The video highlights what you can find in an IBISWorld, Industry Report. 

Why is Industry Research Important?

Below is a list of the different types of industry reports available in our subscription of IBISWorld.

• US Industry Reports (NAICS)
• US Specialized Industry Reports
• US Industry iExpert Summaries
• US Specialized Industry iExpert Summaries
• US Spotlight Industry Reports

Industry research is a topic you may not think much about, but if you’re an entrepreneur, a marketer, a sales person, a banker, or any number of professional roles, you SHOULD.

Industry intelligence will help you gain an intimate understanding of the environment in which you’re operating and provide information you need to put companies in context within their environment.

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Seven Reasons Industry Research is Important

1. Get the ‘lay of the land’
   Industry research is incredibly helpful if you’re unfamiliar with an industry and you’re trying to get an overview to understand the basics. What are the key statistics, like revenue, profit, profit margin, employment & wages, products & services and major players? Understanding these will give you a quick lay of the land. Make sure you’re looking at growth rates, too, so you can get the bigger picture.
    
2. Guide strategic decisions
   While many decision makers rely on previous experience and instincts to inform their thinking and planning, ultimately, they must incorporate data and analysis into their decision-making process. Stakeholders need to understand the bigger picture and be able to back up their decisions and conclusions. Independent industry research can mitigate risks around major decisions.
    
3. Determine benchmarks
   How does a company measure up against its competitors? How is it performing against the industry average? How do you accurately assess performance? By employing industry benchmarking, which is a systematic process that identifies best practices, whether from your competitors or similar industries. It allows for detailed comparisons between companies and industries, so you can more easily analyze your successes, failures and areas needing improvement. Some benchmark examples include average industry wage, revenue per employee, or number of employees per establishment.
    
4. Identify industry trends
   Industries are ever-changing. To stay ahead of the curve, you need to keep track of industry trends. Looking at raw, static data is fine, but it won’t give you the full picture. But, for example, looking at the past five years of revenue growth for an industry can help you understand the health of and opportunities within that industry.
    
5. Understand competition
   Whether you’re a small business or a large corporation, whether you’re looking to invest in, lend to or advise a client, understanding the competition is always critical. Researching the market will help you assess your category, strategize, and make the right decisions for your company to gain an edge over your competition.
    
6. Discover non-financial information
   For public companies, it’s pretty easy to find financial information through their 10Ks and tax filings. But how do you extrapolate that out to how the industry is doing? And, how do you find information on private companies? How about government entities? Non-profits?
   
   And what about non-financial information like structural, growth and sensitivity risk? Do you need information about the upstream or downstream supply chains? What are the industry’s major products and markets?
   
   There is a LOT of information, including on industry risk, you might need that you won’t easily find with a Google search. Industry research can give you major insights here.
    
7. Look into the future to predict performance
   One of the greatest indicators of how well a business will perform in an industry is the performance of the industry as a whole. If the industry is doing well, then a business may have a better chance of doing well.

How are Industries Classified?

Industries are often classified using a Standard Industry Classification (SIC) system. SIC is a production-oriented system, where the system of production used dictates what industry an enterprise belongs to. This is opposed to a market-oriented system, which might consider the function of the end product itself and what need it satisfies.

Using the production-oriented method, instead of the market, has many benefits:

• An economic purity of the system
• No overlaps
• All industries sum to the country’s GDP
• A “home” for every company based on its production method
• The system can cover every single industry in a country
• Uniform methodology and transparent criteria
• Industries in one country are roughly comparable with other countries
• Follows the value chain of production to link upstream and downstream industries

To put it simply, industry classification systems help to organize an economy and facilitate regional trade.

For example, in North America, the North American Industry Classification System (NAICS) makes US, Canadian and Mexican industries comparable based on definition and activities covered.

The advantages of this system are most obvious when looking at free trade agreements. For example, NAICS was implemented shortly after the North American Free Trade Agreement (NAFTA) in 1994, to better accommodate the globalization of economies. NAICS continues to operate under the USMCA, which replaced NAFTA in 2018.

Other industry classification systems serve a similar purpose in other regions. Examples include the Australian and New Zealand Standard Industrial Classification (ANZSIC) and, within the European Union, nomenclature statistique des activités économiques dans la Communauté européenne (NACE).

Some industry classification systems are organized at a national level. Examples include the China Industry Classification system and UK Standard Industrial Classification (UK SIC). Other major classification systems are sponsored by private companies and intergovernmental organizations.

Understanding how industries are classified helps you better understand both the micro and macro environments of economies and businesses.

The mechanics of industry classification systems

At a high level, industry classification codes consist of number and letter combinations indicating the scale of a particular economic activity. Industry classification systems begin with economic sectors, which are clusters of similar economic activities.

Sectors are organized by goods (for example: agriculture, mining, manufacturing) then services (such as retail, professional services, technology).

One way to think about the hierarchy of classification systems is to relate them to history. Across all major systems, agriculture is the first sector in the hierarchy because it is the oldest and most necessary of industries.

Generally, industry codes and the level of granularity have an inverse relationship, where the longer the code, the more specific the economic activity and vice versa. Here are some specific examples:

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North America (NAICS)

Under NAICS, two-digit codes typically refer to sector level activity such as manufacturing (which as a code of 33). A five-digit code would specify an industry (i.e. 33611 - Automobile and Light Duty Motor Vehicle Manufacturing).

Some systems get even more granular. For example, within the NAICS system, a sixth character indicates a more specific economic activity such as 33611a - Car & Automobile Manufacturing or 33611b - Light Truck and Utility Vehicle Manufacturing.

These additional levels of granularity help to show what activities are included in a sector and how much they contribute to sector-level output.

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Australia, New Zealand, United Kingdom

Industry classification systems in Australia, New Zealand and the UK use letters to designate sector level economic activity.

For example, the letter A is used to designate the Agricultural sector, B for Mining, C for Manufacturing, etc. They also use slightly different terminology, where a sector is referred to as a division and an industry-level specified as a class. Additional numbers following the division letter indicate further levels of granularity, with four numbers indicating an industry class.

Differing slightly from NAICS, a letter followed by a two-digit code refers to a subdivision or subsector whereas a two-digit code signifies a sector within NAICS. For example, A03 indicates the Forestry and Logging subdivision (subsector).

Nevertheless, industry classification systems are generally very similar across regions in that they depend on a hierarchal structure and are generally organized based on logical supply chain structure. For example, manufacturing industries always follow raw material industries within industry classification systems.

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How industry codes are organized

Major industry classification systems are categorized in ascending order with economic activity organized from raw materials to finished goods and services.

Sectors are categorized based on the nature of their operations and designated as either primary, secondary, tertiary or quaternary.

• Industries in the primary sector are those that engage in agricultural and raw material extraction
• The secondary sector includes industries that use raw materials such as construction and manufacturing
• Next, service-based industries that facilitate the transfer of goods to consumers make up the tertiary sector
• Finally, the quaternary sector comprises knowledge-oriented businesses such as technology companies and educational institutions

Overall, this broad categorization of economic activity into four sector designations assists in grasping the diverse functions of a modern economy.

Now that you understand how industries and sectors are organized, let’s look at how to incorporate industry information into your strategy and decision making.