Structural Analysis Framework
Understand industry competition
The Structural Analysis Framework is a tool for understanding the underlying structure of an industry and the competitive forces that shape it. It involves analyzing the five basic competitive forces: entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors. By understanding these forces, companies can identify areas of strength and weakness, and develop strategies to defend themselves against competitors or influence the forces in their favor.
- The intensity of competition in an industry is determined by the collective strength of the five competitive forces.
- The strength of each competitive force is influenced by a number of economic and technical characteristics of the industry.
- Companies must analyze the underlying structure of their industry to identify areas of strength and weakness.
- Identify the IndustryDefine the industry and its boundaries, including the products or services it produces and the geographic market it serves.Pro tipUse the working definition of an industry as the group of firms producing products that are close substitutes for each other.WarningBe careful not to define the industry too narrowly or too broadly.
- Analyze the Five Competitive ForcesAssess the strength of each of the five competitive forces: entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors.Pro tipUse the framework to identify the most important forces in the industry and their relative strength.WarningDo not overlook the importance of any of the five forces.
- Identify Areas of Strength and WeaknessUse the analysis of the five competitive forces to identify areas of strength and weakness in the company's position in the industry.Pro tipLook for areas where the company has a competitive advantage or disadvantage.WarningBe honest about the company's weaknesses and areas for improvement.
- Develop Strategies to Defend Against Competitors or Influence the ForcesUse the analysis of the five competitive forces and the identification of areas of strength and weakness to develop strategies to defend against competitors or influence the forces in the company's favor.Pro tipConsider strategies such as differentiation, cost leadership, or focus.WarningBe careful not to overlook the potential for new entrants or substitutes to disrupt the industry.
The key force in this industry is the buyers (the major oil companies), who have significant bargaining power.
The key forces in this industry are foreign competitors and substitute materials.
The Structural Analysis Framework was developed by Michael E. Porter as a way to analyze the competitive structure of an industry. It is based on the idea that the intensity of competition in an industry is determined by the collective strength of the five competitive forces.