Industry and Market
Today, the ideal unit of analysis is the industry that the firm operates in. However, this is not an easily defined term. When we try to determine the industry, we need to look at the direct customers that the firm caters to, the competition that directly affects the profits and losses, the competition that indirectly results in gain or loss of market share, and the products that are complements, substitutes and influential. For eg: even for a non-profit organization such as Teach For America, the industry would include not only the other non-profit organizations that work in the same space, but also the for-profit organizations as well as part of their in-house non-profit drives.
Michael Porter And His Famous Five Forces
Michael Porter devised a new framework for business strategy analysis to explain how industry forces play a crucial role in how a firm performs its operations, its return on capital and its competitive strategy. As per his proposed framework, every firm is constantly under the influence of suppliers, customers, new entrants, substitute products and competition.
The new system proposed by Slater and Olson for market analysis considers both incumbent competitors and new entrants as one entity called rivals. Further, it utilizes the new concept of complementors which take network effects into consideration in the new age. In some cases, this can cause positive impacts while in others, there will be negative effects. The new system focuses extensively on double barriers caused due to imitation. In my opinion, the new entrants and new technologies that can completely alter your business can be negotiated by fully utilizing the potential of intellectual property rights. For eg. Google recently bought Motorola’s cellular phone development division. While this might look financial to most people, I agree with the opinion that this is solely for patent purposes since Google was getting sued for patent infringements in their Android platform.
The new system focuses on strategic positioning by creating more market-focuses organizations that establish creative relationships with customers and suppliers while searching and creating new market space.
Analysis of competition is essential for new companies as well as incumbents. A periodic search for firms that operate in your territory as well as adjacent territories is of significance not only for acquisitions and mergers, but also for alliances. Every firm should perform a SWOT analysis of their firm as well as competitive organizations to have a clearer idea of the industry and future.
1. Porter’s Five Forces – Wikipedia - http://en.wikipedia.org/wiki/Porter_five_forces_analysis
2. “A Fresh Look At Industry And Market Analysis” – Stanley F. Slater, Eric M. Olson
3. “Competitor Analysis : Understand Your Opponents” – Harvard Business School Press