Industry & Competitor’s Analysis : Getting Insights & Deciding Competitive Advantage
Industry & Competitors’ Analysis are usually performed simultaneously. Both new & current businesses must perform industry & competitors’ analysis in order to gain enough knowledge about both industry and competitors working within the industry, and then decide upon gaining potential competitive advantage at one or more business sides, which make the company better than all of its competitors. The industry includes all companies working in the market, providing the same or similar products/services, or even fulfilling the same customers’ needs. For example, the industry of language institutes includes all educational organizations, such as centers, institutes, schools, universities and colleges. This topic is provided to you as part of discussing Entrepreneurship Book (2016), the 2nd book in your channel Management with Merits – Manage to Prosper. In fact, this topic was discussed in two videos (sessions) in our YouTube channel, the first was Industry Analysis, while the 2nd was Competitive Analysis. However, we were not able to publish them on the website due to internet capacity problems in Yemen resulted from cutting a marine cable on Thurs, Jan 09, 2019. Thus, we combine both topics here, given that they are actually discussed in one chapter in the book “Part 2, Chapter 5”. Besides, this book was introduced before in a previous video. Also, we finished the first 4 chapters of the book in our previous posts. To download the associated presentations in PDF with both videos, kindly go to the videos on YouTube and click on the appropriate links in the description sections below the videos. To access all our posts for this book, kindly go here.
Industry Analysis Video :
Competitors’ Analysis Video :
Industry Analysis :
All companies compete within specific industries. Thus, analyzing the industry is crucial for both new and current businesses. Companies must first decide whether it’s possible and attractive to enter a specific industry. After that, they should highlight areas at which they can favorably compete within that industry to gain competitive advantage at one or more business areas. To do the analysis, the book highlights two methods, which are industry trends and Porter’s Industry Five Forces Model.
Industry Trends :
We have talked about the importance of studying environmental trends (social, economical, technological, political, regulatory …) at the post of opportunities and ideas. The same concept applies here. Companies must study and evaluate the current environmental trends, as well as the business trends of the industry, such as the methods of doing the business and the problems that they face. Consequently, businesses can decide whether it’s possible and attractive to enter that industry. After taking this decision, using Porter’s Five Forces Model helps to gain further insights on the industry, and decide on the potential of gaining competitive advantage.
Porter Industry Five Forces Model :
This model was introduced by Professor Michael Porter in 1980. It is popular until now in the areas of industry analysis and strategic management. Thus, entrepreneurs must study the effect of these forces and act accordingly. The five forces are briefly shown below.
- Threat of substitutes: Is there a threat from other products/services from different industries that will take the customers away from the industry’s products/services?
- Threat of new entrants: the new businesses that can enter the industry and compete within it;
- Rivalry among existing firms: Is it strong, moderate or weak?
- Bargaining power of suppliers: strong power of suppliers negatively affects the industry
- Bargaining power of buyers “companies of the industry that buy from suppliers”: it is adversely proportional to the fourth power “bargaining power of suppliers”
Industry Analysis Model :
To assist businesses in performing industry analysis using both methods above, the book provides a simple model that consists of 4 questions, which are to be answered by entrepreneurs in order to guide them within the analysis process. Also, it assists them to develop a unique business model that guarantees them special competitive advantage that is difficult to copy or adopt by competitors. New businesses must focus on filling available “gaps” in the business in order to solve current problems in the industry and provide a new utility for customers.
Competitor’s Analysis :
Businesses can’t do industry analysis without analyzing competitors because competitors work within the industry to attract customers. Thus, the primary purpose of this analysis is to know the competitors, identify them and decide whether the company can favorably compete with them to gain competitive advantage by being better than all competitors in at least one business area.
Identifying Competitors – 3 Types (Direct, Indirect, Future) :
To identify competitors, firms must know that there are 3 different types of competitors, which are direct, indirect and future. Direct competitors are the ones that provide the same (or similar) product/service. On the other hand, indirect ones don’t provide same or similar products or services, but fulfill the same need that the business does, as explained above at the top of this post. Last, future competitors can be either direct or indirect. As a result, it is impossible to identify all these competitors, so businesses usually focus on only the most important 5 to 10 direct, and 50 to 10 indirect/future competitors.
Collecting Information about Competitors :
After identifying competitors, businesses must collect useful information legally and ethically about them. This process is called competitive intelligence. Businesses often decide 5 to 10 important business areas about which they want to collect information. There are several legal and ethical ways to do that, such as accessing public reports about them, visiting their websites and social network pages, visiting the companies themselves, purchasing and their products, meeting and discussing with customers & staff … After that, companies should organize and use this information to compare the status of their business with respect to competitors.
Competitors’ Analysis Grid :
To organize and analyze the information, the book provides a useful tool to preform this task, which is called competitive analysis grid (as below). It is a matrix with vertical (business areas) and horizontal (competitors) axes. The cells should be filled out with the comparison result between the business and each competitor, with respect to each business area. Results can be either advantage, even or disadvantage, which mean that the business is better/the same/less than the competitor respectively in that business area.
After performing the above, businesses can conclude their competitors’ analysis by identifying the areas at which they can build strong competitive advantage. Next, businesses will be ready for the last task within the 2nd step of the entrepreneurial process, which is writing business plan. It will be discussed in the session prior next one because next session we have a big SURPRISE to all our viewers.
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