ANALYZING INDUSTRY STRUCTURES

Industry Analysis I: Market-Based View

Learning Objectives

Background
Introducing the theoretical foundations of the market-based view

Process
Describing the process of industry analysis

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The SCP-paradigm is the theoretical foundation of the MBV

Industry Firm Firm

Structure Conduct Performance

Assumptions
• Survival and profit maximization as main objective of strategic management

• Industries differ in their profit potential

• Explanation of inter-industry profit differences

• Industry structure determines profit potential

• External view

Porter (2008) 3
The SCP-paradigm is the theoretical foundation of the MBV

Industry Firm Firm

Structure Conduct Performance

Implications
• Identification and assessment of sources of profit as main objective of industry analysis

• Selection of industry and position therein as most important strategic choices

• Industry analysis seeks to examine:

(a) Industry attractiveness (profit potential)
(b) Key success factors (profit drivers)

Porter (2008) 4
Industry analysis pursues one overarching goal
Understanding Industry Structures
1 • Understand competitive forces that shape industry profitability
• Understand how trends in macro-environment shape industry structures<

Assessing Future Industry Profit Potential Generate

2 • Forecast future industry profitability due to structural changes industry

• Shape competitive forces by means of adequate strategies knowledge to

maximize firm
Identifying Positioning Options profit potential
3 • Identify industry with high long-term profit potential
• Identify most favorable position within industry

Grant (2015) 5
The process of industry analysis comprises five phases

Process Industry Actor Structural Dynamic Action

Phase Definition Identification Analysis Analysis Scoping

Key • What products or • Who are the • What are the • How have the • What aspects of
questions services are part buyers and buyer underlying drivers competitive the industry
of this industry? groups? of each forces evolved in structure can be
• Which ones are • Who are the competitive force? the recent past? influenced by
part of another suppliers and • What forces are • How is each competitors?
distinct industry? supplier groups? strong and which force likely to • Which ones by
• What is the • Who are the weak? Why? evolve in the new entrants?
geographic competitors? • Why is the level of future? • And which ones
scope of • What are profitability as it • How will it be by the focal
competition? possible new is? affected by organization?
entrants? • Are more emerging trends
• What are profitable players in the broader
possible better positioned? environment?
substitutes?

Grant (2015) 6
Substitutability defines industry membership and boundaries

An industry is a group of organizations whose products have so many of the

same attributes that they compete for the same buyers

Demand Side Substitutability Supply Side Substitutability

Are buyers willing to substitute Are manufacturers able to switch
between types of products and production between types of
across countries? products and across countries?

Grant (2015) 7
What is the industry Tesla is in?
Tesla differs from traditional automakers
SIC Range Division
Agriculture, Forestry and
Tesla Motors (2016) 0100-0999
Fishing
1000-1499 Mining
“Tesla is not just an automaker, but also
1500-1799 Construction
a technology and design company with
1800-1999 not used
a focus on energy innovation.”
2000-3999 Manufacturing
Transportation,
4000-4999 Communications, Electric, Gas
and Sanitary service
Standard Industrial Classification 5000-5199 Wholesale Trade
5200-5999 Retail Trade
• [SIC-3711] Motor Vehicles &
Finance, Insurance and Real
Passenger Car Bodies Sector 6000-6799
Estate

• Geographic Scope: National,

7000-8999 Services
9100-9729 Public Administration
regional or global?
9900-9999 Nonclassifiable

Harvard Business Review (2020), SICCODE 9

Tesla is active in different industries
Batteries Solar Panels

[2] [3]

Electric Vehicles Charging Infrastructure

[4] [5]

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Summary

Background
Introducing the theoretical foundations of the market-based view

Process
Describing the process of industry analysis

11
Sources
Image Sources
[Cover] Compass <https://pixabay.com/de/photos/magnetkompass-navigation-richtung-390912/>

[2] Giga Factory <https://commons.wikimedia.org/wiki/File:Tesla_Gigafactory_1_-_December_2019.jpg>

[3] Solar Panels <https://commons.wikimedia.org/wiki/File:Messukeskuksen_aurinkopaneelit_.jpg>

[4] Industrial Robotics <https://commons.wikimedia.org/wiki/File:KUKA_Industrial_Robots_IR.jpg>

[5] Wall Box < https://commons.wikimedia.org/wiki/File:Tesla_charger.jpg>

Content Sources
• Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), pp. 78–93.

• Grant, R. M. (2015). Contemporary Strategy Analysis. John Wiley and Sons. 8th Edition.
• Grant, R. M. (2016). Contemporary Strategy Analysis. John Wiley and Sons. 9th Edition.

• Elon Musk Quote <https://hbr.org/2020/02/lessons-from-teslas-approach-to-innovation>

• SIC Code <https://siccode.com/sic-code/3711/motor-vehicles-passenger-car-bodies>

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