PowerPoint Slideshow about 'How Much Does Industry Matter?' - wan
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Firm performance depends a great deal on the attractiveness of the industries in which the firms compete.
See Exhibit 1 on next slide.
Regression analysis on almost any industry shows that the variation in the average performance of all firms in an industry will explain about 20% of the variation in the performance of any single firm in that industry.
Exhibit 1: Average Return on Assets of Different Industries
One cannot generalize that the “industry is all that matters.”
Returns vary in any industry from year to year (see exhibit 2 on next slide).
Some industries are more cyclical than others.
Evidence indicates that the difference between the performance of the highest- and lowest-performing firms in any industry will be 6 times greater than the difference between the performance of the highest- and lowest-performing industry (see Exhibits 3 [A] and [B]).
Exhibit 2: Average Return on Assets in the Automobile Industry: 1993 - 1997
Exhibit 3 [A]: ROAs of High- and Low-Performing Firms in the Steel Industry
Exhibit 3 [B]: High- and Low-Performing Firms in the Pharmaceuticals Industry