capstone executive summary and 350-500 word paper on strategic leadership and entrepreneurship analysis

Pletch_Week1_Capstone_week2.docx

Intelysis Consultants LLC is my federal contracting company in the management services consulting area. The Global consulting industry including human resources, IT, strategy, operations, management and business advisory services is about a $431 billion industry. (Plunkett, 2014). This is world wide and in the US it is over $180 billion dollar industry in those areas of management, scientific and technical consultation.

Global consulting industry revenues (including HR, IT, strategy, operations, management and business advisory services) will be about $431 billion in 2014, according to Plunkett Research estimates. This represents reasonable growth from $415 billion during the previous year.

In the U.S., consulting of all types, including management, scientific and technical, generated $180.0 billion during 2013, up from $162.8 billion the previous year. Accounting and related services (such as tax return preparation) generated an additional $136.5 billion in 2013, up from about $131.6 billion during 2012, according to the U.S. Bureau of the Census.

Consulting is a somewhat cyclical industry. The years 2008-09 marked a challenging period throughout the world of business, in light of the global economic slowdown and shrinking corporate budgets. In general, major consulting companies, including leading firms in management consulting and HR consulting, along with other advisories such as accounting firms, found themselves with substantial drops in business during 2009. India’s largest outsourced business and technology consulting firms were complaining that clients were delaying or cancelling projects as 2009 began.

However, in recent years, corporate profits in general grew dramatically, meaning that executives are now more willing to authorize new consulting projects as long as they see the potential for a good return on the cost. For example, India’s leading consultancies have enjoyed substantial growth in employee count and revenues, as did most of the global consulting firms based in the U.S. and EU.

While corporate profits have been growing, government budgets in the U.S. and much of Europe have been under tremendous pressure at the national, state and local levels. At many governmental units, tax revenues were down significantly during the recent recession, although 2012-14 saw a rebound. Meanwhile, governments and their agencies have been under intense budgetary scrutiny. Spending and debt have been called in question, and in some cases curtailed. This has been particularly hard on some consulting firms, since governmental agencies are prime clients for consultancies.

Positive factors for the consulting industry over the mid-term:

1) Continued growth in health care expenditures and significant changes in health care coverage are creating demand for consulting projects. This includes a focus on digital health records and a dramatic need for greater efficiency and cost control.

2) Consultancies that focus on projects that clearly reduce business costs and enhance operating profits in a reasonably short period of time will find a ripe corporate market (such as consultants who focus on cash flow enhancement, supply chain efficiency and manufacturing efficiency).

3) Vast new labyrinths of government regulation in the U.S. and in the UK/EU are creating numerous opportunities for consultants who can show companies how to navigate rapidly changing relationships between government and industries, or deal with government oversight, particularly in financial services, environmental matters and health care.

4) Consultants who assist firms in lowering employee benefits costs are in high demand.

5) Consultants and advisors for corporate expansion into emerging markets, information technology and mergers and acquisitions will be in high demand.

6) Nations in the Middle East remain keen to modernize, expand key industries such as air transportation and develop new services and economic opportunities for citizens. These desires will continue to generate excellent opportunities for a wide variety of consulting companies.

Source: Plunkett Research, Ltd.

Emerging Nations and Offshoring: In emerging and mid-tier nations, the consulting industry was enjoying booming growth until 2013. By mid-2014, the market continued to be soft in some regions. Brazil’s economy has been disappointing in recent months. China’s economic growth has slowed to a more modest, but still robust, pace. Europe’s economic growth remains slow outside of Germany, and U.S. growth was disappointing in 2003 and early 2014. Some new projects may be delayed or proposed fees further negotiated as a result.

Elsewhere, growth in global trade has rebounded from the very low levels of the recent recession. In select cases, this has fueled demand for consulting of all kinds, including management, HR, industrial and technology. South Korea, Taiwan, Singapore and Indonesia are providing a wealth of new work for consultants. Firms with multi-cultural staffing capability and offices in strategic cities worldwide will benefit in particular. Recent growth in these nations has created myriad opportunities for consulting firms, both in government and private sector contracts, in industries ranging from transportation to energy to health care. Consultancies that do well in this still uncertain global economic environment will be those that emphasize their ability to create cost-savings, enhance efficiencies and deal effectively with government austerity programs or other dramatic changes in governmental goals. Mexico looks promising for the mid-term, particularly as that nation’s oil and gas industry begins to modernize and open up to foreign participation.

