Industry Analysis (6-Force) Worksheet

Step 1. Identify the “Focal Firm” and its industry (use yahoo.finance)

Step 2. Identify the horizontal and vertical relationships of the “Focal Firm”, and examine
the threat that these relationships may impose on the “Focal Firm” (refer to the following
checklist for detailed thought dimensions).

Step 3.a Based on the threat level of all relationships, predict the profitability and
attractiveness of the Focal Firm’s industry.

Step 3.b Or, if the profitability of the Focal Firm’s industry is known, report on which
relationship is the major cause of low or high industry profitability.

Checklist of Conditions That Impose High Threat to the Focal Firm

Horizontal Relationships
I. Potential entrants (entry barrier)
a. Economies of scale or initial investment requirement (low)
b. Switch cost/ consumer loyalty (low) i.e., financial or emotional cost
incurred by consumers when switching from the focal firm’s product to a
similar product produced by other firms
c. Product differentiation to the product of the focal firm (low)
d. Access to distribution channels by potential entrants (easy)
e. Access to proprietary knowledge by potential entrants (easy)
f. Government control or subsidy (low) i.e., government has few restrictions
on entry of the focal firm’s industry, or does not provide subsidy to the
incumbents.
II. Existing competitors (rivalry)
a. Product differentiation among competitors (low)
b. Switching cost for consumers to change product providers (low)
c. Industry concentration (low) (CR4 is low or number of firms is high).
d. Industry growth rate (low).
e. Fix cost (high)
f. Stake in certain market (high).
g. Exit barriers (high)
i. Specialized fixed asset (high)
ii. Entanglement with other stakeholders (high)
III. Substitute products
a. Availability (high)
b. Utility (high)
c. Cost (low)
IV. Complements
a. When many complements adopt different format from the ones used by
the focal firm. (IBM adopted DOS format rather than the Apple format),
or when complements use substitute of the focal firm’s product (PC
makers use Linux to replace Windows).
 b. When the price of complements rises. (Gas price impacts the car makers’
sales)

Vertical Relationships
V. Suppliers
a. When the industry concentration of the suppliers is greater than that of the
focal firm. i.e. the suppliers are larger in size and fewer in number than the
focal firm.
b. When the supplier’s goods are important to the focal firm’s marketplace
success and there is no substitute product for these goods.
c. When there is a high switching cost for the focal firm to change suppliers.
d. When the suppliers are financially strong enough to present a credible
threat to integrate forward into the focal firm’s industry.
e. When suppliers’ output is lower than core firm’s demand.
VI. Buyers
a. When the industry concentration of the buyers’ industry is greater than
that of the focal firm.
b. When there is low switching cost for the buyers to replace the focal firm
with other sellers.
c. When the buyers are financially strong enough to present credible threat to
backward integrate into the focal firm’s industry.
d. Importance of core firm’s product to the buyer (low)
e. When buyers’ demand exceeds producers’ output.
 Industry (6-Force) Analysis Template
Focal Firm: McDonalds, Burger King, Wendy’s. Industry name and definition: Fast Food
Restaurants; Establishments primarily engaged in the retail sale of prepared food and drinks
for on-premise or immediate consumptions. SIC: 5812
Type of Who are Analysis of Threat Level of Threat
Relationship they? (High, Moderate, Low)
Analyze the threat of each relationship to Estimate based on the
List some
the focal firm based on the items in the analysis of threat
names
worksheet (This is the core!)
Potential entrants

Existing
competitors

Substitutes

(Complementors)

Suppliers

Buyers

Overall Generalize the overall level of threats and profitability:

Profitability of
the incumbents What is the industry ROE?

List major threats:

Overall Conclude the overall attractiveness of this industry (high, medium, low).
Attractiveness
to outsiders