Essay About N Business Strategy And Industry Analysis

Industry Analysis
Industry Analysis
Industry Analysis:
The Fundamentals
When a management with a reputation for brilliance
tackles a business with a reputation for poor fundamental
economics, it is the reputation of the business
that remains intact.
—Warren Buffett, Chairman,
Berkshire Hathaway
The reinsurance business has the defect of being too
attractive-looking to new entrants for its own good
and will therefore always tend to be the opposite of,
say, the old business of gathering and rendering
dead horses that always tended to contain few and
prosperous participants.
—Charles T. Munger, Chairman,
Wesco Financial Corp.
OUTLINE
n INTRODUCTION AND OBJECTIVES
n FROM ENVIRONMENTAL ANALYSIS TO INDUSTRY ANALYSIS
n THE DETERMINANTS OF INDUSTRY PROFIT: DEMAND AND
COMPETITION
n ANALYZING INDUSTRY ATTRACTIVENESS
Porters Five Forces of Competition Framework
Competition from Substitutes
Threat of Entry
Rivalry Between Established Competitors
Bargaining Power of Buyers
Bargaining Power of Suppliers
n APPLYING INDUSTRY ANALYSIS
Describing Industry Structure
Forecasting Industry Profitability
Strategies to Alter Industry Structure
INTRODUCTION AND OBJECTIVES 67
n DEFINING INDUSTRIES: WHERE TO DRAW THE BOUNDARIES
Industries and Markets
Defining Markets: Substitution in Demand and Supply
n FROM INDUSTRY ATTRACTIVENESS TO COMPETITIVE ADVANTAGE:
IDENTIFYING KEY SUCCESS FACTORS
n SUMMARY
n NOTES
INTRODUCTION AND OBJECTIVES
In this chapter and the next we explore the external environment of the firm.
In Chapter 1 we observed that profound understanding of the competitive
environment is a critical ingredient of a successful strategy. We further noted
that business strategy is essentially a quest for profit. The primary task for this
chapter is to identify the sources of profit in the external environment. The
firms proximate environment is its industry environment; hence the focus of
our environmental analysis will be industry analysis.
Industry analysis is relevant both to corporate-level and business-level strategy.
n Corporate strategy is concerned with deciding which industries the firm
should be engaged in and how it should allocate its resources among
them. Such decisions require assessment of the attractiveness of different
industries in terms of their profit potential. The main objective of
this chapter is to understand how the competitive structure of an industry
determines its profitability.
n Business strategy is concerned with establishing competitive advantage.
By analyzing customer needs and preferences and the ways in which firms
compete to serve customers we identify the general sources of competitive
advantage in an industry – what we call key success factors.
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