Strategic Management - Judging Industry

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Judging the industry is an important strategic function. Without the proper understanding of the industry, it is impossible to take strategic decisions regarding the products and services.

Market Size

It is important to know how big the opportunity is and why it’s worth going after. This means finding the number of customers and what are the revenue possibilities?

Industry Forces and Trends

Now you’ll need to outline what’s happening in the industry. PEST and Porter’s analysis can help in this regard.

PEST Analysis

• P - Political factors − What is the government’s role?

• E - Economic factors − What is the state of the economy?

• S - Social factors − What are the trends, demographics, consumer attitudes, buying patterns and opinions?

• T - Technological factors − What is the effect of changing technological trends on your industry?

Porter's 5 Forces Analysis

• Threat of New Entrants − How difficult (or easy) it is for someone to enter your industry? If it’s very easy then it will be crowded with competitors.

• Threat of Substitute Products (or Services) − If another product or service could decrease the demand or displace you, there is a risk.

• Bargaining Power of Customers − In terms of pricing and terms, how much power does your customer have? Are they organized to use the purchase power?

• Bargaining Power of Suppliers − If it’s difficult or near impossible for you to switch, that means the suppliers have the upper hand.

• Competitive Rivalry of the Market − Factoring the first four forces, you can arrive at a good understanding of the playing field.

Competition

Once you’ve found the size of the market and gained knowledge about the competitors in the industry, you’re going to have to start dropping names and point out your major competitors. For this, a SWOT analysis is important.

SWOT Analysis

• S – Strengths − What do competitors have, i.e. technology, brand, people, or lean value chain?

• W – Weakness − Is there lack of experienced management, unreliable customer service, and poor customer retention?

• O - Opportunities − The advantages: Are there environmental trends or changes that may benefit them?

• T – Threats − What are the kind of threats that keeps the competitors worried?

Generic Competitive Strategy

• Cost Leadership − This refers to having the capacity to scale operations in order to offer lower prices.

• Differentiation − This is where your product or service offers something distinct than those of the current cost leaders and standing out based on the “newness” factor.

• Segmentation − It is about the focus on a very specific or “niche” target market and focus on building traction with a smaller market demand.