Industry segmentation and industry definition

Drawing industry boundaries is always a matter of degree. Structural and value chain differences among product varieties and buyers work towards a narrower industry definition. Industry segmentation is thus a tool to probe for narrower industry definitions by exposing structural heterogeneity within an industry. Interrelationships among segments and business units (Chapter 9) create possibilities for broader industry definitions.

A useful working industry definition should encompass all segments for which segment interrelationships are very strong. Segments where interrelationships with other segments are weak may sometimes be separate industries from a strategic viewpoint. Related industries linked by strong interrelationships may in strategic terms be a single industry.

Where one actually chooses to draw industry boundaries is not so essential as long as both segmentation and strategic interrelationships are examined as part of structural analysis. Such an analysis will expose all the key determinants of competitive advantage that derive from competitive scope.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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