that a particular business is in. The aim of this analysis is to describe the industry structure to determine barriers to entry and to ascertain the bargaining power of various parts of the value chain. This provides an indication of sustainable profit for industry participants. Industry definition follows most often follows a US Government schema using codes to indicate industry segments. Until 1987, Standard Industrial Classification (SIC) codes were used. Subquently, the North American Industry Classification System (NAICS) with latest revision in 2002 came into being. Further info on the NAICS is available here:

Industry analysis assumes stable boundaries

between customers, suppliers, competitors and complementors as if those demarcations exist and change only gradually. This assumption often does not hold in nascent industries, such as the online media industry, in which alternative definitions of customers, competitors and partners co-exist within companies that deploy similar technologies and perform similar business activities. These companies strategize collectively, willingly or forced, to legitimize the emerging industry and individually to demarcate from one another and to control the space being carved out for themselves. Industry analysis under the assumption of static boundaries is not helpful to strategic development in dynamic nascent industries.

Industry analysis for new entrants is quite different.

New entrants have the ability to reconfigure value chains and focus on particular market segments to gain footholds in industries. This is now being labeled "disruptive." Their industry definitions are often described by way of the market. Traditional industry players find it difficult to determine where these new entrants are coming from because they are thinking in such different ways. A basic concept of entrepreneurship for purposes of this Wiki is "to be disruptive."

As a rule of thumb, traditional industry analysis is focussed on existing infrastructure and outputs; new industry analysis is focussed on new technologies and future customer needs. Depending on the entrepreneur's focus then, Industry Analysis could involve traditional "smoke stack" industries where gobs of data is available, or newly emerging industries not yet defined where the "rules of the game" are ill-defined at best. It is obviously difficult if not impossible to perform an in-depth analysis of nascent industries when all components are dynamic - the product(s), the customer(s), and the competition.

Over the past twenty years there has been a trend toward breaking up large corporates into smaller subsidiaries so that they can capture some of the benefits of acting and thinking like a new entrant. This is where the Business Model Analysis conversation starts. A common term applied to such activity is Intrapreneurship.

Business model analysis (subsequent section)

works back from the market OR beyond the market i.e. completely new configurations of products and markets AND completely new configurations of supply and distribution channels.

By working back from beyond, new business models can be created that have the potential to destroy traditional industries. This is the disruptive edge that entrepreneurs must seek to exploit.

Modified and updated from http://www.businessmodeldesign.com/wiki/index.php/From_Industry_Analysis_to_Business_Model_Analysis%22

Analysis of Traditional &/or Established Industries

Background

Industrial organization is the field of economics that studies the strategic behavior of firms, the structure of markets and their interactions. It is also referred to as "Industrial Economics." Michael Porter, a Harvard-trained industrial economic PhD, in 1980 published the foundation for future industry analysis in his book "Competitive Strategy."

Porter's 5 forces analysis is a framework for business management. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the attractiveness of a market. It is also known as FFF (Fullerton's Five Forces). Porter referred to these forces as the microenvironment, to contrast it with the more general term macroenvironment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. In picture form, his model looks like the diagram below:

Porter's Five Force Model - from Wikiopedia

Wikiopedia provided the following explanation of Porter's Five Forces:

Four forces — bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products — combine with other variables to influence a fifth force, the level of competition in an industry. Each of these forces has several determinants:

The bargaining power of customers

-buyer concentration to firm concentration ratio
-bargaining leverage
-buyer volume
-buyer switching costs relative to firm switching costs
-buyer information availability
-ability to backward integrate
-availability of existing substitute products
-buyer price sensitivity
-price of total purchase

The bargaining power of suppliers

-supplier switching costs relative to firm switching costs
-degree of differentiation of inputs
-presence of substitute inputs
-supplier concentration to firm concentration ratio
-threat of forward integration by suppliers relative to the threat of backward integration by firms
-cost of inputs relative to selling price of the product
-importance of volume to supplier

The threat of new entrants

-the existence of barriers to entry
-economies of product differences
-brand equity
-switching costs
-capital requirements
-access to distribution
-absolute cost advantages
-learning curve advantages
-expected retaliation
-government policies

The threat of substitute products

-buyer propensity to substitute
-relative price performance of substitutes
-buyer switching costs
-perceived level of product differentiation

The intensity of competitive rivalry

-number of competitors
-rate of industry growth
-intermittent industry overcapacity
-exit barriers
-diversity of competitors
-informational complexity and asymmetry
-brand equity
-fixed cost allocation per value added
-level of advertising expense

Though not supported by all,

some argue that a 6th force should be added to Porter's list to include a variety of stakeholder groups from the task environment. This force is referred to as "Relative Power of Other Stakeholders". Some examples of these stakeholders are governments, local communities, creditors, and shareholders. such as employees, & so on. This 5 forces analysis is just one part of the complete Porter strategic models. The other elements are the value chain and the generic strategies.

