Analytical Methods of Business Environment
Analytical Methods of Task Environment
7. lecture
Ing. Šárka Zapletalová, Ph.D.
Department of Business Economics and Management
BUSINESS ENVIRONMENT

Outline of the lecture
1.Industry analysis
2.
2.Market analysis
3.

Introduction
•Analysing industries involves building up a detailed knowledge of the competing organizations in
the industry and the products (goods and services) they are selling.
•
•A market is a group of customers for specific goods or services that are essentially the same.
Analyzing market involves building up a detailed knowledge of the customer and customer groups.
•
•Basic tool for market analysis is market research.
•
•The goal of market analysis is to determine the attractiveness of a market and to understand its
evolving opportunities and threats of the organization.
•
•

Industry Analysis
•An industry is a group of organizations producing goods and services that are essentially the
same.
•
•Analysing industries involves building up a detailed knowledge of the competing organizations in
the industry and the products (goods and services) they are selling.
•
•Key questions to ask:
•What is our company´s industry?
•What are the characteristics of the industry?
•How stable are these characteristics?
•

Industry Analysis
Industry structure
•
•Industry structure is determined by the number and relative strength of organizations in the
industry. There is a variety of industry structure:
•Perfect competition;
•Monopoly;
•Monopolistic competition;
•Oligopoly.
•
•Industry structure can be influenced:
•By the costs incurred by business;
•By behavior of companies in the industry and the nature and intensity of competition;
•By company performance.
•

Industry Analysis
Industry concentration
•
•The distribution of power among organizations in an industry is assessed by the level of industry
concentration. Industry concentration gives an indication of the competitive pressures in a
industry.
•
•Industry concentration can be measured by looking at the market share of organizations in the
industry. High concentration levels usually indicate low intensity competition.
•
•There are various ways of measuring industry concentration. The most straightforward methods are
the following:
•Concentration rate – calculated by taking the share of the largest organizations in industry sales
or output by value or by volume;
•Herfindahl-Hirschmann index – calculated by summing the squares of the individual market shares of
all the organizations in the industry.
•

Industry Analysis
Porter´s five forces framework
•
•Porter´s five forces model can be used to identify and evaluate the main threats to the
organizations in an industry. The model helps identify the attractiveness of an industry in terms
of five forces:
•Competitive rivalry/Industry rivalry;
•Potential entrants/Competition from new entrants;
•Substitutes;
•Buyers/Customers;
•Suppliers.
•Three of the forces are concerned with competition – industry rivalry, competition from new
entrants to the industry, competition from products.
•
•The other forces are concerned with the industry customers and suppliers.
•

Industry Analysis
Porter´s five forces framework
•
•

Industry Analysis
Porter´s five forces: Competitive rivalry
•Competitive rivalry (industry rivalry), rivalry among existing competitors, can vary in form and
intensity from one industry to another and in particular industries over time. Rivalry can also
take the form of a struggle for resources.
•
•Rivalry among existing competitors takes many familiar forms: price discounting, new product
introductions, advertising campaigns, service escalation and so forth.
•
•The degree to which rivalry undermines an industry´ s profit potential depends:
•On the basis on which organizations compete;
•On the intensity with which organizations compete.
•

Industry Analysis
Porter´s five forces: Competitive rivalry
•
•The degree of rivalry is increased when:
•
•Competitors are of roughly equal size and power;
•Competitors are aggressive in seeking leadership;
•The industry is mature or declining, industry growth is slow;
•There are high fixed costs and marginal costs are low;
•The exit barriers are high;
•There is a low level of differentiation or switching costs;
•Capacity must be expanded in large increments;
•The product is perishable.
•

Industry Analysis
Porter´s five forces: Potential entrants/new entrants
•
•The entry of new organizations (potential entrants) is another threat to established organizations
in the industry. New entrants will be attracted into industries by the prospects of high profits
and growth.
•
•New entrants to an industry bring new capacity and a desire to gain market share. The threat of
new entry puts a cap on the profit potential of an industry. When the threat is high, profits
cannot rise too high without attracting new competitors.
•
•Entry increases the number of organizations and if it takes the form of greenfield investment,
adds to industry capacity.  As a result, competition could become more intense.
•
•The probability of new entrants to the industry is dependent on the height of barriers to entry.
•

Industry Analysis
Porter´s five forces: Potential entrants/new entrants
Barriers to entry
•Supply-side economies of scale – these economies arise when organizations that produce at larger
volumes enjoy lower costs per unit, organizations can spread  fixed costs over more units.
•Demand-side benefits of scale – also known as network effects, they arise in industries where a
buyer´s willingness to pay for a organization´s product increases with the number of other buyers
who also patronize the organization.
•Customer switching costs – switching costs are fixed costs that buyers face when they change
suppliers.
•Capital requirements – the need to invest large financial resources in order to compete creates a
barrier to entry.
•Incumbency advantages independent of size – incumbent organizations may have cost or quality
advantages not available to potential rivals, no matter whatever is their size.
•Unequal access to distribution channels – the newcomer on the block must secure distribution of
its products.
•

Industry Analysis
Porter´s five forces: Substitutes
•Substitutes are goods or services produced by organizations in an apparently different industry
and delivering a similar service to the customer but in a different way. Substitutes are easy to
overlook because they may look very different from the industry´s product. Substitutes nearly
always exist. In many times, one substitute is to do without a product, and another is for
customers to perform a service for themselves.
•
•Threat from substitutes will be influenced by the cost and ease with which customers can switch to
the substitute product.
•
•Substitute products deserving the most strategic attention are those that:
•Are subjects to trends improving their price-performance trade-off with the industry´s product,
•Are produced by industries reaping high profits that may erode with competition.
•

