This chapter deals with the understanding and analyzing of the organization's competitive environment in which strategies are produced. It begins with an extensive description and explication of the ideas in the for-profit setting and with the ways the framework can be adapted for use in the nonprofit setting. The focus is placed on how industry analysis provides a systematic way of identifying the key external challenges that must be addressed in the development and evaluation of strategy. In addition, a framework for analyzing industry structure and thinking through the implications for strategy is illustrated. Porter's five forces framework highlight the fact that competitors are not the only actors whose behavior affects a firm's profitability; other players can also siphon off the value created by firms in an industry. Some of the practical issues in conducting an industry analysis in a real-world settings are addressed.
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