diagnose-industry-type

Diagnose Industry Type

Classify an industry's evolutionary stage and structural type by matching observable market signals against Porter's diagnostic criteria, then route to the appropriate strategy skill.

Input

• Industry name (required)
• Observable market data: growth rates, concentration ratios, buyer profiles, product innovation pace, competitive dynamics, capacity trends, profit trends

Output

• Industry type classification (emerging | fragmented | transitioning to maturity | declining)
• Confidence level (high | medium | low)
• Key signals matched
• Recommended downstream skill for strategy formulation

Procedure

1. Gather signals. List what is known about the industry across: growth trajectory, number/size of competitors, buyer sophistication, product standardization, capacity dynamics, profit trends, substitution threats, and regulatory shifts.
2. Score against the 14 evolutionary processes (below). Identify which processes are most active — this reveals the industry's evolutionary position.
3. Run each classification checklist (below). Count matching signals per type.
4. If declining signals match, apply the structural vs. cyclical decline test.
5. Resolve conflicts. An industry can be both fragmented AND emerging, or fragmented AND declining. If multiple types match, note the primary classification and secondary overlay.
6. Assign confidence. High = 5+ signals match one type clearly. Medium = 3-4 signals, or two types compete. Low = sparse data or ambiguous signals.
7. Route to the appropriate downstream skill.

The 14 Evolutionary Processes (Diagnostic Signals)

These predictable dynamic processes occur in every industry. Assessing which are most active reveals evolutionary stage:

1. Long-run changes in growth — is the growth rate accelerating, plateauing, or declining?
2. Changes in buyer segments served — are new segments emerging or old ones shrinking?
3. Buyers' learning — are buyers becoming more experienced and sophisticated?
4. Reduction of uncertainty — is the technology/business model becoming proven?
5. Diffusion of proprietary knowledge — are trade secrets spreading? Are patents expiring?
6. Accumulation of experience — are cost curves flattening?
7. Expansion (or contraction) in scale — is the industry growing or shrinking in absolute terms?
8. Changes in input and currency costs — are cost structures shifting?
9. Product innovation — is the pace of new product introductions accelerating or slowing?
10. Marketing innovation — are new channels, positioning, or promotional methods emerging?
11. Process innovation — are manufacturing or delivery methods being reinvented?
12. Structural change in adjacent industries — are suppliers, buyers, or complementors changing?
13. Government policy change — are regulations tightening, loosening, or shifting?
14. Entries and exits — are new firms flooding in, or are incumbents leaving?

Classification Checklists

Emerging Industry

• Created by technological innovation, shifts in relative cost relationships, or emergence of new consumer needs
• "No rules of the game" — competitive rules are still being established
• High uncertainty about technology, strategy, and market size
• Many new entrants experimenting with different approaches
• First-time buyers dominate; no repeat-purchase pattern yet
• Proprietary knowledge is closely held; little diffusion

Fragmented Industry

• No firm has a significant market share or can strongly influence industry outcomes
• Large number of small- and medium-sized companies, many privately held
• Absence of market leaders with power to shape industry events
• Low barriers to entry
• Diseconomies of scale or other structural reasons preventing consolidation

Transitioning to Maturity

• Slowing growth sparks increased competition for market share
• Sales increasingly shift to experienced, repeat buyers
• Competition places greater emphasis on cost and service
• "Topping-out" problem: capacity additions must slow or overcapacity results
• Manufacturing, marketing, distribution, and research methods undergoing change
• New products and applications become harder to discover
• International competition increases
• Industry profits fall during the transition period
• Dealer margins squeezed, but dealer power increases as manufacturers compete for distribution

Declining Industry

• Absolute decline in unit sales over a sustained period
• Decline driven by technological substitution, demographics, or shifts in buyer needs/tastes
• Capacity exceeds demand; exit barriers trap competitors
• Surviving firms compete for shrinking pie

Structural vs. Cyclical Decline Test

Porter is explicit: true structural decline cannot be ascribed to the business cycle or short-term discontinuities (strikes, material shortages). Apply this test:

Factor	Structural Decline	Cyclical Downturn
Duration	Sustained, multi-year	Tied to economic cycle
Cause	Technological substitution, demographic shifts, permanent changes in buyer needs	Recession, temporary supply disruption
Reversibility	Irreversible without fundamental reinvention	Self-correcting as cycle turns
Substitutes	Growing substitute eroding demand permanently	No new substitute; demand returns

If structural: route to end-game strategy. If cyclical: do not classify as declining — reassess at next cycle.

Routing Logic

Classification	Downstream Skill
Emerging	compete-in-emerging-industry
Fragmented	compete-in-fragmented-industry
Transitioning to maturity	navigate-maturity-transition
Declining	compete-in-declining-industry
Ambiguous / multi-type	Re-gather data or present both classifications with caveats

Heuristics from Porter

• Industry maturity does not occur at any fixed point in an industry's development — it can be delayed by innovations or other events that fuel continued growth.
• Mature industries may regain rapid growth through strategic breakthroughs and go through more than one transition to maturity.
• Fragmented structure can be a feature, not a bug — some industries have fundamental economic reasons for staying fragmented (diseconomies of scale, diverse market needs).
• In emerging industries, the absence of rules is both a risk and a source of opportunity.
• Declining industries can still be profitable if exit barriers are low and remaining demand pockets have favorable characteristics.

Failure Modes

1. Confusing cyclical decline with structural decline. Apply the structural vs. cyclical test before classifying as declining.
2. Ignoring the fragmented overlay. An industry can be both mature AND fragmented — don't force a single label.
3. Premature maturity diagnosis. A growth slowdown may be temporary; look for innovation breakthroughs that could restart growth.
4. Insufficient data. Don't classify with high confidence on 1-2 signals. State what data is missing and what would change the diagnosis.
5. Ignoring adjacent industry shifts. Evolutionary process #12 (structural change in adjacent industries) is frequently overlooked but can reshape classification.

Output Template

## Industry Diagnosis: [Industry Name]

**Classification:** [Emerging | Fragmented | Transitioning to Maturity | Declining]
**Confidence:** [High | Medium | Low]

### Signals Matched
- [Signal 1]
- [Signal 2]
- ...

### Active Evolutionary Processes
- [Process name]: [observation]
- ...

### Structural vs. Cyclical Assessment (if declining)
[Assessment]

### Recommended Next Step
→ Route to: `[downstream skill name]`
→ Rationale: [why this classification leads to this skill]

Worked Example

Industry: U.S. traditional print newspaper publishing (circa 2015)

Signals matched (Declining):

• Absolute decline in unit sales (circulation) sustained over 10+ years
• Technological substitution: digital news consumption replacing print
• Demographic shift: younger cohorts never adopted print habit
• Shift in buyer needs: advertisers migrating spend to digital platforms
• Capacity exceeds demand: printing presses underutilized, bureaus closing

Active evolutionary processes:

• Long-run changes in growth: negative, accelerating decline
• Diffusion of proprietary knowledge: news content freely available online
• Structural change in adjacent industries: advertising industry shifted to digital
• Entries and exits: multiple exits (closures, mergers); few entries

Structural vs. cyclical test: Decline persists through both recession and recovery periods. Driven by permanent technological substitution (digital) and demographic shifts, not economic cycles. Verdict: structural decline.

Classification: Declining (structural) Confidence: High (6+ signals, clear structural cause) Route to: compete-in-declining-industry