Industry Analysis
Porter´s five forces: Buyers
•Powerful buyers can force down prices, demand higher quality or more service, and play competitors
off against each other, all at the expense of industry profits. Groups of buyers may differ in
their bargaining power.
•
•Customers are powerful if:
•they have clout relative to industry participants and especially;
•they emphasize price reductions as the means to exercise their clout.
•Power relationships that organizations have with their customers depend on a combination of
factors:
•The number and size of organizations;
•The proportion of customer costs constituted by the product;
•The extent of product differentiation;
•The ability of customers to integrate vertically.
•

Industry Analysis
Porter´s five forces: Suppliers
•Suppliers refer to organizations selling inputs, such as fuel, raw materials and components to the
organizations in an industry. The position of suppliers can be analyzed in a similar way to those
of buyers, but in reverse.
•
•Suppliers can exert bargaining power by raising prices, shifting costs downstream to industry
participants or limiting the quality of the products they provide.
•
•Powerful suppliers can thereby squeeze profitability out of an industry that is unable to pass on
cost increases in its own prices.
•

Industry Analysis
Porter´s five forces: Suppliers
Power of suppliers
•
•An industry will depend on multiple groups of suppliers. The power of each important supplier
group depends on a number of structural characteristics of the industry. A supplier group is
powerful if:
•
•It is more concentrated than the industry it sells to;
•Industry participants face switching costs in changing suppliers;
•Suppliers offer products that are differentiated;
•There are no substitutes to what the supplier group provides;
•The supplier group can credibly threaten to integrate forward into the industry;
•The supplier group does not depend heavily on the industry.
•

Industry Analysis
Porter´s five forces: Complementray products – sixth force
•Complementary products are those that are used together by customers. They do not compete with
each other but operate in tandem. It does not deal with the complementary relationship that can
exist between products.
•
•The Porter model pays particular attention to the relationships between competitors´ products and
also to the threat from substitute products.
•
•The suppliers of complementary products can play an important role in the competitive environment
for organizations in an industry because:
•The organizations making products depend on the efforts of the other in relation to product
development;
•There can be conflict over who gets most of the spoils.
•

Industry Analysis
Porter´s five forces: Implication of five forces analysis
•Identifies the attractiveness of industries – which industries to enter of leave.
•
•Identifies strategies to influence the impact of the forces, which happens, for example, in case
of building barriers to entry by becoming more vertically integrated.
•
•The forces may have a different impact on different organizations. Large organizations can deal
with barriers to entry more easily than small organizations.
•

Industry Analysis
Porter´s five forces: Issues in Porter´s five forces model
•Apply at the most appropriate level – not necessarily the whole industry.
•
•Note the convergence of industries – particularly in the high tech sectors.
•
•Note the importance of complementary goods and services.
•

Industry Analysis
Strategic groups
•
•Strategic groups are organizations within an industry or sector with similar strategic
characteristics, following similar strategies or competing on similar bases.
•
•Strategic characteristics are different from those in other strategic groups in the same industry
or sector.
•
•There are many different characteristics that distinguish between strategic groups.
•
•Strategic groups can be mapped on to two dimensional maps – positioning maps. These can be useful
tools of analysis.
•

Industry Analysis
Strategic groups: Characteristics for identifying strategic groups
•
•Scope of activities
•Extent of product diversity;
•Extent of geographical coverage;
•Number of market segments served;
•Distribution channels used.
•Resource commitment:
•Extent of branding;
•Marketing effort;
•Extent of vertical integration;
•Goods and services quality;
•Technological leadership;
•Size of organizations.
•

Industry Analysis
Strategic groups: Uses of  strategic groups analysis
•
•Understanding competition – enables focus on direct competitors within a strategic group, rather
than on the whole industry.
•
•Analysis of strategic opportunities – helps identify attractive strategic spaces (gaps) within an
industry.
•
•Analysis of mobility barriers – obstacles to movement from one strategic group to another. These
barriers can be overcome to enter more attractive groups. Barriers can be built to defend an
attractive position in a strategic group.
•

Market Analysis
•A market is a group of customers for specific goods or services that are essentially the same.
Analyzing market involves building up a detailed knowledge of the customer and customer groups.
•
•Basic tool for market analysis is market research.
•
•The goal of market analysis is to determine the attractiveness of a market and to understand its
evolving opportunities and threats of the organization.
•
•Dimensions of a market analysis:
•Market size;
•Market growth rate;
•Market profitability;
•Market trends.
•

Market Analysis
Customer analysis
•
•Customer analysis provides the collection and evaluation of data associated with customer needs
and market trends, through market research, customer satisfaction measurement, field testing etc.
•
•Customer analysis can be usefully partitioned into an understanding of how the market segments to
behave, an analysis of customer motivations and an exploration of unmet needs.
•

Market Analysis
Market research
•
•Market research is the method for monitoring and analyzing of markets, subject of markets,
companies etc.
•
•We can define market research as the systematic design, collection, analysis and reporting of data
and findings relevant to a specific marketing situation facing the organization, and to enhance
decision making throughout the strategic process.
•
•Market research aims to help managers make better decisions or to develop a marketing plan for new
target groups or which customer service components should be improved.
•

Market Analysis
Market research: Market research process
•
•The marketing research process has been described as a set of standardized stages:
•
•Determination of the research problem
•Determine and clarify management´s information needs;
•Redefine the decision problem as a research problem;
•Establish research objectives.
•Development of the appropriate research design
•Determine the research design and data sources;
•Determine the sample plan and sample size;
•Determine the measurement issues and scales.
•Execution of the research design
•Collect and process data;
•Analyze data;
•Transform data structures into information.
•Communication of the results
•

Market Analysis
Market research: Market research process
•
•