Strategic Management

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 Porter’s (1980) model. (A 7-point or a 10-point scale would perhaps be even
better in that it would allow finer discrimination between two businesses with different levels of
attractiveness. But the 5-point scale is relatively much easier to use.) To help you in the ratings,
the template 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 that 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.

You can use the remarks column to annotate your ratings. For instance, consider the first
factor in Table 1 (number of competitors). 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.

Originally prepared by Professor Deepak K. Sinha, Indian Institute of Management Bangalore, 2003
Revised by Professor Rejie George, Indian Institute of Management Bangalore, 2020
Table 1: Rivalry among competitors

Industry Attractiveness Remarks

(Provide
Low High
rationale for
the scores)
1 2 3 4 5
(1) (2)
Number of Large weightages Small
competitors
(market share
weighted)

Industry growth Slow Vinyl record Internet Fast

browser

Fixed cost High Steel Real estate Low

agency

Product Low Sugar Beer High

Differentiation

Brand Identity Low High

Switching cost Low Diskette Software High

Openness of Secret Used car Stocks Open

terms of sales

Excess capacity Large Residential Office space Small

property in in South
Bangalore Mumbai

Strategic stakes High Internet Part-time Low

(extent of browser coaching
strategic
linkages with
other industries)

1
Weightages if required
2
Forecast (5 years). One can also additionally consider a time period in the past in a separate column in order to assess the
evolution of the industry structure over time (i.e., past, current and the foreseeable future)

2
Table 2: Barriers to exit
Industry Attractiveness Remark
(Provide
Low High
rationale for
the scores)

1 2 3 4 5
(3) (4)
Asset High Automotive Small
specialization Steel gears

Cost of exit High Steel Tea stall Small

Government High Public bus Grocery Small

restrictions service in UK store

3
Weightages if required
4 Forecast (5 years)

3
Table 3: Barriers to entry
Industry Attractiveness Remarks

(Provide
rationale for
the scores)

Low High

1 2 3 4 5
(5) (6)
Economies of scale Small Oil Large
Tea stall refinery

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 Large

refinery

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

5
Weightages if required
6 Forecast (5 years)

4
Table 4: Threat from substitutes

Industry Attractiveness Remark

(Provide
Low High
rationale
for the
1 2 3 4 5
scores)
(7) (8)
Availability of High AIDS Low
close substitutes Fountain pen medicine

Switching cost Low Diskette Customized High

Software

Substitute’s Better Vinyl record Suburban Worse

price-value trains in
Mumbai

Profitability of High Vinyl record Trans- Low

the producers of Atlantic flight
substitutes

7
Weightages if required
8 Forecast (5 years)

5
Table 5: Bargaining power of buyers

Industry Attractiveness Remark

(Provide
Low High
rationale
for the
1 2 3 4 5
scores)
(9) (10)
Number of Small Toothpaste Large
buyers Air bags for
cars
(market share
weighted)

Availability of Many Fountain pen AIDS Few

substitutes medicine

Switching cost Low Diskette Software High

Buyer’s threat of High Air bags for Cars Low

backward cars
integration

Industry’s threat Low Air bags for Oil High

of forward cars refinery
integration

Contribution to Low Low end Semi- High

quality packaging conductor
chips

Contribution to High Housing Paper clips Low

cost

Buyer’s Low Public bus Luxury High

profitability service cars

9
Weightages if required
10 Forecast (5 years)

6
Table 6: Bargaining power of suppliers

Industry Attractiveness Remark

(Provide
Low High
rationale
for the
1 2 3 4 5
scores)
(11) (12)
Number of Small Tea stall Large
suppliers PC

(market share
weighted)

Availability Few PC Tea stall Many

of substitutes

Switching High PC Garment Low

cost

Supplier’s High PC Wide Low

threat of bodied
forward jetliner
integration

Industry’s Low Petrol pumps Garment High

threat of retailers
backward
integration

Contribution High PC Low end Low

to quality packaging
Low Talcum powder High
Contribution Oil
to cost refining

Industry’s Low Vinyl record Cars High

importance to
supplier

11
Weightages if required
12 Forecast (5 years)

7
Table 7: Government actions

Industry Attractiveness Remark

(Provide
Low High
rationale
for the
1 2 3 4 5
scores)
(13) (14)
Industry protection Low Public bus High
Tea stall in UK

Industry regulation High Chemicals Software Low

(pollution, etc.)

Customs and tariff High Garment Software Low

restrictions abroad

13
Weightages if required
14 Forecast (5 years)

8
 Table 8: Overall assessment

Force (Aggregate scores of Industry Attractiveness Overall remarks for each force
each of the tables) (15)
(16)
Low High
Overall attractiveness with
differential weights if required
1 2 3 4 5

Rivalry among competitors

(Table 1)17

Barriers to exit (Table 2)

Barriers to entry (Table 3)

Threat of substitutes (Table 4)

Power of buyers (Table 5)

Power of suppliers (Table 6)

Government action (Table 7)

Overall attractiveness

Reference:

Porter, Michael E. (1980) Competitive Strategy, New York: The Free Press.

15 Weightages if required
16
Forecast (5 years)
17
Weightages can be specified for all forces