INDUSTRY ANALYSISA firm operates in an industry

You need to compare your companys operations with others especially your best-in-class rivals

Look at the current level of competition, technologies employed, the influences/forces from other industrial stakeholders, and Key Success Factors of your chosen industry among other key issues.

Look at the key sectors in the industry in relation to;

CustomersSuppliers Competitors

Industrial trends in line with your industrys life cycle from introduction to decline stage should be looked at in line your goals and objectives, your strategy, and your competitors stage in this cycle.

Customers:Who are they in terms of characteristics and behaviours?How manageable are their needs, wants ,expectations, tastes and preferences?Why do they buy/what they value most?When/how do they buy?Where do they buy?, etcDo all these trends/factors/developments favor/benefit us (opportunities) or really scare/are against us (threats)?

Suppliers;Do we have alternative sources of suppliers?Can we rely on these suppliers to provide our needed inputs in the right quantities ,quality, at the right time and place?If the answer is yes , those are opportunities. While no shows a threat (s)

What are their costs?What are their terms of delivery and/or payment?How powerful are they?What is their rate of entry and exit?Which supplier is the best?Which supplier (s) will give us competitive advantages (opportunities) or not/scare us( threat)?

Competitors;How many competitors of our size and competence are we facing? Few-opportunity, many-threatWhat market share do they hold/how strong are they? Smaller/weaker-opportunity, Big/strong- threatCost of the available substitutes? Find out

What are their competitive behavior? Friendly/cooperative- Opportunity, Un friendly-ThreatWhat are the entry and exit barriers for these competitors? Easy for new rivals to join but difficult for the current ones to leave the industry-threat, Difficult to enter but easy to exit-favorable/opportunity

Before joining an industry, a firm should consider;Industry size, structure, profitability, long term attractiveness, life cycleCompetitive situation analysis

Level of technology in the industryCompetitive position of the firmEase of entry in the industry

Michael Porters modelMichael E. Porter of the Harvard Business School developed this framework which helps managers with the task of analyzing the competitive forces in an industry in order to identify the opportunities and threats confronting their company (ies). To him the stronger the 5 competitive forces, the more serious the threat and vise versa because you can not increase prices anyhow meaning the profits are being depressedHowever through strategic change you can alter the strengths of such forces

Cont-Need to understand the forces in the industry, their impact/seriousness, how and when they benefit or be against you, and their sources.Confirm which forces favour your business success (opportunities) or scare your business success (threats)

Suggests five competitive forces;Rivalry within the industry

Threat of new entrants

Threat of substitute products

Bargaining power of buyersBargaining power of suppliers

Relevancy and Limitations LimitationsLimited availability of the required information i.e high level of secrecy in government bodies and some business associations

The available information may not be up-to-date, or be irrelevant or even inaccurate

The model ignores other trends like changes in demand, technology used in production, and the market growth/attractiveness

Points to noteExternal environmental analysis is aimed at identifying/anticipating opportunities and threatsOpportunities/external friends are favourable factors( trends/developments/unruly forces) in the external environmentThreats/external enemies are unfavourable trends/factors in the external environmentYou not only end at external environmental analysis because in order to competitively face such challenges, you should know your strengths and weaknesses through organizational/internal analysis

ORGANIZATIONAL ANALYSIS

The central challenge of using our managerial competences to create particular/specific competitive advantage (s)-In terms of financial performance, individual departmental capabilities, appropriateness of our organizational structure, goal contract, customer value adding activities, identifying/anticipating performance gaps etcYou should examine the competence/incompetence of your functional areas / departments in relation to your competititorsIdentify those critical strengths and weaknesses in each of these departments (functional analysis)

1)Financial Performance AnalysisBasing on the financial ratios from the trend analysis, has our financial standing improved or deteriorated over time? What is the financial health of our business?

Are we financially stronger compared to our rivals in the industry at this point in time? If so, can we continue maintaining this position? Key stakeholders need to be sure of this before deciding to/continuing to deal with.

You have to combine leverage, liquidity, activity, and profitability ratios in order reasonably establish your firms financial standing and performance

ContinuationYou can not fully rely on financial ratio analysis because;

The analysis is based on past records which rarely consider the currently situation on groundDifferent organizations use/follow different accounting standards and procedures even when using ISs (in determining materiality) Bases on quantitive data ignoring qualitative dataThe source documents may not be accurate hence giving a wrong picture

2)Functional Area AnalysisKey activities of the companys function areas have to be analyzed to identify those areas where we are performing well (strengths), and where we need to improve (weaknesses)Barriers between departments should be avoided for synergyBoth resource &competence- related tangible and intangible factors should be considered

Marketing DepartmentResponsible for identifying, anticipating,& satisfying the right customer needs and expectations.

