The strategic audit of an industry begins from the identification of customer needs. What are the characteristics of the products that serve these needs? Are they simple commodity items or do they have many attributes? What are the dimensions of these attributes? How do consumers learn about them-by search, by experience? Is that experience immediate, or long-term? What markets are served? What are their geographical and their product dimensions? Which are growing, and which contracting? Distinguish, at this stage, as many distinct economic markets as possible.
Costs, returns, and supply are equally important. What are the primary strategic groups that serve these markets? Describe the value chain. What determines costs? To what extent are these costs sunk, or current? Which firms in the industry succeed in adding value? Which are marginal? The next step is to bring these demand and supply issues together. What are the distinctive capabilities and strategic assets of firms in this industry? How sustainable are they, and how appropriable? To what extent have they been effectively translated into competitive advantages?
The answers to these questions enable the firm to identify its principal external relationships (with suppliers, customers, and competitors), to see how competitive advantages are established in the markets in which it competes, and to assess how these factors are likely to evolve. This chapter undertakes that exercise for four European industries--Italian knitwear, airlines, retail banking, and champagne. Taken together, these industries show several of the main problems, and challenges, confronting European business today. Some see changes in the geographical boundaries of markets, introducing new competitors, offering new opportunities. Some face challenges to established patterns of trading relationships. Others experience important changes in the regulatory environment. In the face of these challenges some incumbent firms are faltering, others are moving from strength to strength.