A great deal of attention has been directed at defining the rele-vant industry as a crucial step in competitive strategy formulation. Numerous writers have also stressed the need to look beyond prod-uct to function in defining a business, beyond national boundaries to potential international competition, and beyond the ranks of one’s competitors today to those that may become competitors tomorrow. As a result of these urgings, the proper definition of a company’s in-dustry or industries has become an endlessly debated subject. An im-portant motive in this debate is the fear of overlooking latent sources of competition that may someday threaten the industry.
Structural analysis, by focusing broadly on competition well be-yond existing rivals, should reduce the need for debates on where to draw industry boundaries. Any definition of an industry is essential-ly a choice of where to draw the line between established competitors and substitute products, between existing firms and potential en-trants, and between existing firms and suppliers and buyers. Draw-ing these lines is inherently a matter of degree that has little to do with the choice of strategy.
If these broad sources of competition are recognized, however, and their relative impact assessed, then where the lines are actually drawn becomes more or less irrelevant to strategy formulation. La-tent sources of competition will not be overlooked, nor will key dimensions of competition.
Definition of an industry is not the same as definition of where the firm wants to compete (defining its business), however. Just be-cause the industry is defined broadly, for example, does not mean that the firm can or should compete broadly; and there may be strong benefits to competing in a group of related industries, as has been discussed. Decoupling industry definition and that of the busi-nesses the firm wants to be in will go far in eliminating needless con-fusion in drawing industry boundaries.
USE OF STRUCTURAL ANALYSIS
This chapter has identified a large number of factors that can potentially have an impact on industry competition. Not all of them will be important in any one industry. Rather the framework can be used to identify rapidly what are the crucial structural fea-tures determining the nature of competition in a particular industry. This is where the bulk of the analytical and strategic attention should be focused.
Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.