Market share (strength & competitiveness in the market), and size of our loyal customer/corporate account base?

Our marketing information systems efficiency &effectiveness?

Level of market research and development (in relation to customers, markets, & competitors)

Product/brand positioning & corporate image?Branding and packaging (are they unique and preferred by our target customers?)

Customer service/care and customer loyalty programs? Doing it well-strength, Need to improve-weaknessPromotion effectiveness? Giving us competitive advantages-strengths, a competitive disadvantage to us-weaknessAppropriateness of our pricing strategies to our customers?Appropriateness of our distribution channels?Etc

Finance and AccountingResponsible for ensuring the financial soundnessFinancial strengths and stability (financial ratios)? Financial planning capabilities (strengths), incapability (weakness) ?

Finance & A/cing-continuesWe avoid some taxes without evading taxes (strength), dealing mainly in taxable transactions (weakness)We can raise additional capital when needed by appropriately balancing own vs debt sources (strength), if not (weakness)Accuracy, Completeness, and Timeliness of financial statements/reports?How good are our relationships with our stockholders?

Human Resource Dept.Responsible for attracting and maintaining the right/competent (and compatible) human resources / employees and managers in the right positions, at the right time, for achieving organizational goals

Organization structure, climate, and culture give us a competitive advantage (strengths)-inappropriate to the companys strategic direction (weakness)

We have qualified and experienced/competent staff who are compatible with our business (strengths), unqualified/inexperienced/incompatible staff who need training or to be transferred (weakness

Is the staff morale enough, sense of goal contract, and team work?

Stable workforce/is our labour turn over low?

Conti-Our staff are proud of working for our organization-strength, if not-weaknessProductivity of staff/our record for achieving objectives compared to our rivals? Better-OPP, Poor-WeaknessIs there an HR Strategic Fit ? ,i.e are our HR policies and programs compatible with our human capital? Core competence-OPP, No fit-Weakness

Production and operationsResponsible for turning the product design/ideas/raw materials into the right finished products (services) to be sold to our customers. Benchmark with WCM practices or even trend set.

Are we producing high quality products/operating at lower overall costs compared to our rivals?

How efficient and effective are our production processes, systems, and strategies?

Can we produce the required capacity to meet our customers demand (s)?

Strategic location and layout of facilities (the plant, offices, equipment, raw materials, information, etc)?Plant and equipment maintenance (including its age)

Inventory control systems/relationship with our suppliers?

Quality control measures-are they customer oriented?

Do we have a high (weakness) or low level (strengths) of rejects?

Flexibility in operations-do we have alternatives like generators, a pool of casual staff, compatible staff, and alternative systems of production?

Are our lead times especially during peak periods? Delays-weakness, quick service-strength

TASK:Analyze the following;Procurement and supplies dept.Research and developmentTop managements/CEOs/General Managers DepartmentIT/Information systems departmentOther units in case of product/customer-based/market/project organizational structures.Etc.

Procurement & Supplies DeptSecuring products and services at the right quality, quantity, price, place, and from the right sourcesHow high/low are our procurement costs (e.g. cost per order or overall procurement costs)?What is / is our relationship with our core suppliers improving?Are we effectively controlling our supply chain?Is our procurement documentation accurate enough for auditing purposes?How much procurement bypasses the department/is done out of contract/is there appropriate contract compliance?

ContinuationIf we are using e-procurement, how are those ICTs interoperated/compatible with our other procurement systems?After placing in a requisition, how long does it take to receive the goods?Can the system used provide management with real-time visibility of the procurement activities?Does the system ensure Corporate governance (transparency, accountability, disclosure, and trust)?

3)Portfolio Analysis (PA)A biz portfolio may be any a brand/branch/budget/product division/income generating assetPA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)Helps managers to in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic timeA firm should always strive to not only to diversify/retrench but to also have a balanced portfolio (minimize risk and maximize return) of all portfolios

Portfolio Analysis Models:The B.C.G model (Growth/Share matrix)

The G.E Multi-factoral model (competitive strengths/Attractiveness matrix)

Contribution Margin Analysis (how much profit margin does that biz portfolio contribute?)

Industry/ market growth rateRelative market shareHighLowThe BCG(Boston Consulting Group) modelHighLowStars

Question marksCash cowsDogs

Industry/ market attractivenessCompetitive StrengthsHighLowThe GE modelStrongAverageMediumWeak

Determinants of industry attractivenessMarket growth and sizeIndustry profitabilitySeasonalityPorter's five forces Technology & Capital requirementsEconomies of scaleEmerging opportunities and weaknessetc

Determinants of competitive strengthsRelative market shareProduction capacityCompany Image Profit marginsTechnological capabilitiesR & D strengthsMarket and customer knowledgeEmployee committmentEtc.