In recent years, many types of consulting and accounting projects have been offshored to a growing extent. Initially, this was due to efforts by firms in North America and Europe that wanted to take advantage of the lower hourly fees charged by professionals in emerging nations. More recently, however, offshoring of such tasks has become necessary in order to conduct consulting projects in the growing nations where practices must be applied. As multinational companies headquartered in the U.S. and elsewhere continued to open offices, factories and research facilities in nations such as India, Malaysia, Indonesia and China, consultants had to follow.

At the same time, China and India are investing heavily in their own upper-level education systems, and they are now graduating large numbers of MBAs, scientists, researchers and engineers from their own universities. Many Asian nations have already achieved excellent success in this regard, including China, South Korea, Singapore, Taiwan and Japan. This means that a growing global cadre of young people with graduate degrees and high ambitions are seeking entry-level work in consulting of all types.

Management Consulting: The consulting industry is a multifaceted, global business sector that is facing many challenges and evolving quickly. At the highest level of the business is “management consulting,” the segment that advises top executives and boards of directors at Fortune 1000 firms on strategy and organization. McKinsey & Company, Inc., Bain & Company, Inc., Boston Consulting Group, Inc. and a handful of other companies are the most elite. Such firms may charge their clients anywhere from $300,000 to $1 million in monthly fees, with top consultants billing as much as $5,000 daily plus expenses, and associates at $1,500 or so. These consultants’ engagements for a multinational corporation may include analysis of multiple divisions and involve travel to several continents. Their suggestions often result in sweeping organizational changes, with the hoped-for result of creating significant efficiencies and adding tens of millions of dollars to the client’s yearly operating profit. Management consultants may take assignments involving many aspects of a client’s business, including marketing, acquisitions, finance, taxation, information technology, manufacturing, distribution, human resources, divestitures, government relations, facilities, telecommunications, environmental matters and more.

The growing globalization of business and industry in general led inevitably to the globalization of the leading consulting companies. Major consultancies operate offices in the most important business centers in Europe and Asia-Pacific as well as in North and South America. Africa is the next consulting frontier, as rapid economic growth is being enjoyed by a handful of African nations. Many consultancies operate worldwide and have multiethnic, multilingual employee bases. In particular, major consulting firms have opened large numbers of offices in Brazil, India and China in recent years.

Annual revenues at top, global consulting firms run in the billions of dollars, and top consultants may each earn $200,000 to $500,000 or more yearly in return for grueling hours, high stress and many, many days spent traveling far from home. Despite these drawbacks, considering the high pay and the prestige, the best students at the best business schools frequently pine for posts in consulting. (An interesting exception to the grinding work and travel required of employees at many consultancies is found at Atlanta-based North Highland, www.northhighland.com). At this innovative mid-sized firm, consultants find that, per company policy, their assignments are largely in the cities where they live, negating the need for extensive travel, and work/life balance is encouraged by the firm’s business practices.)

In contrast to the size and infrastructure of the leading management consulting companies, a large portion of the industry is comprised of very small companies—in many cases these are one-person shops, perhaps operating from a spare bedroom at home. This part of the business has grown rapidly, as legions of well educated, highly qualified and thoroughly experienced executives and professionals have been laid-off during corporate downsizing or took early retirement in exchange for an opportunity to work for themselves. These professionals have turned to self-employment as consultants, focusing on their specialties and combing their contacts for leads.

Also in recent years, consultancies, large and small, have become more virtual, cutting back on the need for personal time spent in the office and/or on the road. High speed Internet connections combined with online collaboration tools and video conferencing are making it easier for consultants to work effectively no matter where they may be. This trend was fostered by globalization, as the need to collaborate with team members in the global offices of a consultancy, as well as communicate with the global offices of clients, has created high demand for the latest in online tools.

Despite recent superb levels of profitability throughout many corporate sectors, the days of unrestrained corporate spending are long gone. Corporate clients are now much more demanding when negotiating consulting contracts. Their demands are likely to include specific caps on overall cost, tight controls on travel and other expenses related to a consulting project, a demand for lower hourly rates and sometimes a penalty if desired goals are not met.

