Looking at Industries and Enterprises


Each Monday I post the next section of my 2001 book, which was originally called (by the publisher) Hoover’s Vision but which I have now retitled The Art of Enterprise. I have posted over half of it already; click on the “Monday” column to see all the prior sections. The entire book can be downloaded as a PDF for $10 at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010





Looking at Industries and Enterprises

This book started by laying the foundations of enterprise-building: understanding the world around us, its people, its places, and the trends that affect them all. But the enterprise-builder must also examine and understand the economy, industries and individual companies. The better we understand other enterprises, successful and unsuccessful alike, the better we can answer such questions as:
¨       Would I want to work in this industry?
¨       Could I start a new company in this industry? Would I want to?
¨       Would this industry make a good customer for my products or services?
¨       Would this industry be a good supplier, partner, or affiliate for my enterprise?
¨       Would I want to invest in this industry by buying stock in it or (if it is non-profit) by contributing to it? Or invest my time and energy?
¨       Do I want to compete in this industry and, if so, how can I compete most effectively?
In these questions, “industry” could be replaced with “enterprise.” Most important, the entrepreneurial mind is always asking, “What can I learn from studying this industry or this enterprise?” For all these reasons, looking at all kinds of enterprises around you is one of the most important exercises for the enterprise-builder.
We will first take a quick look at some of the factors to consider when looking at enterprises. Then we’ll examine selected industries and companies. Our selections are not intended to provide an exhaustive tour of the world of commerce – you can find that at Hoover’s Online (www.hoovers.com). But they’ll give you a sense of how to apply the ideas found throughout this book and stimulate you to look at your own industry in new ways.
As you read these chapters, remember three things:
¨       There are exceptions to every generalization. One of the secrets of all great enterprises is differentiation. Sometimes that means breaking the rules, even my own.
¨       Things change. Think about how quickly the so-called New Economy was born, blossomed, and receded, all within five years. Some of the specific things I say in these chapters may be dated by the time you read them. But the underlying principles remain valid.
¨       Few things are harder than running an organization. It’s hard to understand the pressures, obligations, and intensity of the CEO’s job until one has been there. Having been a CEO three times, I know it is far easier to second-guess decisions than it is to make them. While I may be critical of some companies or their CEO’s, I also have sympathy for them. I also know that we have all made plenty of mistakes – it is not how few you make so much as how fast you correct them that matters. Please read my comments and critiques in this light.
My tool kit for looking at industries and companies includes several key elements:
¨       A clear definition of the industry;
¨       An understanding of its economic fundamentals;
¨       An understanding of its structure and of the structural trends in the industry;
¨       A look at how customer-centered the industry and its leading companies are; and, within that focus, a look at the strength of innovation and branding in the industry.
Let’s take a broad look at these dimensions before studying specific industries.

Industry Definition

The first step in understanding any industry is to define it. If we were to ask the people at Carnival Cruise Lines what industry they are in, we might expect them to say “cruises.” But, in fact, the answer the company gives is “escape vacations.” What’s the difference? While their competitors, who define themselves strictly in terms of cruises, are chasing Carnival, Carnival is looking at Disney World and Las Vegas as competition.
Does Harvard compete only with Yale (and other universities), or does it also compete with other options for well-heeled and intelligent young people: for example, four years spent traveling around the world, or a stint in the Peace Corps?
As we look at each industry in the pages to follow, we will start with the definition of the industry, possibly increasing our breadth of vision in the process.

Economic Fundamentals

You might assume that a focus on the economic fundamentals of any industry would be obvious, but I’m amazed at how often these are ignored. To analyze the economics of any industry, try asking the following questions:
¨       Is this industry part of the resource extraction, manufacturing, or service sector? (“Resource extraction” includes agriculture, timber, mining, and the oil and gas industries.)
¨       Is its share of the overall economy rising, stable, or falling?
¨       Is this industry growing faster or slower than the overall economy?
¨       Is this industry in its early stages, or is it mature? (Remember, it might be mature in the “first world” but still relatively new elsewhere.)
¨       Does this industry produce a commodity which rises and falls in price, with little differentiation from one supplier or distributor to another, or does it produce a product or service that can be differentiated and effectively branded? (Examples of commodities are oil, paper, and grain.)
¨       Is the demand for the industry’s product stable or cyclical? (Purchases of cars and houses, for example, rise and fall with interest rates; demand for semiconductors varies in tune with the overall business cycle. Such swings are rare or nonexistent for products like toothpaste and beer.)
When you begin to study any industry, first research these questions, then think about the answer to each of these questions. What does it mean for the challenges of the enterprise? For its attractiveness to investors and ability to raise capital? For the nature of competition and the psychology of the industry?