How to Conduct an Industry Analysis by Michael Porter from the Financial Analyst’s Handbook
Framework : First, determine just what it is one is looking for : “Anything about the industry” is much too broad. Simple but exhaustive set of areas under which to collect data :
Data Categories : Product lines; buyers and their behavior; complementary products; substitute products; growth rate pattern and determinants; technology of production and distribution, cost structure, economies of scale, value added, logistics, labor; marketing and selling, market segmentation, marketing practices; suppliers; distribution channels; innovation types sources and rate; competitors strategy, goals, strengths and weaknesses, assumptions; social, political, legal environment; macroeconomic environment.
Compilation : by company, year and functional area.
Second, how sequentially to develop data in each area : experience has shown that a broad understanding can help the researcher more effectively spot important items of data when studying sources and organize data more effectively as they are collected.
To obtain this overview : industry studies, trade associations, trade magazines, business press, annual reports, 10Ks, proxy statements, prospectuses, speeches/testimony by executives, transcripts of annual meetings, patents, antitrust records, local newspaper where competitor is HQed and even advertising.
AR : Researcher should look at the rationales given for both good and bad financial results; these should expose some of the critical success factors in the industry. Look at what company is proud of, worried about and key changes that have been made.
Don’t get too worked up : Morale of researchers in an industry analysis often goes through U-shaped cycle -> sometimes later in the study, it all begins to come together.
- Published sources : The larger the industry, the older it is, the slower the rate of technological change, the better the available published information tends to be.
Every published source should be combed for references.
Individuals cited in studies do not appear by accidents, they make excellent leads.
In order to not waste time, keep a thorough bibliography of everything that is uncovered.
- Gathering Field Data : Most perceptive outside observers of the industry are often suppliers’ or customers’ executives who have taken an active interest in the whole range of industry participants over a long period of time. Retailers and wholesalers are often excellent sources as well. Initially, to gather background, it is best to make contact with someone who is knowledgeable about the industry but who does not have a competitive or direct economic stake in it.
Sensitive data : Questions should be structured as follows : “Is the number of salespersons you have closer to 100 or 500 ?”.
Formal versus Informal : Much interesting information often comes after the formal interview is over : if the researcher can get a plant tour, the interviewee may become much more open as the setting becomes removed from the formal setting of the office.
Pursuing leads : “Whom else should we speak to ?”, “What publications should we be familiar with ?”
A large number of industries have conventions taking place in January and February.
