Elements Covered in a Thorough Industry Analysis

Thorough industry analysis will often split the industry into strategic groups (groups sharing distinct business models or catering to specific market segments in an industry). The analysis will likely involve identifying the industry’s life-cycle, usually placing the industry somewhere along the experience curve. The experience curve shows the direct cost per unit of good or service produced or delivered as a typically declining function of cumulative output.

A thorough analysis will probably also delve into the range of forces that may affect the industry’s evolution, including macroeconomic, demographic, governmental, social, and technological influences.

Finally, the competitive landscape should also be explored, including the forces driving industry competition (threat of new entrants, substitution threats, customer and supplier bargaining forces).

Question

Which of the following is most likely to be covered in a thorough industry analysis?

1. A comparison of the stock price performance of various firms within the industry.
2. The current positioning of the industry and the various entities that may be a catalyst for change within the industry in the future.
3. A detailed history of the industry, including analysis of firms that used to compete in the industry, but have since gone out of business or have been acquired.

Solution

The correct answer is B.

Stock price performance and historical understanding may certainly be relevant in analyzing an industry at times, but the focus of the analysis will typically be on the industry’s present positioning and future prospects.