Elements Covered in a Thorough Industry Analysis

A thorough industry analysis will often split the industry up into strategic groups (groups sharing distinct business models or catering to specific market segments in an industry). The analysis will likely involve the identification of the industry’s life-cycle, usually placing the industry somewhere along the experience curve. The experience curve shows 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 evolution of the industry, 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?

A. A comparison of the stock price performance of various firms within the industry

B. 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

C. The current positioning of the industry and the various entities that may be a catalyst for change within the industry in the future

Solution

The correct answer is C.

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.

Reading 48 LOS 48e:

Describe the elements that need to be covered in a thorough industry analysis

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