In an effort to control costs, some corporations that were formerly desirable clients have built their own internal consulting staffs. One interesting offshoot of this trend is that the internal consulting units at a few companies have begun offering consulting services to outside clients. This is increasingly found in industries such as hospitality that are focused on high levels of customer service. At the Walt Disney Company, long famous for customer satisfaction and innovative employment practices, a consulting unit called The Disney Institute is now teaching other firms how to better engage their customers. Likewise, The Ritz-Carlton Leadership Center, a unit of Ritz-Carlton Hotels (itself a luxury property subsidiary of hotel giant Marriott), is teaching client firms how to provide high levels of service to picky customers.

Going forward, consulting firms will be forced to compete fiercely for their engagements, and the engagements they receive may be relatively short-term or less profitable than assignments of the past. Corporate clients will be focused on a provable return on investment for consulting dollars spent. Specific goals will be set early in the process, and consultants will be under intense pressure to meet those goals. Large, multifaceted consulting companies will face fierce competition from smaller, niche companies. In particular, consultancies that can quickly improve their clients’ profits may have the best competitive advantage over the mid-term. Corporate clients may lean toward hiring consultancies with a proven ability not only to point out a corporation’s problems and strategic deficiencies, but also to implement solutions that cut debt, restore health to balance sheets and stabilize profits.

Consulting to Governments: Historically, U.S. governments at local, state and federal levels have provided lucrative consulting contracts. Government at all levels has large needs for consulting in IT, security, human resources and other areas. For example, the latest Washington Technology (www.washingtontechnology.com) list of Top 100 Federal Prime Contractors, based on contracts granted during the federal government’s 2013 fiscal year, ranks Lockheed Martin ($14.9 billion, down from 2012’s $17.4 billion), Northrop Grumman ($8.6 billion, down from 2012’s $9.1 billion), Boeing ($7.1 billion, down from $7.4 billion) and Raytheon ($6.1 billion—up from $5.7 billion) as the top contractors.

These contracts are for consulting and services in information technology, defense, telecommunications, professional services and engineering. Note that the largest awards went to firms that are predominantly defense or aerospace contractors. The winding down of U.S. involvement in Afghanistan and Iraq is having a deep, negative impact on these defense-related contracts. Further deep cuts in U.S. government defense spending are likely over the mid-term.

IT Consulting: One of the fastest-growing segments of consulting has been information technology (IT). This segment includes consultants focused on e-commerce; telecommunications; intranet and Internet strategies and functionality; hardware systems design and implementation; software design, acquisition and implementation; and web site design and operation.

During the tech boom of the 1990s through early 2001, IT consultancies like the now defunct marchFIRST appeared out of nowhere and quickly attained annual revenues in the hundreds of millions of dollars. That era, through the widespread commercialization of the Internet and fiber optics, as well as the rapid spread of networked computing, brought a tidal wave of technology opportunities to light. Managers everywhere wanted to quickly ramp up new systems, from web sites to private data networks to advanced e-commerce systems. A concern over potential software problems when the new millennium turned in year 2000 (“Y2K”) also lead to massive consulting projects. Corporate clients turned to consultants, and the IT consulting companies boomed. These consultancies created marketing partnerships with leading hardware and software manufacturers so that they could quickly recommend, purchase and install technology system packages—at high profits to both the consultancies and the system manufacturers. Enterprise-level systems, which were supposed to seamlessly deliver real-time information from subsidiaries around the globe to top managers, became the standard at Global 1000 companies. In the end, corporate clients invested massive sums but didn’t always get the results they desired. Now, corporations have new IT needs thanks to the rapidly expanding fields of social networking, mobile computing, online employee collaboration and cloud computing and data storage. An increased need for consulting relating to the security of networks and data is likewise creating vast consulting opportunities.

Today’s largest IT consulting firms often provide outsourced IT services of many types. In fact, successful consultancies with IT hardware roots have evolved into full-service companies. In many cases, they are now integral departments within larger technology-based firms. The IBM Global Services unit of computer giant IBM best illustrates this trend, as services now bring in more revenues for IBM than computer hardware and software. At such tech firms, a large portion of income is derived from outsourcing. That is, once these IT services firms have determined a client’s needs during a consulting or analysis phase, they may deliver turnkey services that include actual day-to-day operation of the client’s computer department and/or other departments. Not all of IBM’s competitors have been as successful as IBM in this regard. HP has also been focusing on its large consulting and services unit, which grew dramatically with its 2008 acquisition of EDS. While services now bring in a substantial portion of HP’s revenues, the firm has not been meeting its goals in this field, and in 2012 it wrote down $8 billion of the cost of its EDS acquisition. Dell acquired consultancy Perot Systems, marking a new strategic direction for the computer manufacturer. Nonetheless, Dell has been struggling to maintain momentum and has been taken private via a buyout by investors. Meanwhile, many companies outside of the computer hardware and software field have successfully blended consulting and outsourcing into their offerings, developing dependable additional revenue sources by offering a complete line of services to their clients.

