Tools for Industry Analysis

This resource guide provides information on techniques managers use to maneuver through an industry’s competitive environment with SWOT analysis; Value Chains; Porter’s five forces of industry attractiveness; and performance measures.

SWOT Analysis

This management process is considered the initial step in formulating a business strategy and is commonly referred to as SWOT analysis. (SWOT) is short for Strengths, Weaknesses, Opportunities, and Threats. According to Chuck Williams, co-author Managing Organizations, “Strength and weakness are considered internal to the company while opportunities and threats are seen in the environment external to the company. (Williams, C. et al. Managing organizations: BA 304, Pennsylvania State University. 3rd floor Paterno, Business Reference HD31.M29422 2001)

Value Chain:

Firms practicing in this industry invest an enormous amount of capital to add value to their products. The value chain is a management tool exercised to measure the “GAP” and potency of the primary activities and the support activities of their firm in comparison to the performance of competing firms. As stated by Dr. Charles Snow: Professor of Business Administration, The Smeal College of Business, The Pennsylvania State University, “Primary activities include: inbound logistics; operations; outbound logistics; marketing/sales; and service. Support activities take account of: infrastructure; human resource management; technology development; and procurement.” (Dr. Charles Snow, BA304 Lecture, November 14, 2002.) (Williams, C. et al. Managing organizations: BA 304, Pennsylvania State University. 3rd floor Paterno, Business Reference HD31.M29422 2001)

Porter’s Five Forces Model:

In addition to the value chain analysis, Dr. Snow communicates that Michael Porter’s Five-Forces Model simulates:

1. Firm Rivalry
2. Power of Buyers
3. Power of Suppliers
4. Substitutes
5. Potential Entrants

(Dr. Charles Snow; BA304 PSU Lecture Slides; November 14, 2002)

Charles Williams, co-author Managing Organizations asserts, “Michael Porter’s Five Forces Model is one of the most effective industry analysis concepts used to assess the environment in a competitive industry. Industry structure refers to the interrelationship among five different forces that drive behavior of firms competing in that industry. These five forces are:

• the threat of new entrants into the industry
• the bargaining power of customers
• the bargaining power of suppliers
• the intensity of the rivalry among firms in the industry
• the potential for substitute products or services”.

(Williams, C. et al. Managing organizations: BA 304, Pennsylvania State University. 3rd floor Paterno, Business Reference HD31.M29422 2001)

Michael Porter Websites:

Institute for strategy and competitiveness
Harvard Business School, Michael Porter Publications.

Key Performance Measures:

According to the Encyclopedia of Management, “One of the most critical aspects of management pertains to the finances of running a firm”. One can find the most commonly used tools to manually analyze financial ratios on page three hundred nineteen in the Encyclopedia of Management 3rd floor Paterno, Business Reference HD30.15.E49 2000.

Examples of Performance Measures:

* Market Share: how much business does each establishment own in the market?
* Financial Ratios. (Accounting based history).
* Stock Price (market based) future discounted to the present. Net present value.
* Reputation Measures (opinion surveys)
* Comparisons (benchmarking with peer firms)
* Trend Analysis (when a snap shot evaluation is not good enough).

(Dr. Charles Snow; BA304 PSU Lecture Slides; November 14, 2002)

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