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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 Porters model. (A 7-point scale would be better, but the
5-point scale is easier to use.) It 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 which 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.
Table 1: Rivalry among competitors
High rivalry implies low
attractiveness of the industry
for the incumbent firm

Attractiveness
Low
1

No. of

Large

competitors

Remarks
High

Grocery

Wide bodied

store

jetliner

Small

Industry growth

Slow

Vinyl record

Internet browser

Fast

Fixed cost

High

Steel

Real estate agency

Low

Differentiation

Low

Sugar

Beer

High

Switching cost

Low

Diskette

Software

High

Openness of

Secret

Used car

Stocks

Open

Large

Residential

Office space in

Small

property in

South Mumbai

terms of sales
Excess capacity

Bangalore
Strategic stakes

High

Internet

Part-time coaching

Low

browser

__________________________________________________________
2000 by Deepak K. Sinha, Indian Institute of Management Bangalore, Bannerghatta Road, Bangalore 560076..

Use the remarks column to annotate your evaluation. 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 2: Barriers to exit
High barriers to exit implies
low attractiveness of the
industry for the incumbent

Attractiveness
Low

High

1
Assets

High

Remark

Steel

Automotive

specialization

Small

gears

Cost of exit

High

Steel

Tea stall

Small

Government

High

Public bus

Grocery

Small

service in UK

store

restrictions

Table 3: Barriers to entry


High barriers to entry implies
high attractiveness of the
industry for the incumbent

Attractiveness

Remark

Low
1

High
2

Economies of scale

Small

Tea stall

Oil refinery

Large

Product

Low

Sugar

Beer

High

Brand identity

Low

Sugar

Cigarette

High

Switching cost

Low

Diskette

Software

High

Access to channels

Easy

Newspaper

Petrol

Limited

Capital requirement

Small

Tea stall

Oil refinery

Large

Access to

Easy

Generic

AIDS

Restricted

drugs

medicine

Distilled

Ivory

Restricted

Public bus

Substantial

differentiation

of distribution

technology
Access to raw

Easy

material
Government

water
None

Tea stall

protection

in UK

Table 4: Threat from substitutes


High threat of substitutes
implies low attractiveness of
the industry for the incumbent

Attractiveness
Low
1

Availability of

High

Remark
High

Fountain pen

AIDS

close substitutes
Switching cost

Low

medicine
Low

Diskette

Customized

High

Software
Substitutes

Better

Vinyl record

Suburban

price-value

Worse

trains in
Mumbai

Profitability of

High

Vinyl record

Trans-

the producers of

Low

Atlantic flight

substitutes

Table 5: Bargaining power of buyers


High bargaining power of
buyers implies low
attractiveness of the industry
for the incumbent firm
Number of

Small

buyers
Availability of

Attractiveness

Remark

Low
1

High
2

Air bags for

5
Toothpaste

Large

AIDS

Few

cars
Many

Fountain pen

substitutes

medicine

Switching cost

Low

Diskette

Software

High

Buyers threat of

High

Air bags for

Cars

Low

Oil refinery

High

Low end

Semi-

High

packaging

conductor

backward

cars

integration
Industrys threat

Low

of forward

Air bags for


cars

integration
Contribution to

Low

quality

chips
Contribution to

High

Housing

Paper clips

Low

Low

Public bus

Luxury cars

High

cost
Buyers
profitability

service

Table 6: Bargaining power of suppliers


High bargaining power of
suppliers implies low
attractiveness of the industry
for the incumbent firm
Number of

Attractiveness

Remark

Low
1

High
2

Small

PC

Tea stall

Large

Few

PC

Tea stall

Many

Switching cost

High

PC

Garment

Low

Suppliers

High

PC

Wide

Low

suppliers
Availability of
substitutes

threat of

bodied

forward

jetliner

integration
Industrys

Low

Petrol pumps

Garment

threat of

High

retailers

backward
integration
Contribution

High

PC

Low end

to quality
Contribution

High

Oil refining

Talcum

to cost
Industrys

Low

packaging
Low

powder
Low

Vinyl record

Cars

High

importance to
supplier

Table 7: Government actions


Government actions may make
the industry more or less
attractiveness for incumbents

Attractiveness
Low
1

Industry

Low

High
2

Tea stall

5
Public bus

protection
Industry

Remark

High

in UK
High

Chemicals

Software

Low

High

Garment

Software

Low

regulation
(pollution,
etc.)
Customs and
tariff
restrictions
abroad

Table 8: Overall assessment


Relative weights in
percentages may be attached
to each of the forces based on
expert opinion to give a
realistic overall assessment

Attractiveness

Remarks

Low
1

High
2

Barriers to entry
Rivalry among competitors
Barriers to exit
Power of buyers
Power of suppliers
Threat of substitutes
Government action
Overall attractiveness

Relative Weights