What is this?
Industries are made of sellers: you, your suppliers and their suppliers, your distributors and their partners, your competitors, your indirect partners, ... All these actors constantly interact, co-operate or compete with each other in an ever changing dynamic. Every action by one set of actors will imply change for the others and will eventually result in an effect on your business. Industry analysis will help you to understand the real dynamics playing in the industry or industrie(s) you may want to enter and defend your spot more accurately.You need to know whether the industry is attractive and in which part of the value chain you can add substantial value.
You should approach the industry analysis in connection with the other actions in this phase and iterate until there is consistency with market analysis and business model prototyping.
Porter's Industry Analysis
If you perform a competitive analysis, we advise to use Porter's analysis to do it. Porter looks at competition in the broadest possible sense. Not only direct competition matters, but also substitutes, what suppliers or customers may come up with and so on. It will make all the more sense once you have a clear view on the value chain. Finally it is not only about knowing the 5 forces, but also managing them. You need to make sure you can minimize the forces. Again, visualisation and being discovery based is key here!
In this video, Porter explains his five forces industry analysis. You can also read his in-depth article for Harvard Business Review "The five competitive forces that shape strategy". Download it from the EBSCO database.
Value chain analysis
A value chain (or value added chain, or value creation system) represents all value components needed until the customer is reached. In the other direction it shows how the monetary value is distributed over the participants in the chain. It is important not only to identify all the stages in the value chain, but also to identify where the power is in the chain: is it difficult or easy to break in? Are there monopolies? What is the customer really paying for? Do you have a lot of alternatives up-stream and down-stream? Can you protect your position? How? And for how long? It's a good idea to visualize the value chain and give an overview of all the players involved and your position in the chain.
"Who captures value in a global innovation system? the case of apple ipod" is a great example of a value chain analysis of a product that everyone knows.This is the link.
"Putting the service-profit chain to work" is great Harvard Business Review article for those who are thinking about services. This is the Link.
Discovery based industry analysis
If we could offer you just one piece of advice for success, 'talk to people who know more than you do' would be it. If you have no clue about the value chain, the value network, the feasibility of your business model,... identify someone who does know. Take a deep breath, pick up the phone and ask. If your value proposition is any good, you may find yourself in business much sooner than you would have thought! Also this kind of expert information will prove to be invaluable when facing difficult stakeholders such as investors!
The discovery based information will help you complete the above mentioned analysis'!
Want to know more?
Industry analysis and Value chain analysis based on your discovery based information
- Contemporary strategy analysis, Robert M. Grant, available on Google Books
- Competitive advantage: Creating and sustaining superior performance,Chapter 2: The value chain and competitive advantage, Micheal E. Porter