To What Extent Is the Analysis of an Organisation's Industry Important to Managers - Coursework Example

Industry analysis Competitive strategies Businesses have discovered the essence of strategic analysis in order to gain desired profits and acquire competitive advantage. Strategic analysis is helpful in notable ways. To begin with, it is essential for planning as organizations use such analyses for making decisions for the future. Strategic analysis is also essential in environment marred by competition. Besides, such analysis help an organization navigate an unpredictable future. It is essential to highlight that strategic analysis considers both the internal and the external environment. Industry analysis forms a big part of strategic analysis because it considers the external environment of a business. The environment entails the suppliers, the competitors, risk factors, and other issues. Understanding the environment helps a manager establish a formidable strategy, effectively utilize limited resources, and shape a company for success. Industry analysis occurs either quantitatively or qualitatively. The quantitative type employs mathematical forecasting that entails methods such as regression analysis. Other methods include game theory, decision trees, and forecasting analysis. On the other hand, qualitative analysis is a subjective process as manager reviews industry information and makes personal inferences from such information (Harrison, J. & John, H. 2010, 112). Qualitative analysis is helpful for a manager with adequate expertise and long experience in an industry. Industry analysis help a manager predict how much profits a business can harness within a given financial period. More essentially, a manager assesses the stage of an industry. This is because an industry could be rising, declining, or operating at plateau stage. Industries that are either declining or operating at the plateau stage do not generate adequate profits. More essentially, industry analysis helps a manager estimate profits by assessing the size of an industry. The number of competitors defines the size of an industry. An industry with many competitors chasing after few profits is not a lucrative arena for business. Industry analysis is crucial towards understanding emerging factors in an environment. It is essential to note that businesses operate in a dynamic environment. This is because a typical business environment is a creation of innumerable interacting factors. For instance, technology dominates the current business environment. More essentially, technology performs and occurs in diverse forms. Organizations have realized the uses of technology that surpass its mere employment in production. For instance, organizations currently employ internet technology in marketing and branding their products. Other areas that experience constant evolution include the financial sector and human resource management (Mathis, L., & Jackson, J. 2010, 87). Companies cannot ignore trends because they may be paced out of business. A manager also invests in industry analysis in order to identify new opportunities. Organizations practice dynamism in order to optimize business outcomes. Besides, dynamism helps in diversifying risks and articulating businesses to respond to trends (Sekhar, G. 2008, 178). As the environment of a business changes, new opportunities may emerge and former opportunities may become less lucrative. For instance, an organization conducts industry analysis in order to uncover the most enlivened customer bases. This is essential in exploring diverse markets that help a manager design new products for unique tastes and preferences. In addition, a manager learns about the type of products that appeal to the temperament of young customers. In extreme instances, discovery of new opportunities may entail shifting of operations. In addition, industry analysis is helpful in understanding one’s potential at the overall market share. This occurs through the study of competitors and their respective strategies. Industry analysis helps in examining competing firms in terms of their unique approach to production and the market. Such information may project a trend in competition that a manager can capitalize on the same. On the other hand, it may show a loophole that a business may take advantage of the same. In an industry, competition is a game that either occurs sequentially or happens simultaneously (Dunham-Taylor, J. & Pinczuk, J. 2004, 36). Simultaneous games require that a player study the consistencies in the past strategies of another arrival. On the other hand, sequential games require that a firm study the immediate action of a rival in order to unleash a strategy that counteracts a given strategy. A highly competitive industry consequently exerts pressure on prices, supplies, and profits. A manager should worry about the consequences of competition when an industry is at the plateau stage. In addition, a manager must take caution in case of competitors of about similar sizes. Other factors include the existence of rivals with similar strategies, limited differentiation between products offered by different competitors, and mild market growth rates. Low market growth rates refer to a competitive situation whereby the growth of one company organization compromises on the growth of the other. Moreover, high exit costs define the competition in an industry (Langabeer, J. 2007, 96). In case of competition that is unhealthy to an organization, a manager has to invest the company’s resources towards proper building of a brand. Besides, the manager can focus on building a monopolistic niche that puts a respective organization above other competitors. Furthermore, a manager uses industry information in examining the threat of substitutes. A threat of substitute occurs in case of optional products with better quality or lower prices. Such products possess a high potential of absorbing a significant market portion. In turn, this reduces the sales volume of an existing company. The threat of substitutes correlates with the emergence of new complimentary products. For instance, if a complimentary product changes, a manager has to make a decision about changing a main product. Several factors affect the threat of substitutes. For instance, customers’ loyalty on a brand determines whether the emergence of a new product may sway customers from an existing product. Besides, switching costs may retain or release customers towards a new product. In turn, a manager must keep watch of emerging products that threaten the survival of existing products. It is essential to highlight that alternative products are different from competing products in the sense that alternative products are dissimilar items that offer the same utility as existing products. Competing products, on the other hand, are almost similar products that offer the same utility. Industry analysis provides a manager with the information for examining the customer base. The customers are the primary focus of every business since they define the profits and the nature of products that a company produces (Walker, J., & Miller, J. 2010, 231). Most decisions made by a manager usually are targeted at influencing the customer base. A manager views the purchase volumes made by customers in order to make out their influence on the organization. In addition, a manager harnesses information about the customers’ knowledge about the operations of a company. This explains whether the customers find a company’s products invaluable or just treat them as options. In addition, studying customer