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The analysis of industry & competition: principles
Published on February 27, 2022 7 min
Other Talks in the Series: Key Concepts: Introduction to Strategy
Hello and welcome to this series of introductory talks on business strategy. My name is Robert Grant. I'm a Professor of strategic management at Bocconi University in Milan, Italy. I'm also the author of Contemporary Strategy Analysis, a leading strategic management textbook used in business programs throughout the world.
In the last talk, I proposed that strategy can be viewed as a quest for profit. This implies that strategy analysis is, first and foremost, the task of identifying the sources of profit that are available to the firm. Turning to our basic strategy framework, let us concentrate on the right hand rectangle, the industry environment. The principal task of industry analysis is to assess the attractiveness of the industries in which the firm is investing in terms of the profit opportunities they offer. Hence, the goals of this talk are for you to, first, understand the forces that determine industry profitability and then to assess industry attractiveness. In addressing these goals, I'll be introducing the Porter Five Forces of Competition Framework, which we shall apply to understand the links between industry structure, competition and profitability, and to predict industry profitability.
Different industries generate different rates of profit. Some industries generate persistently high profits. Others low profit. In the US, the most profitable industries of the past 12 years have been tobacco, computers and peripherals, aerospace and defence, household and personal care products and pharmaceuticals. Industries earning low rates of profit include wireless telecommunications, motor vehicles, trucking, residential home building and retail banking.