Must Haves in an Industry Analysis

As I have stated elsewhere in other blogs and articles, I believe that research is a critical component of good business and decision-making. Indeed, a business plan is worthless without solid research to back up statements and commentary on markets and the industry in which you operate. Furthermore, it is difficult to imagine strategy formulation without an understanding of your industry. Here’s a further thought: What industry are you in? I leave this question with you at this time!We all bandy around the term ‘industry analysis’, but what is it, and what should a good industry analysis report contain?Industry AnalysisQuestions answered by an industry analysis include:- What are the industry dominant economic traits?- What competitive forces are at work in the industry and how strong are they?- What are the forces of change in the industry and what impact will they have?- Which companies are in the strongest/weakest competitive position?- What key factors will determine success or failure?- How attractive is the industry in terms of its prospects for above average profitability?Industry Analysis OutlineHaving identified the questions which should be answered by an industry analysis, the following list provides an outline of the report:- Introductiono Descriptiono Segmentso Caveats- Socio-Economico Relevant governmental or environmental factorso Economic indicators relevant for the industry- Porter’s Five Forceso Threat of new entrants- Economies of scale- Working capital requirements- Proprietary product differences- Absolute cost advantages- Brand identity- Access to distribution- Expected retaliationo Suppliers- Supplier concentration- Presence of substitute inputs- Differentiation of inputs- Importance of volume to supplier- Impact of inputs on cost or differentiation- Threat of forward or backward integration- Access to capital- Access to labouro Buyers- Buyer concentration versus industry concentration- Buyer switching costs- Buyer information- Threat of backward integration- Pull through (use of intermediaries)- Brand identity of buyers- Price sensitivity- Price to total purchaseso Substitute products- Relative price/performance relationship of substitutes- Buyer propensity to substituteo Rivalry- Degree of concentration and balance among competitors- Diversity among competitors- Industry growth rate (past and projected)- Fixed costs/value added- Intermittent overcapacity- Product differentiation- Growth of foreign competition- Corporate stakes- Exit barriers- Conclusiono Critical success factorso Prognosis – the assessment of the future for this industry- Bibliography- Appendiceso Industry ratioso Other relevant indiceso Other relevant dataClearly, not all these sections are relevant for all industries, but it does give a broad outline of the likely contents.