4)Value Chain AnalysisWhat do our current and potential customers value most?Are our primary and supportive value chain activities creating customer value?Primary Value Chain Activities-in bound logistics, production/operations, out bound logistics, marketing and sales, after sale serviceSupportive Activities-Company infrastructure, HR management, procurement, value-adding technology

Some questions to answerHow can we best provide that customer value at reduced cost and make better profits?

Which activities are now core or non core in relation to creating better customer value?

Which ones are we known to have competence in/give us a competitive advantage (core competence)?

How can we strategically manage such activities either by ourselves or through well controlled out-sourcing to competent firms?

Strategic Gap AnalysisA futuristic strategic gap in performance

Involves some proactive control/management

If it is there, what new strategies to we need to correct this gap

Adjust the tactics or change the strategy in place?

Cont-The analysis is in stagesConsider the past trend and project into the future in relation to your goal/objectiveWhy might the future trend be that way?, with reasons adjust your projectionWhat assumptions are we basing on , and how do they affect our projection?If corrective action is taken, what do we now predict?Consider other factors besides the initial oneIf there is a gap, when is it likely to occur ?

Key Success FactorsThings your company must be good/excel at in order to succeed in a given industryPremising/bench marking with those best-in-class rivals helps you to identify themThey differ from one industry to another under different conditionsDifferent from Key Result Areas

Chief ExecutivesStrategic level managersStrategic planning and policy formulation as directed by the board of directorsThey also provide effective leadership , are strategic information bearer, advisers to the board among other rolesIssues to analyze may among others include;Their responsiveness and adaptabilityAttitude to riskGeneric skills and experiences ,etc

NextFrom the external/environmental analysis, you will identify all the available opportunities and threatsFrom the internal/organizational analysis, you will identify all your internal strengths and weaknessesMatch all those results using through SWOT analysis remembering that some of those trends/developments/changes/factors may not be of significance to you

SWOT ANALYSISIs usually required when;When formulating your strategic directionDrawing strategic/business/marketing plansConvincing creditors, investors, and top management about the firms future or strategic directionWhen making your strategic choice/when modifying the existing strategy or its tactics/crafting (formulating) a new strategic

Internal assessment:StrengthsWeaknessesExternal assessment:OpportunitiesThreatsWhich of these are of important or not, urgent or not, relevant or not in relation to your strategic direction, strategy to be used, resources available (feasibility?), and values of top management?

A firm needs to:Respond to / take advantage of those golden opportunitiesCope with and encounter those potentially frustrating threatsCorrect weaknessesExploit / capitalize on its strengthsThis matching of the SWOT variables/issues results into SWOT matrix that guides the appropriateness of your future strategic choiceDevelop a SAP chart for Strengths and weaknesses, and an ETOP chart for Opportunities and Threats to decide on the appropriate tactics (actions) to use in your chosen strategies

A firm should single out those SWOT facts that are more urgent, important and most likely to influence its strategy/approach to your strategic direction.A firm should also match its strengths and weaknesses, to its opportunities and threats in the environment in form of a SWOT matrix.

Before your SWOT matrix ,ask yourselves internally In what areas have our strengths improved within this period, and to what extent?Where have we managed to counter our weaknesses?In which areas of weakness are we continuously deterioting? Are we too weak, strong enough, or stable? Are these areas of importance to us?What can we then do with our strengths, and about our areas of weaknesses?Not ignoring those relevant Opportunities and Threats, after answering those relevant questions, go a head with your SWOT matrix

OPPORTUNITIES-Growing market for our products-Tax holidays-Competent-willing suppliersTHREATS-Better competititors-Future hostile take-over-Political instability-Inferior product rangeSTRENGTHS-Strong capital base-Many loyal customers-Competent and customer-centered staff WEAKNESSESES-Low market share-Uncommitted staff-High production costs

StrengthsWeaknessesOpportunitiesUsing strengths to exploit opportunitiesCorrecting weaknesses to exploit opportunitiesThreatsUsing strengths to combat threatsCorrecting weaknesses to combat threats

StrengthsWeaknessesOpportunities StrategiesExpansion/diversifyingControlled out-sourcing to such suppliersTax ConsultingStrategiesAcquisition of the rival/team work Use a white knight/poison pillProduct innovations/ developments

ThreatsControlled expansionRelationship MarketingMBOOverall Cost Leadership

TasksRead aboutIdentify the strengths and weaknesses of such a model using all the models above. Use a firm of your choiceDiscuss-understand and pass SM highly , become a world class business competititor, and put God first because he is the best strategist.

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