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What is Industrial Organization?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 16 November 2016
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Industrial organization is a discipline that focuses on understanding and evaluating the behavior of businesses, the markets that they participate in, and the interaction between the two. The goal of this type of study is to increase the internal efficiency of the business so it is poised to compete more effectively in the marketplace. This is managed by not only refining the structure and operating processes of the business, but also adapting them so they can more effectively address what is happening within the wider market.

While theories on industrial organization may vary in some of the particulars, there are a few broad considerations that are likely to be addressed in any attempt to position a business within a market to best effect. First among these considerations are the essentials or basics that relate to the company’s current level of operation and its ultimate goals. This includes assessing the demand for the goods or services it offers to consumers, how efficiently the business keeps up with that demand, and how quickly it can use resources like technology, facilities, and its workforce to adapt to changes in the demand. Along the way, the quality and durability of the products are also considered a basic component of the operation, since those have far reaching effects on the ability of the company to compete.

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Along with these basics, the structure of both the business and the market where it functions is important to the process of industrial organization. Here, the ability of the business to differentiate its products from those of the competition, the potential for new businesses to enter the marketplace, and the ability to integrate new methods or diversify existing product lines in order to secure new business is addressed. As part of this process, assessing the marketplace is essential before any logical evaluation of the individual company can take place.

The ongoing conduct of the industry and the business is also key to effective industrial organization. This includes assessing the possibilities for advertising that reaches consumers, continuing research and development activities, both within the broader industry and the individual companies, and the possibility of mergers, working agreements, and other short-term or long-term partnerships between major players within the industry. General conduct also addressed the use of legal strategies to effectively position a business within an industry, as well as the legal means employed within an industry to remain viable over the long-term.

Finally, consideration of the influence of government on both the industry and the business is key to the process of industrial organization. Here, attention to applicable regulations and the action of regulatory agencies will impact the industry as a whole, and the process of participation in the marketplace by all businesses that are involved with the industry. The nature of prevailing tax structures is also an important element, along with laws that govern investing in the industry via the participating companies. Issues such as antitrust measures, government limitations on growth of the market in general, and the effect of governmental policies on the economy in general will also be considered.

Ideally, the process of industrial organization allows both the industry in general and the individual business in particular to more effectively use the available resources as the means of becoming more productive and thus participate in the general economy to better effect. This type of organizational evaluation is not a one-time event, but an ongoing process. As key factors change, the need to reevaluate and adapt various situations will occur. Without this constant attention to prevailing circumstances, the opportunity for failure is greatly maximized.

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