Industry Disequilibrium Framework
Identifying Opportunities
The Industry Disequilibrium Framework is a structured approach to identifying opportunities for entering new industries. It involves analyzing the industry's structural characteristics, such as entry barriers and the likelihood of retaliation, and identifying situations where the market mechanism is not working perfectly.
- The industry's structural characteristics, such as entry barriers and the likelihood of retaliation, must be carefully assessed before entry.
- The firm's own capabilities and advantages, such as proprietary technology or established distribution channels, can be used to overcome entry barriers.
- The potential for retaliation from incumbents must be considered and a strategy developed to mitigate its impact.
- Assess Industry Structural CharacteristicsAnalyze the industry's entry barriers, such as high fixed costs, high industry concentration, and the presence of brand loyalty. Also, assess the likelihood of retaliation from incumbents.Pro tipUse tools such as the Five Forces Framework to analyze the industry's structural characteristics.WarningFailing to assess the industry's structural characteristics can lead to poor entry decisions.
- Identify Situations of DisequilibriumIdentify situations where the market mechanism is not working perfectly, such as new industries, rising entry barriers, or poor information.Pro tipUse tools such as the Industry Life Cycle Framework to identify situations of disequilibrium.WarningFailing to identify situations of disequilibrium can lead to poor entry decisions.
- Develop Entry StrategyBased on the assessment of the industry's structural characteristics and the identification of situations of disequilibrium, develop a strategy for entering the industry. This may involve identifying opportunities for differentiation, developing a unique value proposition, and creating a plan for mitigating retaliation from incumbents.Pro tipUse tools such as the Blue Ocean Strategy to develop a unique value proposition.WarningFailing to develop a clear entry strategy can lead to poor entry decisions.
General Motors entered the recreational vehicle industry by leveraging its existing capabilities and advantages, such as its chassis, engines, and dealer network. The company was able to overcome entry barriers and establish a strong position in the industry.
John Deere entered the construction equipment industry by leveraging its existing capabilities and advantages, such as its manufacturing technology and experience in product design and service. The company was able to overcome entry barriers and establish a strong position in the industry.
The Industry Disequilibrium Framework was developed by Michael E. Porter as part of his work on competitive strategy. It is based on the idea that companies can create a sustainable competitive advantage by entering industries that are in disequilibrium.