for a customer to substitute your product or service for another and still get the job done?
- Bargaining power of buyers—Do the buyers in your business hold the big stick?
- Bargaining power of suppliers—Or do the suppliers hold the big stick?
- Barriers to entry—How easy is it for someone to enter into your line of work? (i.e. start doing what you’re doing?)
Other important questions to ask include:
- How is business changing in my industry? i.e. more online, demand for speed, lower prices, etc.
- What do I see my customers wanting in 10 or 15 years?
- Why are these changes occurring?
As you consider these questions, it’s essential to flex that analysis muscle and keep asking, why? Doing so helps us identify the true and fundamental trends that are occurring in our industries.
Industry analysis is a higher level and more future-centered analysis than others, and for that reason it is vital. A manager that analyzes his/her industry, looks to the future and makes investments/changes as a result is much more likely to stay profitable!
All our best in your journey to continue to seek future success.
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