A major development in IT consulting has been the extremely rapid growth of large companies that are based in India but compete globally, such as Wipro, Infosys and Tata Consultancy Services (TCS). These companies quickly grew multi-billion dollar revenue bases as major contenders in the global IT sector. Additional hot competition for IT consulting budgets comes from software companies, such as Oracle, that have quickly built up large consulting units of their own.

For the mid-term, the biggest opportunities for IT consulting growth will lie in these areas:

1) Big data, data mining and predictive analytics

2) Cloud-based IT infrastructure

3) Mobile apps and data services

Source: Plunkett Research, Ltd.

ODM, Original Design Manufacturers: In an interesting development, OEMs (original equipment manufacturers) of a wide range of products and components, from computers to hard drives to automobile components, now consult intensely with their clients in the product development phase, and are later involved in the actual manufacturing. This has led to the evolution of some OEMs into ODMs (original design manufacturers). These ODMs consult with, design for and then manufacture for their clients.

For example, an ODM might determine the needs for an in-dash stereo/radio system of an automaker client, design the system and finally manufacture the system. The automobile industry has become an environment in which major manufacturers, such as GM, rely heavily on a handful of component and systems manufacturers, such as Delphi, to consult in the design and engineering phase of new car planning. The newest generations of aircraft at Airbus and Boeing are designed and manufactured to a large extent by ODM partners scattered around the globe.

The consumer electronics and personal computer sectors are heading in the same direction. Contract electronics manufacturers such as Flextronics consult heavily with their clients in the design of new products such as computers, stereos or telecommunications equipment.

As technology has advanced rapidly and microchips have become integral components of many everyday items, consulting on design and implementation has become necessary to many types of manufacturers. Likewise, many types of service providers, such as those in telecommunications, must consult to a large extent with customers regarding their systems’ needs. Consulting in these types of situations may or may not result in additional fees, but can be vital pieces of the complete sales cycle. In many cases, the consulting functions at manufacturing and services firms have been developed into true profit centers with specific fee structures.

