The Role of Strategy in Management

The purpose of strategic management is to create competitive advantage. But how do companies know they have competitive advantage? In the long term, competitive advantage will lead to greater profitability. But in the shorter term, it is difficult for companies to assess how well they are creating competitive advantage. An industry analysis is a method for a company to assess its market position relative to its competitors. An industry analysis is meant to help a company review various market and financial factors in its industry that affect the business, including evaluating the competition. This analysis helps managers understand the important factors of the marketplace and how these factors may be used to gain a competitive advantage. Industry analyses are an important tool for companies to assess their strategy in a shorter time frame.

Because conditions in the business environment are constantly changing, industry analyses need to be done periodically to keep up with developments. This can be a very time-consuming process and, if not done accurately, can lead to bad strategic decisions. For this reason, managers may go to outside firms, either to produce the analysis or to provide data for the company to complete an analysis. A number of companies exist that maintain huge databases of information about particular industries, such as Hoovers and IBIS. These companies have methods for gathering the data and for analyzing the data to produce reports.