Three dubious assumptions underlie the five forces:

-That buyers, competitors, and suppliers are unrelated and do not interact and collude
-That the source of value is structural advantage (creating barriers to entry)
-That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior.

Additional Industry Analysis Resources

Purdue Ag Econ approach to Porter's Five Force Analysis is here:

A General Overview and good background reading on traditional analysis is here:

ENTR200 "Power Points" from class lecture on analysis are here:

Detailed example using Viddler.com is located here (used in ENTR200 class):

For Competitive Analysis, go to the Wikipedia link below:

http://en.wikipedia.org/wiki/Competitor_analysis

Competitor Analysis (From: http://www.marketing-intelligence.co.uk/resources/competitor-analysis.htm%29

Gold

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*****How To: Strategic Group Mapping*****

Collecting Information on competitors can be likened to prospecting for gold. Nuggets are a rarity. The prospector will need to sift through a lot of soil, to find the few grains of gold which make the task worthwhile. Occasionally, the prospector will even be tricked by iron pyrites - or "Fool's gold"!

Similarly, some of what is collected on competitors will turn out to be useless. Sometimes the information may be completely wrong and lead the unaware on the wrong path. However with experience, this is less likely, as with the skilled gold prospector and "Fool's gold".

Introduction

No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organizations offering similar products to similar customers. These other organizations are competitors. And their objective is the same - to grow, make money and succeed. Effectively, the businesses are at war - fighting to gain the same resource and territory: the customer. And like in war, it is necessary to understand the enemy:

how he thinks;
what his strengths are;
what his weaknesses are;
where he is vulnerable;
where he can be attacked;
where the risk of attack is too great....

and so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival. But all this is not new...

Sun Tzu and the Art of War

Around the year 500 BC, the great Chinese military strategist, Sun Tzu wrote a treatise on the Art of War. From a 21st century perspective, many of Sun Tzu's approaches would be viewed as barbaric today. Nevertheless, his views on strategy are still relevant today - for both military commanders and business leaders looking at how to win against competitors. For instance:

If you are ignorant of both your enemy and yourself, then you are a fool and certain to be defeated in every battle.

If you know yourself, but not your enemy, for every battle won, you will suffer a loss.

If you know your enemy and yourself, you will win every battle.

Who is a competitor in business?

Business competitors are:

Other organizations offering the same product or service now.
Other organizations offering similar products or services now.
Organizations that could offer the same or similar products or services in the future.
Organizations that could remove the need for a product or service.

Why monitor competitors?

By knowing our Competitors we may be able topredict their next moves,exploittheir weaknesses and undermine their strengths.

Customer's usually know the differences between companies - their good points and bad points. They know that company A is cheaper than company B and that company C has a better after-sales service. For a business to operate in a market and not know the same, and more, is tantamount to giving up the battle without even starting. As Frederick the Great said:

It is pardonable to be defeated, but never to be surprised

So what is involved?

There are four stages in monitoring competitors - the four "C"s:

Collecting the information (with a first stage - deciding what to collect)
Converting information into intelligence (with three steps: CIA -Collate and catalogue it, Integrate it with other pieces of information and Analyse and interpret it)
Communicating the intelligence.
Countering any adverse competitor actions - i.e. using the intelligence.

One mistake a lot of people make is to start by collecting information without thinking how the information will be used. There is no value in information that will just sit on a shelf. If it cannot be used to inform the business's strategic or tactical decisions then the time, money, and effort spent collecting it is wasted.

The business may be planning a new product - so information on what competitors are doing in the same area will help in the decision processes and plans for this new product.
Alternatively, the business may be looking at how the industry will develop over the next 5 or 10 years.
Or perhaps the board is looking at a potential merger, acquisition or business partnership.

The information requirements for each of these business decisions will be completely different and so the information that should be sought will also be different.

Thus before starting to search for information the competitor analyst needs to sit back and define what they are looking for and why. They need to identify the key areas of concern for the business decision makers requesting the information, and aim to satisfy these.