NAICS 2002 Codes (Click on Number for more info)	SIC Codes
Number	Description	Number	Description	Number	Description
541600	Management, Scientific, & Technical Consulting Services	541611	Administrative Management and General Management Consulting Services Also called: Medical office management consulting services or consultants Records management consulting services more detail...	8742	Management Consulting Services
541513 Computer Facilities Management Services - 2007 NAICS Code Description Cross References Alternate Titles SIC Code Matches 2002 NAICS Mapping See Also Description This U.S. industry comprises establishments primarily engaged in providing on-site management and operation of clients' computer systems and/or data processing facilities. Establishments providing computer systems or data processing facilities support services are included in this industry. Cross-References Establishments primarily engaged in providing computer data processing services at their own facility for others are classified in Industry 518210, Data Processing, Hosting, and Related Services. Alternate Titles This sector is also called: · Computer systems facilities (i.e., clients' facilities) management and operation services · Data processing facilities (i.e., clients' facilities) management and operation services · Facilities (i.e., clients' facilities) management and operation services, computer systems or data processing · Facilities (i.e., clients' facilities) support services, computer systems or data processing SIC Code Matches for 541513 · 7376 - Computer Facilities Management Services 2002 NAICS Mapping **NAICS code 541513 has not changed from 2002 to 2007.
See Also
Parent Sectors of 541513: Number Description Number Description 541600 Management, Scientific, & Technical Consulting Services 541611 Administrative Management and General Management Consulting Services Also called: Records management consulting services Medical office management consulting services or consultants more detail... 8742 Management Consulting Services 541618 Other Management Consulting Services Also called: Utilities management consulting services Telecommunications management consulting services more detail... 8748 Business Consulting Services, N.E.C. 541614 Process, Physical Distribution, and Logistics Consulting Services Also called: Manufacturing management consulting services Logistics management consulting services more detail... 8742 Management Consulting Services 541612 Human Resources and Executive Search Consulting Services Also called: Personnel management consulting services Executive search consulting services more detail... 541613 Marketing Consulting Services Also called: Sales management consulting services Marketing management consulting services more detail... 541614 Process, Physical Distribution, and Logistics Consulting Services Also called: Manufacturing management consulting services Logistics management consulting services more detail... 4731 Arrangement of Transportation of Freight and Cargo 541612 Human Resources and Executive Search Consulting Services Also called: Personnel management consulting services Executive search consulting services more detail... 7361 Employment Agencies 8999 Services, N.E.C. 541512 Computer Systems Design Services 541512 Computer Systems Design Services Also called: Computer systems integration design consulting services Computer software consulting services or consultants more detail... 7373 Computer Integrated Systems Design 7379 Computer Related Services, N.E.C. • 54 - Professional, Scientific, and Technical Services • 541 - Professional, Scientific, and Technical Services • 5415 - Computer Systems Design and Related Services • 54151 - Computer Systems Design and Related Services This sector is also called: · Administrative management consulting services · Business management consulting services · Business start-up consulting services · Financial management consulting (except investment advice) services · General management consulting services · Medical office management consulting services or consultants · Records management consulting services · Reorganizational consulting services · Site location consulting services · Site selection consulting services · Strategic planning consulting services Selling computer hardware or software products and systems from retail-like locations, and providing supporting services, such as customized assembly of personal computers - are classified in Industry 443120, Computer and Software Stores; and • Wholesaling computer hardware or software products and providing supporting services, such as customized assembly of personal computers, - are classified in Industry 423430, Computer and Computer Peripheral Equipment and Software Merchant Wholesalers. Alternate Titles This sector is also called: · CAD (computer-aided design) systems integration design services · CAE (computer-aided engineering) systems integration design services · CAM (computer-aided manufacturing) systems integration design services · Computer hardware consulting services or consultants · Computer software consulting services or consultants · Computer systems integration analysis and design services · Computer systems integration design consulting services · Computer systems integrator services · Computer-aided design (CAD) systems integration design services · Computer-aided engineering (CAE) systems integration design services · Computer-aided manufacturing (CAM) systems integration design services · Information management computer systems integration design services · Local area network (LAN) computer systems integration design services · Network systems integration design services, computer · Office automation computer systems integration design services · Systems integration design consulting services, computer · Systems integration design services, computer SIC Code Matches for 541512 · 7373 - Computer Integrated Systems Design · 7379 - Computer Related Services, N.E.C. 2002 NAICS Mapping

Determine the Standard Industrial Classification (SIC) Code and/or NAICS Code for the industry.

Include:

􀀀 A brief history

􀀀 Factors that affect growth

􀀀 Government regulations

􀀀 Leading businesses in the industry

Library Resources:

o Standard & Poor's Industry Surveys

o US Industry & Trade Outlook

o Encyclopedia of Emerging Industries, Gale Research

o Encyclopedia of American Industries, Gale Research

Internet Resources (free or for purchase):

o Trade Associations – Find appropriate associations in: Encyclopedia of Associations

or a general Internet search)

o Hoover's Online (www.hoovers.com) – Companies and Industries Section

o MarketReseach.com (www.marketresearch.com) – Retailer of private market

research reports

There are two distinct yet related models for studying markets. One method of analysis is the "Structure-Conduct-Performance" paradigm from the Industrial Organization field of Economics. Another is Porter's Five Forces. As we will see shortly, Porter's Five Forces and the "Structure-Conduct-Performance" paradigm overlap in many ways. This page combines both methods into a unified guide for industry studies and the analysis of firms and competitive strategy.

I. A. Porter's Five Forces

I. A. 1. Introduction

"The Structural Analysis of Industries" is covered quite well in Chapter 1 of Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors, 1980 and new introduction in 1998, The Free Press , New York, NY.

Figure 1 is a graphical representation of Porter's Five Forces.

Figure 1: Porter's Five Forces

Porter details the factors that impact each force and develops an analytical model to study industries. The purpose of this analysis is to assess the profitability potential of industries. The analytical tools of Porter's book will not be reproduced here. However, Porter's framework incorporates the analysis of market structure and vertical supply chains and each of these concepts will be addressed from the perspective of an economist.

I. A. 2. The Microfoundations of Porter's Five Forces

The real genius of Porter's Five Forces is that it builds on and combines two tools from microeconomics, namely the analysis of market structure and vertical boundaries. The analysis of market structure is the first element of the "Structure-Conduct-Performance" paradigm.

