Acumen Dynamics LLC.

You can use an industry and profitability analysis in several ways to guide your strategic decisions.

You can benefit from industry analysis by:

Understanding the competitive forces in your industry.
Assessing the attractiveness of, and growth opportunities within, a
new industry.
Developing effective strategies to raise your profitability, power,
and competitive position in an industry.

There are many features of an industry that determine the intensity of competition and the level of profitability. A widely used framework for analyzing these factors is the one developed by Michael Porter of the Harvard Business School. Porter's five Forces model views the profitability of an industry as determined by five sources of competitive pressure.

These five forces of competition include three sources of "horizontal" competition: the bargaining power of suppliers and buyers, and competition from established rivalry; and two "vertical" competition: competition from substitutes and competition from new entrants. The strength of each of these competitive forces is determined by a number of key structural factors presented in the table.

Tip: For color printing of reports do the following
        1. Click 'Tools' --> 'Internet Options'.
        2. Click tab 'Advanced'.
        3. Scroll down to 'Printing'.
        4. Check 'Print background colors and images'.

Use the following worksheet to gain valuable insights that can help you better understand and enhance performance, competitive position, and profitability.

1 - Highly Attractive 2 - Mildly Attractive 3 - Neutral

Items/Questions

Barriers
to
Entry Economies of scale Small 12321 Large

Product Differentiation Little 12321 Big

Brand Identification Low 12321 High

Switching cost Low 12321 High

Access to distribution Channels Ample 12321 Restricted

Capital investment requirements Low 12321 High

Access to latest technoloy Ample 12321 Restricted

Access to raw materials Ample 12321 Restricted

Government regulation/protection Nonexistant 12321 High

Experience effect Unimportant 12321 Very
Important

Barriers
to
Exit Asset Specialization High 12321 Low

One-time cost of exit High 12321 Low

Strategic interrelationship High 12321 Low

Emotional barriers High 12321 Low

Government and social restrictions High 12321 Low

Rivalry
Among
Competitors Number of Equally balanced
competitors Large 12321 Small

Industry growth rate Slow 12321 Fast

Fixed and storage costs High 12321 Low

Product Features Commodity 12321 Speciality

Capacity Increases Little 12321 Big

Diversity of Competitors High 12321 Low

Strategic stakes High 12321 Low

Bargaining
Power
of
Buyers Number of important buyers Few 12321 Many

Availability of substitutes for industry products Many 12321 Few

Buyer switching costs Low 12321 High

Buyers' threat of backward integration High 12321 Low

Industry threat of forward integration Low 12321 High

Contribution to quality or service of buyers' products Large 12321 Small

Total buyers cost contributed by the industry Large fraction 12321 Small fraction

Bargaining
Power
of
Suppliers Number of important suppliers Few 12321 Many

Availability of substitutes for suppliers' products Low 12321 High

Differentiation or switching cost of suppliers' products High 12321 Low

Suppliers' threat of forward integration High 12321 Low

Industry threat of backward integration Low 12321 High

Suppliers' contribution to quality or service of the industry products High 12321 Small

Total industry cost contributed by suppliers Large fraction 12321 Small fraction

Importance of the industry to suppliers' profit Small 12321 Large

Availability
of
Substitutes Availability of close substitutes Large 12321 Small

User's switching costs Low 12321 High

Substitute producer's aggressiveness High 12321 Low

Substitute Price/value High 12321 Low