Industry analysis

Industry analysis is a vital part of the decision-making process in business. Most corporations, venture capitalists, entrepreneurs and investors do not make any decisions without conducting an industry study. Industry analysis requires decision makers to understand the economy and the industry before taking key decisions. The knowledge of economy and industry improves the quality of business decisions. It enables decision makers to put business issues in perspective.

Industry analysis also helps investors take better decisions. Governments worldwide are also finding industry analysis useful in assessing the effectiveness of their policies and formulating pro-growth policies. Industry analysis also helps entrepreneurs to iron out the wrinkles in their business plans.

Industry analysis is the structured study of an industry. The purpose of the study could be general or specific. A general industry study provides a good understanding of an industry while a specific industry report concentrates on a specific issue. A general industry analysis focuses on the following issues:

• history
• industry overview
• competitive structure
• major markets
• supply chain
• technology
• major players
• regulations
• critical success factors and outlook.

In short, the purpose of the general industry analysis is to provide an understanding of the industry. Equity analysts, for instance, periodically come out with industry reports, which help their clients put stock-specific recommendations in the proper context.

A specific industry analysis, meanwhile, is the study of a specific issue. For instance, a government might commission an industry study to know what policies are needed to accelerate growth.

How is industry analysis researched?

Whatever the purpose, analysing an industry is no easy task. A typical industry analysis involves a combination of secondary and primary research. Secondary sources such as company databases, trade magazines, publications of industry associations and newspapers are used to gain a broad understanding of the industry. It is followed by primary research such as administering a questionnaire to industry professionals or interviewing them personally to understand specific issues. Subsequently, the industry knowledge acquired from secondary and primary sources is organized and presented in the form of a report. Some analysts use a standard framework such as Michael Porter’s five forces model and other forecasting models to provide additional value to the targeted audience.

A wide range of players currently carry out industry analysis. Worldwide, governments study industries on a regular basis to understand the effect of their policies, ensure fair trade and unearth policy bottlenecks. Most management consultants conduct industry studies for clients. They also carry out periodic industry analysis on their own to showcase their capabilities. Academic institutions also actively prepare industry reports. However, the specialists in industry analysis are business research firms. These firms have single-handedly transformed industry analysis into a science.

The business research firms received a big boost from the growing penetration of Internet, which has helped them sell industry reports online to customers worldwide. Now the industry analysis field is maturing with growing number of business research firms focusing on select industries.

Indeed industry analysis has evolved into a specialised activity calling for domain knowledge, analytical skills and editorial expertise. With an increasing number of business research firms specialising in industry analysis, the quality of industry reports has gone up. In the coming years, the availability of new tools will improve the quality of industry analysis even further. Better industry analysis means improved business decisions, which leads to better results.