ABSTRACT
In this chapter, we looked at five different tools we could use to analyze an industry. The first, the PESTLE analysis, looks at macro-forces (political, economic, sociocultural, technological, legal, and environmental) that influence firms and industries in general. The second, the five forces analysis, offers a snapshot of an industry; it looks at three competition-related forces (the threat of new entrants, intensity of rivalry, and the threat of substitutes), and two forces that relate to the bargaining power of your firm with respect to buyers and suppliers. This analysis helps you predict the profit potential of your industry. The third, the value net analysis, suggests the possibility of collaboration in addition to competition among the players in an industry. The fourth, strategic groups analysis, offers a finer grained look at an industry; it focuses on firms that resemble your firm in terms of strategy, markets, or products, and offers insights on the specific competition that you will face. The fifth analysis, Key Success Factors, identifies factors that differentiate between winners and losers in the industry.
All of these tools work to provide you with an awareness of the things in your industry that could potentially influence your firm’s profitability. There is no one right way to do these analyses; as you may have noted, similar things impact many of the five forces, or may be classified in more than one category of PESTLE. The tools’ benefits come from providing you a systematic way to look at an industry. Obviously, the quality of your analysis depends on the type of assumptions you make, and the purposes for which you will use your analysis.
Once you have done an environmental analysis, you can identify key success factors—the small number of things that really differentiate winners from losers in the industry. Designing your organization and management around these key success factors will allow your organization to improve its performance in critical areas.