I. A. 2. a. Market Structure

The vertical elements of Porter's Five Forces are shown in Figure 2.

Figure 2: The Vertical Elements of Porter's Five Forces

Each of these elements corresponds to a determinant of market structure as detailed in Table 1 below.

Table 1: Porter's Five Forces and Market Structure

Element of Porter's Five Forces	Determinant of Market Structure
Potential Entrants	Barriers to Entry
Industry Competitors (Direct Substitutes)	Number of Sellers Product Characteristics
Indirect Substitutes	Product Characteristics

I. A. 2. b. Vertical Supply Chain

The horizontal elements of Porter's Five Forces are shown in Figure 3.

Figure 3: The Horizontal Elements of Porter's Five Forces

If one were to show these elements vertically, they would appear as:

Figure 4: The Vertical Supply Chain

This representation now shows the vertical supply chain. The important issue for firms in the industry is how they position themselves in the supply chain. The firms essentially must choose their vertical boundaries.

I. B. The "Structure-Conduct-Performance" Paradigm

The "Structure-Conduct-Performance" paradigm is a road map for identifying the factors that determine the competitiveness of a market, analyzing the behavior of firms, and assessing the success of an industry in producing benefits for consumers.

"Structure" refers to the market structure of an industry which is indicative of the degree of competition in the industry. "Conduct" refers to business practices adopted by firms in the industry to implement their competitive strategies and to create competitive advantage (the ability to outperform competitors in the industry). "Performance" refers to measurements by which the industry or firms in the industry can be judged as to whether they have achieved their stated goals.

I. C. A Unified Guide for Studying Industries and Firms

The methodology of our unified guide for understanding markets begins with an industry study and continues with an examination of the competitive strategies of firms in the industry. The framework we will use for analyzing industries and firms is:

· Evaluate the industry's potential for profitability (with an industry analysis).

· Identify the firm's strategic positioning within the industry and analyze its business practices.

· Assess the firm's potential for competitive advantage (the firm's ability to outperform competitors in the industry).

II. Industry Analysis

The purpose of an industry analysis is to assess the profitability potential of the industry.

The steps in an industry analysis are:

· Identify the industry and describe its market.

· Classify the market structure of the industry.

· Characterize relationships between links in the vertical supply chain.

· Evaluate the future profitability potential of the industry.

II. A. Introduction to the Industry and its Market

II. A. 1. Industry Definition and Description

II. A. 1. a. Definition and Specific Description

The first task is to define the industry. Industry definition is important to determining the competitive set. In economics, defining the competitive set is equivalent to defining a firm's horizontal boundaries. A firm's horizontal boundaries are its competitors who supply direct substitutes.

The U.S. Census Bureau classifies industries with the North American Industrial Classification System (NAICS). NAICS can be accessed at the web page www.census.gov/naics . A researcher can navigate and/or search the site and find a description and definition of most industries in the US. Industry descriptions vary from very broad (two-digit NAICS codes) to very narrow (six-digit NAICS codes). Usually, a researcher will choose the narrowest description of an industry. This allows the researcher to most closely identify the companies that compete with each other in an industry. The narrower the description of an industry, the more likely the competitive set will be based on products that are direct substitutes. The broader the description on an industry, the more likely the competitive set will be based on products that are indirect substitutes.

For each six-digit NAICS code, there is a short description of the industry. Additionally, the U.S. Census Bureau provides a short definition of the industry. The researcher must determine if the description and definition of the industry fit with the intended companies targeted for study.

II. A. 1. b. General Description

An industry analysis often starts with a brief introduction to the industry. Sources for general information on an industry are:

· Company provided information (web pages and information packages)

· Industry reviews (See "Introductory Reviews" under the subheading "INDUSTRY SOURCES" on the checklist provided on the Babson College Horn Library web site "Library Research Guide: United States Company & Industry Checklist" at http://www.babson.edu/library/companyindustrycklist.htm .)

· Investment analyst reports. (See "Investment Analyst Reports" under the subheading "INDUSTRY SOURCES" on the above checklist.)

· Corporate reports of publicly-held corporations. Companies often provide this information on their web sites. Another alternative is the SEC Edgar Database of corporate information available at http://www.sec.gov/edgarhp.htm . (See "Corporate Reports of Publicly-Held Companies" under the subheading "COMPANY SOURCES" on the above checklist.)