trends is helpful in predicting future needs of consumers. Needs of customers are the key factors that determine the destiny of both an organization and entire industry. Managers employ supplier information, which is contained in the industry information for various purposes. Suppliers provide the raw materials that an organization uses for making products and facilitating given operations. Without suppliers, organizations cannot make key decisions. Furthermore, a business requires a steady and predictable supplier base for strategic purposes. For instance, a manager has to manage the stock levels in order to satisfy customers and generate adequate profits. Mismanagement of stock may lead to either excess demand or excess supply. This either creates dissatisfaction in customers or losses. A manager utilizes supplier information in making out whether there are few dominating suppliers or whether the supplier base is fragmented. In addition, a manager examines whether an organization faces high costs of switching from one supplier to the other. In extreme instances, there are possibilities of suppliers integrating forward thereby squeezing industry profits. This means that a supplier may decide to participate in the business of an organization thereby becoming a competitor. The relationship between the buying the community and the suppliers’ community may be crucial in drawing out particular relationships. For instance, the buying community may constrain the development of the suppliers’ community by refusing to accept new products. In this case, a manager must perform the crucial role of linking the buying community with the suppliers’ strategies. In addition, managers utilize industry information to assess the threat of new entrants. An industry that does well has high prospects of gaining entrants. In addition, an industry that faces low costs of entry is highly likely to experience new players. In as much as a market may be growing, a manager should take caution when the costs of entering such a market are relatively low (Ingram, T. 2012, 12). The threat of new entrants also stiffens competition as many firms compete for the same customer base. Besides, new entrants pose danger to an existing organization if they can offer quality products or lower their prices. A manager, therefore, assesses the threat of new entrants indirectly. One achieves this by examining the possibilities of improving existing products. A manager also conducts such a process by assessing its prices and the brand. In turn, an organizations destiny is threatened if it charges prices way above its production costs. Additionally, a manager examines unexploited market segments whose tastes are not met by existing products. Unexploited market segments provide a significant loophole for new entrants (Courtney, R. 2002, 68). On the other hand, a manager should make decisions that enhance economies of scale and enhance the bargaining power over resources. Besides, a manager must manage a given brand in order to ensure that a business possesses enduring and loyal customers. More essentially, industry information enables a manager understand the political environment within which one’s business operates. The political environment strongly influences the success of a business since it creates jurisdictions that a business follows (Leatt, P. & Mapa, P. 2003, 124). For instance, in the current business environment, strong corporate ethics are encouraged by civic bodies. Such bodies protect the less empowered members of the society, such as the workers, from exploitation by the corporations. Environmental issues are a constant topic in corporate debates as governments and stakeholders require a more entrenched role of companies in alleviating climate change and global warming. This is because the physical environment determines the sustainability of human populations and the survival of future production. In addition, the political environment provides regulations for relationships with other countries. For instance, modern organizations can attain blame for debauched supply chains. A proper example entails the Wal-Mart’s condemnation for selling sourcing raw materials from places such as Bangladesh, where factory employers exploit their workers. In turn, an organization must take caution about its relationships with suppliers. It is essential to note that industry information cannot guarantee success for an organization. The manager, as a decision maker, can misinterpret market information to the detriment of a company. In this sense, useful information does not necessarily impact a company’s strategies and profits. In addition, an organization may overinvest in collecting industry information thereby constraining resources. In addition, too much information may impede decision-making as a manager becomes paranoid of making any move. In an ideal organizational environment, a manager should have information but still be able to take risks in decision-making (Nankervis, A. 2005, 127). This occurs by listing information in terms of their gravity. For instance, a manager may decide not to respond to customer trends that are not long lasting. This means that an organization sacrifices immediate profits for long-term prosperity. In essence, industry analysis helps a manager manage a company’s future by assessing the resources, competition and other factors. For instance, industry analysis helps a manager make out an organizations’ market share. This is possible through knowing the number of competitors and assessing the possibilities for new entrants. In addition, industry analysis provides a manager with the information about customer trends and unexploited market segments. The future of an industry entails the possibilities of alternative products and evolving customers’ needs. More essentially, a manager examines the contemporary political circumstances in making strategic decisions. Political concerns entail contemporary discussions such as environmental preservation. However, industry information does not guarantee effective decision-making. This is because a manager should effectively interpret industry information for accurate decision-making. In this perspective, it is essential to involve experts who are keen in reading out patterns and making informed conclusions. Industry analysis forms an integral part of strategic decision-making since the external environment is an intricate place that deserves proper examination. Bibliography Courtney, R., 2002. Strategic management for voluntary nonprofit organizations, New York, Psychology Press. Dunham-Taylor, J., & Pinczuk, J., 2004. Health care financial management for nurse managers: Merging the heart with the dollar, Sudbury: Jones and Bartlett Publishers. Harrison, J. S., & John, H., 2010. Foundations in strategic management, Mason, South-Western Cengage Learning. Ingram, T. 2012. Sales management: analysis and decision making, New York, M.E. Sharpe. Langabeer, J., 2007. Health care operations management: a quantitative approach to business and logistics, Sudbury, Jones and Bartlett Publishers. Leatt, P., & Mapa, P., 2003. Government relations in the health care industry, Westport, Greenwood Publishing Group. Mathis, L., & Jackson, J., 2010. Human resource management, Mason, Thomson/South-western. Nankervis, A., 2005. Managing Services, New York, Cambridge University Press. Sekhar, G., 2008. Business policy and strategic management, New Delhi, I K International Publi. Walker, J., & Miller, J., 2010. Supervision in the hospitality industry: leading human resources. Hoboken, Wiley publishers. Read More