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3.Industry Structure

What defines an Industry? How does one measure industry competitiveness? What are some of the data sources on the web for measuring the size, growth rate, and profitability of various industries? This section provides answers/links to these and other related topics.

Mnemonics for this section!

Why is it that the pharmaceutical industry is so much more profitable than auto manufacturing ? How much of a company’s profits are influenced by overall industry characteristics rather than by the decisions made by its management?  This section will develop a framework for analyzing industries and for understanding factors such as competitive intensity, power of suppliers and buyers, threat of new entrants and availability of substitutes that drive the profitability of an industry. But, first we must have a way of defining what constitutes an industry.

Fortune.com has interactive tools for ranking industries by a variety of financial metrics such as  growth rate, profitability, eps, etc. This is a good resource for identifying attractive industries and companies within industries. To see the relative profitability of different industries visit biz.yahoo.com, and read the chapter on Industry Analysis from the textbook Contemporary Strategy Analysis by Robert M. Grant.

When starting a new company it is important to select the right industry argues this article from the book Finding Fertile Ground: Identifying extraordinary opportunities for a new venture.

The US Government has developed SIC and NAICS codes for classifying which industry a company belongs to. The industries are further grouped into Sectors. Here is an example from the US Census Bureau of the Retail Trade sector and sub-classification into which the industries that comprise the Retail Trade segment belong to.  The Bureaus of Economic Analysis (BEA) has data series analyzing contribution to GDP by industry. These data give you a perspective on how important various industries are to the US economy, and how the US economy has changed over time from a manufacturing based economy to a services based economy and moving towards a technology and information based economy. This from O*net is a good data source for understanding which professions within industry and sector are projected to be in demand.


Industries are further grouped into sectors such as Consumer Goods, Healthcare, Technology, Utilities etc. Yahoo finance has charts and data organized by sector, from which you can drill down to industries within sector and further into companies within an industry. The New York Times has interactive graphics for monitoring sector, industry and company stock performance over time.  SmartMoney has a heat map of the stock market which maps in real time sector, industry and company market performance. Useful overview of the stock market in real-time.

Oligopoly Watch discusses why categorizing and grouping companies into industries and industries into sectors matters even in such mundane tasks as shopping for groceries.

Perhaps what may not be so obvious is why industry classifications are important considerations in anti-trust laws suits-defining segments and anti-trust .

Penn State University has comprehensive guides by Sector for conducting Industry Research: Industry Guides by Industry Sector.


Andy Grove, former CEO of Intel, has a very insightful look at the US Auto Industry and a prescription for GM. This article is especially good to read in this context because it explicates the issues involved when an Industry structure is changing while a company within it is struggling. The strategic issues then have to do as much with understanding the changes in the industry as with coping with the challenges of a struggling company. What Detroit can learn from Silicon Valley

Think about what you have read and how it applies to what happened to the US Auto Industry, what is happening to the newspaper publishing industry,the  music industry, the book publishing industry, the banking industry. All of these industries are going through profound changes. Can you identify the root causes that are driving these changes? For each of these industries can you rank the PEST factors that are driving these changes. This is a useful exercise for you to do to better understand the implications of PEST forces on industries. For example, the Internet (Technology, T in PEST) is transforming the music industry, the publishing industry, the newspaper industry and others.


Lecture Slides:

1.Read, rate and comment on the usefulness of this site

Oligopoly watch

2. Herfindahl-Hirschman Index

3. Read, rate and comment on the usefulness of this site

Manyworlds

4. Explore this interactive tool

map of the market

5. Read this report on General Merchandise category. It relates to the Walmart case and is a useful document to familiarize yourself with government Industry data.

general-msde-industry-2002-data

Worth listening to: how companies within the same industry faced with the same environment (PEST) are delivering superior performance versus those that are not. In some cases their strategies are flawed or their execution is bad or both.

Jim Cramers good company bad company analysis

Google next victim of Creative Destruction?

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  1. No vote thing for the Herfindahl index article, but it was the best one.

  2. That map of the market was really great too. Specifically in this market, it would be something interesting to keep tabs on and see how the different sectors do in the upcoming months.

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