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 competitors Industry growth Fixed cost Differentiation Switching cost Openness of terms of sales Excess capacity Large Grocery store Vinyl record Steel Sugar Diskette Used car 2 3 4 High 5 Wide bodied jetliner Small Remarks

Slow High Low Low Secret

Internet browser Real estate agency Beer Software Stocks

Fast Low High High Open

Large

Residential property in Bangalore Internet browser

Office space in South Mumbai

Small

Strategic stakes

High

Part-time coaching

Low

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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 1 Assets specialization Cost of exit Government restrictions High Steel 2 3 4 High 5 Automotive gears Tea stall Grocery store Small Remark

High High

Steel Public bus service in UK

Small Small

Table 3: Barriers to entry High barriers to entry implies high attractiveness of the industry for the incumbent
Attractiveness Low 1 Economies of scale Product differentiation Brand identity Switching cost Access to channels of distribution Capital requirement Access to technology Access to raw material Government protection Small Low Tea stall Sugar 2 3 4 High 5 Oil refinery Beer Large High Remark

Low Low Easy

Sugar Diskette Newspaper

Cigarette Software Petrol

High High Limited

Small Easy

Tea stall Generic drugs Distilled water Tea stall

Oil refinery AIDS medicine Ivory

Large Restricted

Easy

Restricted

None

Public bus in UK

Substantial

Table 4: Threat from substitutes High threat of substitutes implies low attractiveness of the industry for the incumbent
Attractiveness Low 1 Availability of close substitutes Switching cost High Fountain pen 2 3 4 High 5 AIDS medicine Customized Software Suburban trains in Mumbai TransAtlantic flight Low Remark

Low

Diskette

High

Substitutes price-value

Better

Vinyl record

Worse

Profitability of the producers of substitutes

High

Vinyl record

Low

Table 5: Bargaining power of buyers High bargaining power of buyers implies low attractiveness of the industry for the incumbent firm
Number of buyers Availability of substitutes Switching cost Buyers threat of backward integration Industrys threat of forward integration Contribution to quality Small Air bags for cars Fountain pen Attractiveness Low 1 2 3 4 High 5 Toothpaste Large Remark

Many

AIDS medicine Software Cars

Few

Low High

Diskette Air bags for cars

High Low

Low

Air bags for cars

Oil refinery

High

Low

Low end packaging

Semiconductor chips Paper clips

High

Contribution to cost Buyers profitability

High

Housing

Low

Low

Public bus service

Luxury cars

High

Table 6: Bargaining power of suppliers High bargaining power of suppliers implies low attractiveness of the industry for the incumbent firm
Number of suppliers Availability of substitutes Switching cost Suppliers threat of forward integration Industrys threat of backward integration Contribution to quality Contribution to cost Industrys importance to supplier Small PC Attractiveness Low 1 2 3 4 High 5 Tea stall Large Remark

Few

PC

Tea stall

Many

High High

PC PC

Garment Wide bodied jetliner

Low Low

Low

Petrol pumps

Garment retailers

High

High

PC

Low end packaging Talcum powder Cars

Low

High

Oil refining

Low

Low

Vinyl record

High

Table 7: Government actions Government actions may make the industry more or less attractiveness for incumbents
Attractiveness Low 1 Industry protection Industry regulation (pollution, etc.) Customs and tariff restrictions abroad Low Tea stall 2 3 4 High 5 Public bus in UK Software High Remark

High

Chemicals

Low

High

Garment

Software

Low

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
Barriers to entry Rivalry among competitors Barriers to exit Power of buyers Power of suppliers Threat of substitutes Government action Overall attractiveness Attractiveness Low 1 2 3 4 High 5 Remarks Relative Weights