· Periodical articles and news. (See "Index to Periodical Articles and Current News" under the subheading "INDUSTRY SOURCES" on the above checklist.)

· Trade associations. A listing of trade associations is available at http://www.associationcentral.com/ . (Other sources are provided on the Babson College Horn Library web site "Researching an Industry: Trade Association Material" at http://www.babson.edu/library/indtrade.htm .)

II. A. 2. Market Conditions

General market conditions faced by an industry are often important factors in the choice of conduct by firms and for the ability of firms to generate profits and meet expected performance goals. Identifying relevant general market conditions requires an analysis of:

· Supply and demand conditions that define the market.

· The overall market environment. Environmental factors are often identified with a PEST methodology. The PEST acronym stands for Political/Legal, Economic, Sociocultural, and Technological factors.

II. A. 2. a. Supply and Demand Conditions

The factors driving the supply of and demand for a product of an industry are detailed in Table 2 below. These factors determine the defining characteristics, position and slope, of supply and demand curves in an economist's representation of a market.

Table 2: Basic Market Conditions, Determinants of Supply and Demand

Determinants of Demand	Determinants of Supply
Position of demand curve: · Change in number of buyers (market growth) · Change in buyer tastes and preferences · Change in income (income elasticity of demand) · Change in the prices of related goods, substitutes and complements (cross-price elasticity of demand) · Change in expectations	Position of supply curve: · Change in number of suppliers (more or less competition in the industry) · Change in resource prices (raw materials and labor) · Change in technology · Changes in taxes and subsidies · Change in prices of other goods · Change in expectations
Slope of demand curve: · Buyer price sensitivity (price elasticity of demand) - Degree of substitutability - Proportion of buyer income - Type of product (inferior versus normal good, normal good further classified as necessity versus luxury) - Buyer time to purchase product	Slope of supply curve: · Firm time to respond to a change in the price of the product

The interaction of supply and demand determine production levels and product price in the market. In a perfectly competitive market, equilibrium price and output in a market are determined where quantity supplied equals quantity demanded. Determination of output and price in other market structures is a bit more complex. For additional information, see a standard Principles of Microeconomics textbook such as Economics: Principles, Problems, and Policies, by Campbell R. McConnell and Stanley L. Brue, The McGraw-Hill Companies, Inc.

The analysis of supply and demand conditions are closely related to two aspects of Porter's Five Forces. The determinants of demand parallel Porter's analysis of buyer bargaining power and the determinants of supply are important factors in studying the intensity of rivalry between existing industry competitors.

II. A. 2. b. PEST

In addition to market forces within the industry, it is critical to monitor external forces that may impact the industry on an ongoing basis. A manager may have a very good understanding of what is happening within an industry, and yet be blindsided by external events that change the nature of competition and revenue within an industry. A marketing framework commonly used to examine these factors that impact business decisions is referred to as PEST. PEST is an acronym for the political/legal, economic, sociocultural, and technological factors that shape the environment of an industry or a business.

Political/Legal

An industry must remain abreast of political forces that may influence the viability and profitability of the overall industry, as well as specific firms. Political and legal issues that have impacted businesses and industries over the past decade include: environmental legislation, regulation of the Internet, antitrust rulings, to name a few. For a multinational business, these factors become much more complicated. The business must continually monitor the stability of governments, understand differences in governmental practices, know the rules in terms of importing and exporting goods, and be knowledgeable about the laws that impact the industry and the business in each country. These factors can impact the structure and profitability of the business and industry in each country. Sources of information that can be used to monitor this factor include: government agency web sites and publications, embassies, lawyers and legal journals, and, of course, newspapers.

Economic

The economy can have a serious impact on sales and profitability within an industry and firm. Unemployment rates, the value of the dollar, inflations, growth, and productivity are factors that impact the health of the economy and consumer confidence. These factors provide indicators to potential concerns on recession and inflation. The economy may lead to reduced spending by consumers that have a rebound effect throughout companies and industries. A firm must monitor these factors to forecast sales and profits appropriately and devise appropriate strategies to ride out an unfavorable economic environment. Firms may even be able to take advantage of an economic downturn to gain share and customers from competitors. Potential sources of information to evaluate the current and projected state of the economy include the New York Stock Exchange and NASDAQ (as well as world exchanges), Wall Street Journal, and analyst reports.

