It is a fact that the only thing constant in the world is change, so much so that it has become a cliché.
However, this holds particularly true when it comes to doing business. As a result, any person who wishes to get into business needs to understand the current status of his or her targeted industry, whether it be something as general as retail, or as specialized as oil and gas.
This is what an industry analysis is for. Industry analysis is used to analyze the different forces that affect the competitive dynamics of an industry. While it can be conducted using numerous different frameworks, all methods involve evaluating the internal and external circumstances surrounding the industry and the effect of these on the overall status of the industry.
Here is why an industry analysis is crucial for those looking to do business in a particular industry:
1. Know when to enter or exit an industry or market.
The environment in which an industry operates is constantly changing, and circumstances may be favorable to the business at one moment and be hostile in another. This is illustrated in the business cycle, wherein an industry goes through periods of recession and growth, and it is important to know which stage of the business cycle, a particular industry is in.
Industry analysis helps illustrate what kind of environment you are dealing with at a particular point in time. This involves forecasting the demand and supply for a given industry, and can thus provide a picture of what the financial returns will be like. Consequently, you get to identify the right time to enter the market — when the environment is promising and when it is time to possibly exit — should you see diminishing opportunities.
2. Discover business opportunities.
When conducting industry analysis, you get to have an overall picture of what the industry is like. This is also an opportunity to familiarize yourself with how the industry works, as well as all the details associated with its processes and environment.
Given this depth of study, an industry analysis may help you discover opportunities in the market that are currently not being met. Perhaps there is room for innovation in a certain product, or certain processes could be done more efficiently. This may be the key for you to make it big and find success in the industry, but it will not be possible without knowing the industry first.
3. Align business strategies and goals.
Once you have decided to enter a certain industry, you need to plan how you are going to go about the operations of the business. As the business is still part of the industry, your strategies and goals must be crafted within the industry context. You must take into consideration the internal and external forces at work and conduct your business with the industry environment in mind.
Business is built on competition, and companies fail once they cannot keep up with the competition or when their strategies are no longer suited to the competitive environment they are working in. Hence, in order to keep the business operational and profitable, it is necessary to understand how the industry works and how you can use this to your advantage.
Although conducting a detailed industry analysis is by no means a guarantee of success in business, not conducting one will guarantee failure. Furthermore, it is something that needs to be done constantly, as market forces change every day.