Industry Environment Analysis - Meaning, Importance & Example

Published by MBA Skool Team, Last Updated: April 10, 2022

What is Industry Environment Analysis?

Industry Environment Analysis is a study or exercise done to assess the current industry environment. This exercise helps understand the various aspects and predict trends of the industry better, and helps in many other ways. Generally, industry analysis is done by external research agencies, consulting firms or businesses themselves.

Importance of Industry Environment Analysis

To be successful in any business, the ecosystem or the environment of business, industry, geography, trends should be well understood. To understand this, proper study and analysis of the industry environment has to be performed.

The major objectives of such industry environment analysis are:

-          To identify key success factors of that industry

-          To assess attractiveness and growth prospects for entry

-          To formulate competitive strategy

-          To study changes over time and predict trends

The industry environment is composed of the following stakeholders, around which analysis is done. Namely: Competitors, Suppliers and Buyers. There are also other major considerations like the political, legal, technological aspects which are a part of the environment analysis.

To analyze these aspects of the industry, models such as PEST/PESTEL, and PORTER’s 5 forces have been developed. 

A successful industry environment analysis will tell about the important factors like customers, suppliers/vendors, competitive landscape etc. which is critical for business success. If a business doesn't understand and assess the environment then the risk of failing is high. It is equivalent to entering a market without planning or strategy. The changes of being successful would be then chance based and not based on any plan.


Examples of Industry Environment Analysis

Let us look at the automobile industry.

PEST and PESTEL are two models used to analyze political, legal, economic, social, environmental and technological factors pertaining to that particular industry.

Example: PEST analysis for the automobile industry

pestel automobile

Porter’s 5 forces analysis is done to study aspects like Suppliers, Buyers, Competitors, new potential entrants and substitutes of that industry.

Example: Porter’s 5 force analysis for automobile industry:

Porter Automobile

Hence, this concludes the definition of Industry Environment Analysis along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

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