Extnernal Strategic Analysis

What is an industry vs. a sector

An industry is a set of frims offering close substitutes to satisfy the same need

A sector is a broader category that aggregates multiple closely realted industries under one umbrella

Why do industries show persistent ROIC (Return on Investment Capital) differences

Due to Structural forces such as, entry barriers, rivarly , buyer/suppler power, and subsitutes which shape long run prices and costs, creating durable ROIC gas across industries

What are the six big questions for analyzing an industry

Economic traits, Give Forces Strength, driving forces of change, rivals positions, key success factors, and overall industry attractiveness

What dominant economic traits should you scan

Market size & growth, number and scope of rivals, buyers needs, differentiation, innovation pace, supply-demand balance, integration, scale, and learning effectws

Which tools assess competitve pressure in an industry 

Porter’s Five Forces evaluates the pressures that determien an industry’s profit potential 

Name the Five Forces 

Threat of entry, buyer power, supplier power, threat of substitutes, and rivalry among incumbents; complementors can amplify or limit total value 

How do you analyze the Five Forces

Identify specific pressures, rate each force’s strenght, and judge their combined impact on sustainable profitability

What raises the threat of new entrants

Attractive profits, many capable entrants, weak expected retaliation, and low or eroding entry barriers

What are common entry barriers

economies of scale, capital or skill needs, switching costs, brand loyalty, channel access limits, cost advantages, and regulation or tariffs

When is buyer power high

When few buyers dominate, switching costs are low, demand is weak, products are undifferentiated, or buyers can integrate backwards

What can powerful buyers do 

They push prices down and impose service or quality demands that raise sellers costs

When is supplier power high

When inputs are unique or vital, suppliers are concentrated or independent of the industry, switching is costly, or suppliers can integrate forward

What can powerful suppliers do

They raise input prices, restrict terms, or set standards that increase downstream costs

What are substitutes and why do they matter

Substitutes meet the same need from another industry and cap prices, compressing margins

How do you gauge substitute strength

Check availability, price performance, perceived comparability, and customer switching costs

What are complementors and their effect

Complementors increase your products value; strong complements expand demand and opportunity

What makes rivalry especially intense

High fixed cost and exit costs, many similar sized rivals, slow growth, low differentiation, and lumpy capacity

What are practical signals of strong rivalry

Persistent price custs, heavy promotions, rapid release of features, and escalating service commitments 

How can you visualize industry attractiveness

A Five Forces pentagon; a large shaded area indicates stronger pressures and a less attractive outlook

What are driving forces in industry change

Underlying shifts, often in tech, regulation, globalization, or demographics that alter demand, costs, and competition

Give examples of driving forces

New tech, globalization and trade shifts, entry/exit waves, product/process innovations, policy changes, and evolving customer preferences

How do the Five Forces link to profitability

Since Profit is equal to Price - Cost, the forces either limit prices (due to rivalry, buyer power, or substitutes) or raise costs (due to supplier power, barrier to entry)

What is a strategic group and why map it 

A strategic group is firms with similar positions; mapping reveals close rivals, mobility barriers, and open spaces that offer opportunity

Which variables define positions across groups

Quality/performance, channels, segments served, technology leadership, service intensity, price posture, brand/ads, and promotion

What are key implications of strategic groups

Biggest threats are usually in your group, and different groups face the forces differently

What are mobility barriers

Within industry obstacles such as capabilities, brand, channels, or regulation, that make shifting groups costly or risky

What should you profile to anticipate rivals

Their current strategy, recent actions, strengths/weaknesses, capability building, and leadership intent

What are Key Success Factors (KSFs)

The few capabilities, resources, product attributes, and market achievements that most drive winning vs lagging in the industry

How do you judge overall industry attractiveness

Consider growth potential, force strength and direction, net effect of driving forces, risk/uncertainty, problem severity, and your relative postion

What are industry life-cycle stages

Introduction, growth, shakeout, maturity, and decline

What are limits of life cycle model and industry model

Real industries dont follow tidy paths; long stability can be broken by sudden structural shifts

What is punctuated equilibrium in competition

Extended stability interrupted by rapid, discontinuous change that resets competitve rules

Why scan the macro environment

Early detection of external shifts lets firms adapt strategy, build capabilites, and preempt rivals

Monetary vs fiscal policy

Monetary policy is set by the central bank and manages rates and money supply

Fiscal policy is set by government and changes taxes and spending

Give a social/tech trend with impact 

E-commerce reshapes stores and logistics, altering lease, labor, and service models

Why can global expansion news matter

It signals demand and scale economies, foreshadowing tougher rivalry and cost curve shifts

What does PESTEL stand for

Political, Economic, Social, Technological, Environmental (natural/ecological), and Legal/regulatory factors

What additional forces shape the macro-environment

Demographics, global forces, and the natural environment alogside PEST factors

What framework is used to analyze the macro environment

PESTEL provides a strctured scan to interpret external opportunites and threats

What is a complementor

A firm whose offering makes your product more valuable, expand total customer utility and demand

What vertical moves shift bargaining power

Buyer may integrate backward; supplier may integrate forward, changing margin allocation

What defines the Introduction stage

High uncertainty and R&D, small early demand, and a focus on proving core technology and intial use cases