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Steps
to a Basic Industry Analysis
By Professor Harvey B. Lermack Philadelphia University Philadelphia, PA Revised
August 29, 2004 ©
2004 Harvey B. Lermack Note:
These are basic steps you should follow when evaluating a case study in
my graduate and undergraduate business strategy and business policy courses. In
order to assess the current strategy of a company, and its appropriateness and
potential for success, you must understand the dynamics of the industry in which
the company competes. While we
often take for granted that this is easy to do, it takes a great deal of thought
and analysis. In
Michael Porter’s words, “the essence of formulating competitive strategy is
relating a company to its environment.” (Porter
3) Obviously, this means that you
must thoroughly understand the company and its industry, as well as the outside
environmental forces that affect the industry, in order to be successful in this
pursuit. Step
1 - Identify the Industry. Before
you can analyze a company and industry, you must determine in what industry the
company competes. Michael Porter
defines an industry as “the group of firms producing products that are close
substitutes for each other”. (Porter
5). Many companies produce more
than one product or service; therefore, it is often difficult to clearly define
the appropriate industry. Look
for clues in the case study. Also,
when doing financial research for your company, you may find an industry
grouping identified on the overview page. Often,
two or more of those sites may cite a different industry; use your judgment to
make your final determination. Sometimes, a research source will identify a SIC (Standard Industrial Classification) code or NAICS (North American Industry Classification System) Code. These are two standardized industry classifications that may be used to focus on the appropriate industry classification. (Note: the NAICS is gradually replacing the older SIC system.) You can also use Gutman Library’s Hoover’s Online, ValueLine Research Center, or Business & Company Resource Center. All of these allow you to look up a company and identify its SIC and/or NAICS code. In Business & Company Resource Center you can also read a description of the industry from the Encyclopedia of American Industry which is available full-text online. Step 2
- Identify Research Resources. Research
information about industries is available in several places.
To do a thorough industry analysis, you will need to locate:
The online resources of the Gutman Library provide an enormous amount of information. Log onto http://www.philau.edu/library and access Electronic Resources / Databases / Business. For help on using this resource, contact the Gutman Library staff. You
can also find a specific guide for doing company and industry research that
identifies the most appropriate Gutman Library business research resources. It
is found at http://www.philau.edu/infolit/sba/candiresearch.htm.
Other Internet
sites provide rich research sources. A
good starting point is my web links page. Go
to http://faculty.philau.edu/lermackh/
and select Web Links. One of my
favorite web sites is Poisson Enterprises’ “How to Learn About an Industry
or a Specific Company” at: http://www.virtualpet.com/industry/howto/search.htm#identify.
This site provides a step-by-step approach similar to the one outlined in
this document, as well as specific research links for each step. For industries that compete in the global marketplace – most of the ones we will study – you will also need to understand the cultural and social, commercial, regulatory and political, and other aspects of the countries and regions within which the company must compete. Step 3 – Answer the Textbook Questions.
You
must use all the available information in the case study and from your research
sources to thoroughly analyze the issues in the textbook chapter about analyzing
industries. For
my graduate course MB42 Strategic Planning in the Global Environment, Chapter 3
of “Crafting and Executing Strategy,” titled “Analyzing a Company’s
External Environment,” poses key 7 questions that you must analyze (Thompson
44).
Works Cited Porter,
Michael E. “Competitive
Strategy.” New York:
The Free Press, 1980. Thompson,
Arthur A., A. J. Strickland III and John E. Gamble. “Crafting and Executing Strategy,” 14th
edition. New York:
McGraw-Hill/Irwin, 2005.
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