An industry is a complex system involving many different companies, markets, competitors, customers, and products or services. Understanding these dynamics can be complicated and time consuming.
Industry analysis models provide a means to manage that complexity by organizing the analysis and presenting conclusions in a coherent manner.
Michael Porter’s 5 Forces analysis provides a useful framework for industry analysis.  This is a big subject and Porter’s various books provide additional detail and guidance. In the following, I’ll provide a high level summary of some key ideas to keep in mind when starting out on an industry analysis.
Opening questions
Start the analysis by asking, or at least mentally reviewing, some pointed questions about the company and industry in focus. These questions help hone in on the most important information and begins the process of sorting and evaluating the information available or identifying what additional information will be helpful to obtain. Here’s a list to get you started:
What industry is the organization in?
How is this industry defined?
What life cycle phase is the industry in?
How rapidly is the industry evolving towards maturity?
Who are the major competitors?
Has competition been consolidating or changing in any way?
Are new types of competitors poised to enter the market?
What are the major customer segments?
How have buyer values been changing?
Who are the major suppliers?
How are suppliers affecting the industry cost structure?
Are similar products (i.e., substitutes) becoming attractive to customers?
What issues most affect the basis of competition? (e.g., cyclicality, overcapacity, new technology, government regulation/ deregulation)?
The 5 forces
With the information gained from asking the above or similar questions, you will begin to get a feel for the major forces at play and the challenges facing industry participants. One way to sort this out in a meaningful way is by the 5 forces as suggested by Porter
Threat of New Entrants
Buyer Power
Supplier Power
Threat of Substitutes
Level of Competitor Rivalry

Let’s look at each one.
Threat of new entrants
The threat of new entrants is high when the industry has low barriers to entry, is in a high profitability of growth mode, and when there are low buyer switching costs.
New entrants find barriers to entry when an industry has the following characteristics:

Proprietary product differences
Brand identity
Switching costs
Capital requirements
Access to distribution channels
Absolute cost advantages
Proprietary learning curve
Access to necessary inputs
Proprietary low-cost design
Government policy
Expected retaliation

Not every item will be equally concerning or relevant in all cases. Use this and the other lists below as inspiration to squeeze out the most important points.
Determinants of buyer power
The analysis of the following characteristics will enable to judge accurately the level of buyer power, bargaining leverage and price sensitivity in the industry.
Buyer power is high if there is/are:
A relatively small number of informed buyers or buyer groups purchasing high volume
Little or no perceived product differentiation
Low switching costs
The determinants of buyer power include both bargaining leverage and price sensitivity:
Bargaining leverage
Buyer concentration vs. firm concentration
Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information
Ability to backward integrate
Substitute products
Pull-through
Price sensitivity
Price/total purchases
Product differences
Brand identity
Impact on quality/performance
Decision-makers’ incentives
Buyer profits
As you can see, it isn’t necessarily just size that determines relative buyer power. By focusing in on the right questions, the real determinants of power usually become apparent. Sometimes this provides for a surprising insight.
Supplier power
Supplier power is high if there is/are:
Few suppliers with no available substitute inputs
High supplier switching costs for industry competitors
Other markets for suppliers’ products.
Other determinants of supplier power include:
Differentiation of inputs
Switching costs of suppliers and firms in the industry
Presence of substitute inputs
Supplier concentration
Importance of volume to supplier
Cost relative to total purchases in the industry
Impact of inputs on cost or differentiation
Threat of forward integration relative to threat of backward integration by firms in the industry
Supplier power is in many ways just looking at buyer power from the other end of the ‘pipe.’
Threat of substitutes
The threat of substitutes threatens a company’s product and service set, rather than the structure of the industry.
Threat of substitutes is high if there is/are:
Low substitute cost-to-benefit trade-off
Rapidly changing technology
High buyer willingness to substitute
Low switching costs
Identifying meaningful substitutes can be a difficult in volatile or emerging markets and technologies. For digital products, like social media and contemporary communication devices, the landscape changes extremely quickly. Consumers can not be expected to have meaningful opinions about things that do not yet exist and that they have no direct experience with.
Level of competitor rivalry
The analysis of the following characteristics will help you accurately judge the level of competitive threat in the industry.
Rivalry is high if there is/are:
Numerous or equally balanced competitors
Mature market growth
High exit barriers
Again, the prescription is hardly infallible. The soft drink market (think Coke vs. Pepsi) is a good example of high competitive rivalry. In this industry career are made or lost on the gain or loss of a fraction of a percent in market share.
Closing thoughts
This purpose of this brief review of a framework for industry analysis was to present a method to stimulate thought. It is not a precise way to predict anything, but a valuable aid to thinking smart about important problems and challenges.
The framework can help you understand the deep, fundamental dynamics of the industry you’re interested in, but you have to supply the brain. Have at it.