Characteristics of Industries

Dominant Economic Features

Chart 3.1 page 57
Thompson & Strickland

The External Environment

general environment
industry environment
competitor environment

An attractive industry
an industry whose characteristics and
structure suggest an above average
return

Strategy Formulation
Selection of strategy linked to above
average returns in a particular industry

Assets and Skills

I/O Model
Postulates
1. The external environment exerts
pressures and constraints on a
Firm which influences the choice
of strategy

2. Most Firms competing within an

industry control similar resources
and pursue similar strategies in l
of those resources

Assets and skills to implement a chosen

strategy

3. Resources are highly mobile acros

firms and can be replicated. Reso
based advantages are short lived

Strategy Implementation

4. Organizational decisions are ratio

and reflect profit maximizing beh

Choice of strategic actions linked with

effective implementation of selected
strategy

What is an Industry?

An Industry is a collection of firms that offer goods and / or services that are

close substitutes of each other. Therefore, firms directly compete with one another.

Industries can be classified in a variety of ways. The National Classification Codes

list 18 types of Industries

Broad
Textile Industry More than 200 years
old Classification
Textile Manufacturing Industry
Garments Industry
Fashion Garments IndustryNew Age High Velocity
Specific Category

Industry Structure refers to the number and size distribution of firms in an Industry and the
way they work.

More the number of firms in an industry, greater is the competition.

Size distribution of firms is important for both business policy and public policy.
3

Predominant Features
of an Industry
1. Market Size & Growth Rate

Stage of the firm in the Life Cycle Curve

Life Cycle Curve

Life Cycle What is the focus of a CEO at different stages

of a Life Cycle?
Stages
Development

Product Development - R&D on Product Characteristics

Market Surveys, Need Analysis Segmentation & Positioning-

Introductio
n

Product Awareness
Product Pricing to rapidly increase Demand
Building Manufacturing Facilities
Building Distribution Channels

Growth

Expanding Distribution
Product Promotions
Perfecting Economies of Scale
De-Bottlenecking
Consolidating Costs

Maturity

Increasing Distribution
Accuracy in Sales Forecasting
Product Differentiations New Features, Line Extensions
Competitive Offerings Price-Value Ratio
Cost Cutting

Decline

Liquidating Inventory
De-investing from Manufacturing Lines
Selling Brand

Predominant Features
of an Industry
1. Market Size & Growth Rate
2. Scope of Rivalry

Stage of the firm in the Life Cycle Curve

Fragmentation & number of Rivals.

Types of Industries

(Competition based)

If all firms in an industry are small, relative to the size of the industry, it is called
a Fragmented Industry. Such industries. normally, have
= Low Entry Barriers
= Commodity type products
= High Industry capacities compared to demand resulting in price competition
= Advantages are territorial.
When a small number of firms controls a large share of industry output, it is
called a Consolidated Industry.
= High Profitability with stringent Entry Barriers
= High Reliability and Quality
= Wider product basket
= Advantages lie in large Geographic coverage.

Predominant Features
of an Industry
1. Market Size & Growth Rate
2. Scope of Rivalry

Stage of the firm in the Life Cycle Curve

Fragmentation & number of Rivals.

3. Competitive Environment

Customer Segments, Geographic Territories

The Environment

External
Environment

General
Environment

Global
Environment

PESTLE

Competitive
Environment

National
Environment

10

The External Environment Analysis

A continuous process which includes

Scanning: Identifying early signals of environmental changes and trends

Monitoring: Detecting meaning through ongoing observations of environmental
changes and trends
Forecasting: Developing projections of anticipated outcomes based on monitored
changes and trends
Assessing: Determining the timing and importance of environmental changes and
trends for firms strategies and their management

11

General Environment
Sociocultural segment

Workforce availability and diversity

Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences

Economic segment

Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product

Political/Legal Segment

Antitrust laws
Taxation laws
Deregulation philosophies
Workforce Certification laws
Educational policies

(PESTLE)

Technological Segment
Product innovations
Applications of knowledge
Private and government-supported
R&D expenditures
New communication technologies

Global Segment

Important political events

Critical global markets
Markets in industrialized countries

Demographic Segment

Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution

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Key Factors of Industry Environment

Economy

Global
Demographics

Consumption
Patterns

Substitute
products

Technology
National

Company

Rival Firms

International Laws

Inter Country
Relations
Buyers

Suppliers

Regulatory
Environment

Driving Forces are the

underlying causes for changing
the shape of an industry or its
operating norms.

Industry

New
Entrants

Fiscal
Policies

Skill
Development

Societal Values
KFS are competitive
factors that influence the
potential for success of a
business

Driving Forces
The factors that influence an Industrys decisions regarding its operations in future.
Driving Forces are the major underlying causes of changing the shape of an industry
or its operating norms.
Driving Forces may

1.

Originate from the Environment

Standard of Living (purchasing capacities; consumption levels; societal values)
Business Vitality (technology & capital availability; government support)
Governance and Administrative strictures (HDI, Transparency Index, National Priorities)

2.

Emerge from within a Firms operating Domain

Labor Force Characteristics (Health; Education; Age & other demographics)
Learning Curve applications

Factors of Competition

3. Be a consequence of the past actions taken by the Industry.

Technology Induction
Industrial Relations
Geophysical conditions (air; water; soil; humidity; climatic conditions)

Driving Forces
from Globalization

Governance

1.
2.
3.
4.
5.

Industry

6.
7.
8.
9.

Life Styles

10. Enhanced Consumer awareness

11. Wider choice for products and services
12. Mushrooming consumption

Advancement of democracy and spread of free enterprise

Economic compulsions transcending political considerations
Large investments made by one country in another
Movement towards World-wide free trade zones
Reduced taxation
Powerful drive of IT and Telecommunications
Ease of Technology upgradation
Relative abundance of natural resources
Micro level Competition evolution of perfect markets

Key Factors of Success

A businesss Key Factors of Success are those competitive factors that
influence the potential for success of the business within an Industry.
Correct identification of the KFS raises the companys chances of crafting a sound
strategy and opening up the future for innovation.

KFS are located in the strategic elements of business. Achievement

of KFS improves the Value Proposition offered by a firm.

Business Model

Technology
R&D
Supply Chain
Production
Distribution
Marketing / Sales
Finance

Product Attributes
Resources
Competencies
Competitive Advantages

Key Factors of Success will normally lie within the control of the business
and will be part of the factors of Competition.
16

Key Factors of Success

Firms create Value through a
combinations of the 7 Ps:
1.
2.
3.
4.
5.
6.
7.

Product
Price
Promotion
Place
Packaging
Positioning
People

Firms create Value at one or

more stages of Buyer Utility:

Key Factors of Success for McDonalds

1.
2.
3.
4.
5.
6.

Purchase
Delivery
Use
Supplements
Maintenance
Disposal
17

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