INDUSTRY TYPES AND DYNAMICSILLUSTRATION 3.3Steps in an industry analysisThere are several important stepsan industry analysis before and after analysing the five forces.Emily wants to start a coffee shop and perhaps even try 4 Assess the overall industry structure and attractiveness.to grow the business into several outlets. She needs toconsider the following steps and questions:• How attractive is the industry? Why?• Which are the most important competitiveforces? Which control profitability?• Are more profitable competitors better positionedin relation to the five forces?1 Define the industry clearly. Do the actors in theindustry face the same buyers, suppliers, entry bar-riers and substitutes?• Vertical scope: What stages of the industry valuechain/system?• Product or service scope: What products or ser-vices? Which ones are actually parts of other,separate industries? What segments?• Geographic scope: local, national, regional orglobal competition?For Emily several of the forces are quite strong, butsome are relatively more important for profitability. Inaddition, some competitors, like large coffee chains,are better positioned versus the five forces than others.5 Assess recent and expected future changes for eachforce.Emily should consider that many diverse businessesserve coffee. They include not only local cafés andcoffee shop chains, but fast food chains, kiosks andrestaurants. The definition also depends on whetherEmily intends to start in an urban or rural area.• What are the potential positive/negative changes?How likely are they?• Are new entrants and/or competitors changingthe industry structure in any way?For example, Emily needs to consider the proliferationof coffee chains during the last few years and that pubsand bakers have improved their coffee offerings lately.Maybe she can also spot possible changes in consumertrends and growth.2 Identify the actors of each of the five forces and, ifrelevant, define different groups within them and thebasis for this. Which are the• competitors that face the same competitive 6 Determine how to position your business in relationforces? (compare point 1 above)• buyers and buyer groups (e.g. end customers vsintermediaries, individual vs organisational)?• suppliers and supplier groups (e.g. diversesupplier categories)?• potential entrants?• substitutes?to the five forces. Can you:• exploit any of the weak forces?• neutralise any of the strong forces?• exploit industry change in any way?• influence and change the industry structure toyour advantage?To cope with the forces Emily could possibly identify aconcept that would attract a certain group of customerseven if buyers have many choices in urban areas. Thiscould neutralise threats from competition and entry some-what and perhaps provide loyalty from some customers.Provided there is a clear industry definition the iden-tification of the actors for each force should be ratherstraightforward for Emily, but groups within them needto be considered. On the supplier side, for example,they include not only inputs like coffee but also thelocation of the premises and labour supply.Sources: M.E. Porter, 'The five competitive forces that shapestrategy', Harvard Business Review, vol. 86, no. 1 (2008), pp. 58–77;J. Magretta, Understanding Michael Porter: The Essential Guide to Com-3 Determine the underlying factors and total strength petition and Strategy, Harvard Business Review Press, 2012.of each force.• Which are the main underlying factors for eachforce? Why?• Which competitive forces are strong? Which areweak? Why?Questions1 Help Emily and go through each step above.Answer the questions and make a completeanalysis. What is your assessment of theindustry?Not all underlying factors on the five force checklistswill be equally relevant for Emily. With respect to buy-ers, for example, the products' degree of standardi-sation and prices matters most, while others are lessimportant.2 Based on your analysis: How should Emilyhandle the different forces? What strategicoptions should she consider?75

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In the given scenario, we are introduced to the concept of Porter's Five forces with respect to…

Help Emily and go through each step above. Answer the questions and make a complete analysis. What is your assessment of the industry? Based on your analysis: How should Emily handle the different forces? What strategic options should she consider?