Other information may be interesting, but unless it helps the decision process it should be viewed as superfluous, and stored for use at another time or even ignored if it is unlikely to ever have value. (As an example, it is generally not necessary to know the name of the CEO's children to understand how the CEO makes decisions.) Thus, rather than collecting information in a random or haphazard manner, the search needs to be focused and planned, and aimed at answering the various intelligence requirements of the business (often termed key intelligence topics, or KITs).

Collecting competitor information

Information will come from a variety of sources, both within the organization and external to it.

Sales representatives deal on a daily basis with customers - and will hear what the competitors have been doing. They are the business foot soldiers - with the ear to the ground who can forewarn management about impending enemy campaigns.
Research & Development may come across new patents.
Purchasing may find out that a supplier is now also supplying a competitor.
Market research can give feedback on the customer's perspective

...but these are just examples of where information can come from.

Information can also be found on the Internet itself - most companies are now advertising their services and some specialise in offering information that can be used for competitor research. Among the best are D&B (Dun & Bradstreet) with a database of over 30 million companies world wide. If you need to know about both private and quoted companies this is one of the best sources. Few other companies offer the same global scope - although some local companies will give D&B a run for its money for single country information. For public companies, there is also the D&B subsidiary, Hoovers, which holds considerable information - much of it free. Patent information can be obtained from companies such as Thomson Scientific's patent service (formerly known as Derwent Information) or from local patent offices. And global press information is available from databases made available by companies such as Dialog (also from the Thomson group), Lexis-Nexis and Factiva. There are numerous other web-sources - discussion forums, web-logs (blogs), podcasts, protest groups, customer and governmental sites and so on. We include some of the web-sources we use to search for competitor information on our CI Sources links pages. You can also find information at trade shows and conferences, and by interviewing industry experts, your competitors' customers and suppliers, ex-competitor employees - or even the competitor although there are ethical issues involved when obtaining information from some of these sources.

From information to intelligence

Having scanned the press, searched the Internet, spoken to the sales force, customers, suppliers, Uncle Tom Cobbley and all, there should now be a large pile of data on your competitors.

Unfortunately much of this data will be repetitious, out of date, wrong or inaccurate, misleading, or incomplete. However like a jigsaw, each piece can help build up the compete picture. And even if some pieces are missing, you can often get a good idea of what the real picture actually is - even if other pieces are damaged and not all remaining pieces fit perfectly. For example,

the company report can give an idea of a company's health - which will be enhanced by information from trade suppliers, trade press articles, and credit information agencies such as D&B;
Patents give an idea of R&D activity;
Trade press gives an idea of marketing activity.

And of course there are specialist organizations such as AWARE that have the techniques to dig deeper and get information that can lead to an idea of competitor strategy and future trends.

All this information needs to be collated - with any links and commonalities highlighted. The information will need to be indexed and catalogued - so that when new information comes along, it can be quickly linked to similar information that had previously been found. It may be stored in a custom-built or dedicated competitor database accessible via the company Intranet - although it can also be stored in much less sophisticated forms.

Finally, the relevance and importance of each piece of information needs to be interpreted and analysed - on its own and in conjunction with other information, the other pieces in the jigsaw. This is where information starts to become intelligence.

Communicating the intelligence

Many companies are overly secretive, protecting information that all their customers and competitors already know. Secrecy is important. It can be extremely dangerous to let a competitor know about the new product being developed. However, letting the sales force attempt to sell products without a full awareness of their products' strengths and weaknesses relative to the competition is like sending them out with one arm tied behind their back. They will be unable to answer objections and comparisons convincingly, and thus are less likely to make the sale. And if the competitor product is that much better then shouldn't marketing, or product development be looking at ways of improving one's own product - rather than hiding the damaging news ostrich like?

Competitor intelligence needs to be evaluated and selectively communicated to all who need to make decisions based on what customers, suppliers, or other companies in the market are doing or are likely to do. And in today's world, that usually means everybody. The worker in the factory needs to know why production processes have changed from what was always done if he is to believe in management. The Mushroom theory of management (keep 'em in the dark!) has always had its adherents but has not usually succeeded in the long term.

Countering Competitor actions

Having identified what competitors are doing, battle can be entered. Sometimes the battle will be vicious - especially when two competitors have been slogging it out for years. (Pepsi vs. Coca Cola; Procter & Gamble vs. Unilever). Various military strategies have been used to describe different approaches to beating competitors - flanking strategies, encirclement and siege strategies, frontal attacks and even guerrilla marketing tactics. However it should always be conducted within the law. Although it is tempting to use underhand ways of gaining an advantage, certain activities may result in a prison sentence as well as extremely damaging publicity, loss of goodwill and loss of revenue.