Industry Analysis

The ability of an individual to understand the industry in which a particular firm is operating or wishes to enter, and anticipate significant changes in order to identify threats and opportunities is known as his industry analysis skills.

Very precisely, industry analysis skills refer to the ability to discover any triggers, inventions, connections, discontinuities, new entrants, or other changes and useful insights by looking thoroughly at customers, market segments, their needs, major competitors, market growth rate and other behaviors, and the environmental uncertainties. Despite the existence of a few basic standards, most of the business owners tend to conduct such industry analysis based on their own specific needs.

Why is industry analysis important

Industry analysis and the relevant skills are critical for any business to understand the industry in which they are operating and ensure uninterrupted success. Here are some underlying reasons for why it is so important to having a successful business:

• Predicts performance. The performance of an industry is a major indicator of how well the companies operating within that industry will perform. Therefore, by predicting the changes within an overall industry, the performance of a firm within that industry can be well predicted. For instance, with a significant drop in the prices of steel, manufacturers of steel products can enjoy higher profit margins. Predicting such changes enables companies to react strategically.
• Allows positioning. During the business planning process, if an individual is able to understand the industry and competitors well enough, it helps him position his products/services in the most profitable market. In a market that is already saturated with similar products/services or is too competitive, a thorough industry analysis is especially helpful for differentiating purposes.
• Identifies threats and opportunities. The most obvious contribution of an industry analysis to the success of a business is the identification of future opportunities that may serve as the growth catalysts or threats that may impede company growth in the future.

How to improve industry analysis skills

Following are some useful tips that can help in the improvement of industry analysis skills:

• Level of analysis must be decided beforehand. Every industry has several sub-parts. Before beginning to work on your analysis report, you must decide whether you wish to look at the entire industry or some of its sub-parts. For instance, paint and varnishes, fertilizers, and organic chemicals etc. are all sub-industries of the overall chemical industry. It is always better to choose one or more sub-industries that are most relevant to the company’s purpose.
• Know the level of competition. The most important tip to follow is to study the competitive landscape in the concerned industry. The extensively used Porter’s Five Forces Model is the most suitable for this purpose. Using the parameters this model suggests, you can very well evaluate the level of difficulty that is expected to be faced for survival purposes.
• Know the industry dynamics. Since industry analysis is supposed to be specific, you must do an in-depth analysis and focus on all industry dynamics as well as any recent developments that make a difference. For instance, you must be aware of the per capita consumption in a particular country as well as any industrial developments or innovation. All these things help you predict the future of your intended business.