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Sector Analysis - Essay Example

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It has become extremely important for corporations and managers to continuously innovate and think new ways of churning more money. If a firm or a manager fails to innovate and does not come up with new ways of profit extracting, the ideas will eventually become obsolete and the business will stop making any money at all…
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Sector Analysis
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Download file to see previous pages This is a dangerous sign, and many companies try to continuously update and innovate their business models in order to achieve success in terms of profitability and growth. Sector analysis is one of the new innovations that are being used by corporations and managers. It is a spin-off from Financialization. Financialization can be described as a process whereby financial markets and organizations dictate the economic policy of a country. In other words, Financialization is process where financial elites dictate the business policies formulation by the government. (Froud et al. 2006) Sector matrix defines the activity horizon of a company. As a result, it is sometimes also called “activity matrix”. Sector matrix is nothing but a representation of overall finances or revenues of a company coming into the business from its various areas of operations. The matrix is based on modern business and financial thinking. The old way of thinking about the supply was to consider it the function of technology and product. The supply can only be increased if there are significant improvements in the production technology. This concept soon become obsolete and the new way of thinking was developed which stated that firm as a whole should be considered on the basis of its business model and various sources of income. A business usually makes money from diverse sources of profits and, hence, all of these sources should be taken into account before the supply and demand function of a business can be determined. Similarly, the old thinking about the demand was about winning the nameplate competition. It was all about improving or differentiating the brand from other competing brands in order to generate demand and make sales. However, the new way of thinking demand is about capturing the expenditure that consumers spend on substitutes and encouraging a complement product in order to increase the overall revenue of the firm. (Bowman & Singh 1993) The differentiating factors of the sector matrix and supply chain industry are that related products or complements are demanded together, therefore, a firm can achieve great success and double its sales if it starts producing complementary products. It is also believed that the firm operates in a boundary or in a particular sector. For example, a firm producing motor cars can produce car lubricants or wheels, but it will not immediately start a healthcare business. Hence, business models have boundaries. Similarly, a firm will try to enter into new businesses to lever its profits and in doing so there are chances that it may attract competition that may follow a similar matrix as this firm. However, it must be remembered that no existing firm exists in a particular matrix before the entry of this firm. The sector matrix can be explained more aptly by using two examples from different industries. The first example is taken from the Car Manufacturing Business and the second example is from Healthcare Business. The reason for choosing these two sectors is to determine the applicability of the model in service and goods sector. This approach will check whether or not the model can be used for both goods and service sectors or whether or not this model is applicable for only one sector. (Brigham & Ehrhardt 2010) Example 1: Figure1: Sector Matrix of Car Assembly Source: (Froud et al. 2006) The above diagram shows that a car manufacturer exists in the upper left corner. This is unrewarding business because the industry is saturate and there are enough cars in the market that many people tend to buy used cars. This leads to demand substitution and demand for the firm’s products goes down. This has resulted in declining revenue for car ...Download file to see next pagesRead More
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