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 Remarks

attractiveness of the industry
for the incumbent firm Low High

1 2 3 4 5

No. of Large Grocery Wide bodied Small

competitors store jetliner

Industry growth Slow Vinyl record Internet browser Fast

Fixed cost High Steel Real estate agency Low

Differentiation Low Sugar Beer High

Switching cost Low Diskette Software High

Openness of Secret Used car Stocks Open

terms of sales

Excess capacity Large Residential Office space in Small

property in South Mumbai
Bangalore

Strategic stakes High Internet Part-time coaching Low

browser

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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 Attractiveness Remark

low attractiveness of the
industry for the incumbent Low High

1 2 3 4 5

Assets High Steel Automotive Small

specialization gears

Cost of exit High Steel Tea stall Small

Government High Public bus Grocery Small

restrictions service in UK store

Table 3: Barriers to entry

High barriers to entry implies Attractiveness Remark

high attractiveness of the
industry for the incumbent Low High

1 2 3 4 5

Economies of scale Small Tea stall Oil refinery Large

Product Low Sugar Beer High

differentiation

Brand identity Low Sugar Cigarette High

Switching cost Low Diskette Software High

Access to channels Easy Newspaper Petrol Limited

of distribution

Capital requirement Small Tea stall Oil refinery Large

Access to Easy Generic AIDS Restricted

technology drugs medicine

Access to raw Easy Distilled Ivory Restricted

material water

Government None Tea stall Public bus Substantial

protection in UK

2
Table 4: Threat from substitutes

High threat of substitutes Attractiveness Remark

implies low attractiveness of
the industry for the incumbent Low High

1 2 3 4 5

Availability of High Fountain pen AIDS Low

close substitutes medicine

Switching cost Low Diskette Customized High

Software

Substitutes Better Vinyl record Suburban Worse

price-value trains in
Mumbai

Profitability of High Vinyl record Trans- Low

the producers of Atlantic flight
substitutes

Table 5: Bargaining power of buyers

High bargaining power of Attractiveness Remark

buyers implies low
attractiveness of the industry Low High
for the incumbent firm
1 2 3 4 5

Number of Small Air bags for Toothpaste Large

buyers cars

Availability of Many Fountain pen AIDS Few

substitutes medicine

Switching cost Low Diskette Software High

Buyers threat of High Air bags for Cars Low

backward cars
integration

Industrys threat Low Air bags for Oil refinery High

of forward cars
integration

Contribution to Low Low end Semi- High

quality packaging conductor
chips

Contribution to High Housing Paper clips Low

cost

Buyers Low Public bus Luxury cars High

profitability service

3
Table 6: Bargaining power of suppliers

High bargaining power of Attractiveness Remark

suppliers implies low
attractiveness of the industry Low High
for the incumbent firm
1 2 3 4 5

Number of Small PC Tea stall Large

suppliers

Availability of Few PC Tea stall Many

substitutes

Switching cost High PC Garment Low

Suppliers High PC Wide Low

threat of bodied
forward jetliner
integration

Industrys Low Petrol pumps Garment High

threat of retailers
backward
integration

Contribution High PC Low end Low

to quality packaging

Contribution High Oil refining Talcum Low

to cost powder

Industrys Low Vinyl record Cars High

importance to
supplier

Table 7: Government actions

Government actions may make Attractiveness Remark

the industry more or less
attractiveness for incumbents Low High

1 2 3 4 5

Industry Low Tea stall Public bus High

protection in UK

Industry High Chemicals Software Low

regulation
(pollution,
etc.)

Customs and High Garment Software Low

tariff
restrictions
abroad

4
Table 8: Overall assessment

Relative weights in Attractiveness Remarks

percentages may be attached Relative Weights
to each of the forces based on Low High
expert opinion to give a
1 2 3 4 5
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