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Conducting Industry Analysis
Industry analysis is an important process when making investment decisions as it helps to identify the major competitive forces in the organization’s industry, the sources and sustainability of competitive advantage, and major business risks. Through this process, the company identifies factors that may affect its future profitability and how to compete effectively in the industry. However, the process of conducting an industry analysis requires the identification of various factors. One of the major factors to consider when conducting an industry analysis is competitive rivalry or rivalry among existing firms. During this process, the company attempts to answer several questions that would identify forces that impact industry returns. The three most important questions are; how fast is the industry growing? What are the key economic and regulatory issues faced by companies in this industry? Who are the potential competitors and how might their entry affect competitive rivalry? (Young, Cohen & Bens, 2019).
These questions are important when conducting an industry analysis as they help provide a picture of the overall competitiveness of the industry and its potential growth. These three items are important as they help the company to understand forces that are currently at work within the overall industry (Inc. Editorial, 2020). The company then utilizes insights from these three items in strategic planning based on the overall attractiveness of the industry. In addition, these three items enable the company to identify potential economic and regulatory issues that could affect its operations and success in the industry.
Companies use different approaches for business strategy including cost leadership and differentiation competitive strategy. Cost leadership entails focusing on becoming the low-cost producer in the industry while differentiation involves focusing on being unique in the industry. Differentiation competitive strategy would be the most effective approach based on the three items since it provides a framework for the company to uniquely position itself to meet needs that are valued by customers. This increases the overall attractiveness of the company in the industry and improves competitiveness as it focuses on attributes that are valued by customers, but not addressed by existing competitors in the industry or market.
Reference
Inc. Editorial. (2020, February 6). Industry Analysis. Retrieved November 20, 2020, from https://www.inc.com/encyclopedia/industry-analysis.html
Young, S.D., Cohen, J. & Bens, D.A. (2019). Corporate financial reporting and analysis (4th ed.). Danvers, MA: John Wiley & Sons, Inc.
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