Final answer:
Driving forces analysis entails identifying key factors that can impact industry profitability, assessing if they work together or independently, and determining strategies to adapt to these changes. It considers changes to both demand and supply factors and evaluates the five competitive forces to decide industry attractiveness and necessary strategic movements.
Step-by-step explanation:
The task of driving forces analysis is multifaceted. To start with, it involves the identification of all the underlying factors that can influence industry profitability positively or negatively over time. These are known as the driving forces. Once these factors are identified, it is essential to assess whether they act independently or in unison to affect the industry's attractiveness. Identifying these driving forces can involve analyzing shifts in any demand or supply factors that might shape the future landscape of the industry.
In the context of strategic management, one also must consider which of the five competitive forces (buyer power, supplier power, competitive rivalry, threat of substitution, and the threat of new entry) might be the predominant driver of change. It's important to evaluate how these factors could compel firms to change strategic groups within the industry. The final step is to interpret the analysis to determine the necessary strategic adjustments a company might need to make in preparation for these changes.
To elaborate, if a firm notes that technological advancements are greatly reducing costs of production (a supply factor), it can be deduced that this driving force may lead to increased industry attractiveness as firms could potentially offer products at lower prices while maintaining or increasing profits. Conversely, if new regulations are expected to increase production costs, this might be a driving force making the industry less attractive.