02 A Template For Structural Analysis of An Industry
02 A Template For Structural Analysis of An Industry
02 A Template For Structural Analysis of An Industry
You can use the following template for analyzing the structure of an industry. It requires you to rate
the attractiveness of an industry on a 5-point scale for several factors relating to each of the five forces in
Porter’s (1980) model. (A 7-point or a 10-point scale would perhaps be even better in that it would allow
finer discrimination between two businesses with different levels of attractiveness. But the 5-point scale is
relatively much easier to use.) To help you in the ratings, the template provides the anchors at the two ends
of the scale for each factor with examples of industries corresponding to the anchors.
You will note that we have included separate sections in the template for exit barriers and
government. The former contributes to rivalry among competitors (and is, therefore, not a sixth force). The
latter, according to some, should be treated as the sixth force, although Porter says the effect of government
on an industry is felt through one or more of the five forces.
If you want, you can attach different weights to different forces and also to different factors within
each force. If an industry has different segments that are structurally different, you can separately analyze
the attractiveness of each segment. You can also analyze the changes in industry structure by using the
template at two different points of time (for instance, today and five years from now) to obtain greater
insight into likely opportunities and threats that you can expect from the industry environment. To reduce
the element of subjectivity, you can get the attractiveness evaluated by several colleagues and arrive at
average scores. Even the weights of different factors and forces could be based on the opinion of your
colleagues and you could attach greater weight to the opinion of colleagues with greater expertise. Use your
creativity to benefit from this tool.
You can use the remarks column to annotate your ratings. For instance, consider the first factor in
Table 1 (number of competitors). As a rule of thumb, industries in which the combined market share of the
largest four firms (called 4-firm concentration ratio) exceeds 70% are very profitable. Concentration ratios
between 60%-70% are associated with average and those below 60% with low profitability. The 4-firm
concentration ratio in the wide-bodied jetliner industry is 100% and in the grocery store business almost
zero. Thus, you can support the evaluation of your industry by giving the 4-firm concentration ratio.
Table 1: Rivalry among competitors
Attractiveness Remarks
Low High
1 2 3 4 5
The NO. Of competitors in Tyre
No. of Large Grocery Wide Smal industry is high (both Foreign &
competitors store bodied l Indian players), so there is a heavy
jetliner competition.
Industry Slow Vinyl Internet Fast The Tyre industry would exhibit a
growth record browser growth rate (CAGR) of 3% during
(2024-32).
Fixed cost High Steel Real Low The fixed cost attractiveness in the
estate Tyre industry is moderate.
agency
Differentiati Low Sugar Beer High The Tyre industry have lots of
on product differentiation in terms of
their functionality, features &
price,
Switching Low Diskette Software High The switching cost from one brand
cost to another brand, their cost
difference is considerable,
example M, R. F Dio Tyre cost R.S
1500, whereas Ceat Tyre cost RS
1200.
Openness Secret Used car Stocks Ope The sales in the Tyre industry are
of terms of n reported in company reports alone.
sales
Excess Large Residentia Office Smal The Tyre Industry have excess
capacity l property space in l capacity, usually in B2B business
in South where the automotive industry are
Bangalore Mumbai their customers, who place large
orders in terms of volume.
Attractiveness Remark
Low High
1 2 3 4 5
Asset High Steel Automot Small This rating reflects the significant
specializa ive gears investments in specialized equipment,
tion technology, distribution networks, and
brand reputation, making it costly and
challenging for companies to exit the
industry because all are huge investments.
Cost of High Steel Tea stall Small Exiting the industry would entail significant
exit costs related to asset write-offs, contractual
obligations, employee severance, and
potential brand devaluation.
2
Governm High Public Grocery
ent bus store
restriction service
Attractiveness Remark
Low High
1 2 3 4 5
Established companies benefit from
Economies Small Tea stall Oil Large economies of scale, which allow them to
of scale refinery produce tires at lower average costs as
they increase their output.
Product Low Sugar Beer High While established companies may invest
differentiat in developing unique tire designs,
ion technologies, and brand identities to
differentiate their products, these barriers
are not insurmountable for new entrants.
Brand Low Sugar Cigarette High This brand equity acts as a barrier to
identity entry for new competitors who would
need to invest substantial resources in
marketing, advertising, and brand
building to establish themselves in the
market.
Capital Small Tea stall Oil Large Huge capital required, For new entrants,
requiremen refinery securing the necessary capital to
t compete effectively in the market can be
challenging, especially given the high
upfront costs and the need to achieve
economies of scale to remain
competitive
Access to Easy Generic AIDS Restric Huge R&D is involved in this kind of
technology drugs medicine ted technology. Access to these technologies
may be restricted or costly for new
entrants, making it challenging to
compete on innovation and product
quality.
Governme None Tea stall Public Substa new entrants may face less government
nt bus in ntial protection compared to other sectors,
protection UK making it easier for them to enter the
3
market and compete with established
companies.
Attractiveness Remark
Low High
1 2 3 4 5
Attractiveness Remark
Low High
1 2 3 4 5
YES Large number of buyers
Number of Small Air bags Toothpas Large (individuals, vehicle operators,
buyers for cars te automobile manufacturers)
implies increased buyer power
and influence by them.
4
Switching Low Diskette Software High Buyers have some flexibility
cost but may face some hurdles in
changing suppliers in terms of
trust, relationship, cost,
compatibility, quality. So
bargaining power is moderately
low
The chances of backward
Buyer’s High Air bags Cars Low integration is very low as it may
threat of for cars involve a complex production
backward process, huge investment. So
integration bargaining power is less and
attractiveness for the existing
companies is high.
Industry’s Low Air bags Oil High Chances for forward integration
threat of for cars refinery is less as it involves having
forward strong industrial relationships;
integration hence bargaining power is low
and attractiveness is high.
Attractiveness Remark
Low High
1 2 3 4 5
There are Few players in
Number of Small PC Tea stall Large the Tyres Industry
suppliers (Namely MRF, CEAT
Etc.,) So that Bargaining
power of the supplier is
moderate in the Tyre
Industry segment. So that
we ranked Attractiveness
as 3
Availability of substitute
Availability Few PC Tea stall Many is less, there is no
of substitutes alternative for Tyre so
that Bargaining power of
supplier is high. So that it
looks Attractive. (4)
5
attractive -(4)
Attractiveness Remark
Low High
1 2 3 4 5
Industry protection Low Tea stall Public bus High The overall
in UK Industry
protection
of Tyre
industry is
moderate
keeping in
considerati
on of the
risk &
safety
involved.
6
pollution
control
board for
environmen
tal
sustainabilit
y.
Low High
1 2 3 4 5
Reference:
Porter, Michael E. (1980) Competitive Strategy, New York: The Free Press.