Sociocultural

Trends may occur within the social and/or cultural structure of society. Examples in the past decade include the increase in working women, the health and fitness craze, and the growth in discretionary spending by youths. These trends can have a serious impact on entire industries, as well as individual companies. A business must monitor these trends to make sure that its product will continue to meet the needs of the consumers it serves. New attributes may emerge and the importance of existing attributes may change as a result of changes in society. Similarly, as the business enters new markets or countries, expectations may be very different based on the social structure and societal expectations of the specific culture or cultures. Sources of information on these trends include newspapers and magazines, television and other mass communication media, and specific monitoring publications or companies as American Demographics and the Yankelovich Monitor.

Technology

In the past century, the world has seen a technological revolution. Today, we can travel faster, receive communications instantly, and produce more per capita. As a result of this change, many industries have emerged (e.g., cellular phones and dot-coms) and many industries have all but disappeared (e.g., typewriters). Business that have survived have succeeded in staying ahead (or only slightly behind) the technological advances. These businesses have taken advantage of the emerging technology in other industries to improve their product and/or service. These firms are always looking for technology that will help serve customers better and/or cheaper. In that way, technology may provide a competitive advantage. Sources of information on technology include journals in potential areas such as computers or genetics, scientific journals, and other newspapers and magazines.

The critical element in environmental scanning is to continually monitor the media relevant to your customers, your industry, your market(s), and overall technological development. As changes occur for elements within PEST, a company (and industry) must ask:

· Is this likely to grow and continue in acceptance?

· Is it likely to influence my industry?

· How can I use it to differentiate my product or service? Or should I offer a new product or service?

· How can I use it to gain a competitive advantage?

A good resource for further information on environmental scanning (or PEST) is …. [UNDER CONSTRUCTION - Professor Carol Gwin]

II. B. Market Structure

Market structure refers to the number and relative size of sellers and buyers in a particular market. There are four definitions of a market structure: Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly. The market structure of an industry can be classified with three criteria: number of sellers, product characteristics, and barriers to entry. Market structure classification according to these three criteria is summarized in Table 3 below.

Table 3: Classifications of Market Structure

Criteria	Market Structure
	Perfect Competition	Monopolistic Competition	Oligopoly	Monopoly
Number of Sellers	Many	Many	Few	One
Product Characteristics	Homogenous	Differentiated	Homogeneous (Pure Oligopoly) or Differentiated (Impure Oligopoly)	Unique
Barriers to Entry	None	None	High	Very High

II. B. 1. Market Definition and the Relevant Market

The Department of Justice (DOJ) and the Federal Trade Commission publish horizontal merger guidelines that are an excellent reference source for market definition and defining the relevant market for classifying the market structure of an industry. The publication Horizontal Merger Guidelines can be accessed from the web page of the Antitrust Division of the DOJ at http://www.usdoj.gov/atr or of the Federal Trade Commission at http://www.ftc.gov .

The guidelines state: "A market is defined as a product or group of products and a geographic area in which it is produced or sold such that a hypothetical profit-maximizing firm, not subject to price regulation, that was the only present and future producer or seller of those products in that area likely would impose at least a 'small but significant and nontransitory' increase in price, assuming the terms of sale of all other products are held constant." This statement is equivalent to the question: What firms would have to be included in a cartel for the cartel to have market power?

The guidelines continue with: "A relevant market is a group of products and a geographic area that is no bigger than necessary to satisfy this test." Thus, the relevant market that we should consider in our analysis of market structure is only those firms that must be included in a cartel for the cartel to have market power. In some cases, only one firm need be included in the cartel because the geographic area in which a product is sold is very small. These are called local monopolies. For example, many towns in the western U.S. have only one gas station or one grocery store. Consumers who live in these small towns may have to pay a "monopoly" price for gas or groceries because it is too costly for them to drive to the next town (these costs are called search costs).

For most industries in the U.S., the relevant market is the entire nation (and possibly the entire world). However, a researcher must take care to consider issues such as the geographical span of market power.

II. B. 2. Number of Sellers

How many sellers are there? This question can be answered in two ways. First, we can literally count the number of sellers. Second, we can measure the concentration of the industry.

For a definition of sellers and buyers, see Guides for Advertising Allowances and Other Merchandising Payments and Services 16 CFR 240.1 available from the Federal Trade Commission web page at http://www.ftc.gov .