SCP analysis
Also written Structure Conduct Performance analysis · Structure-Conduct-Performance analysis
Structure-Conduct-Performance analysis — studying an industry's competitive structure, the behaviour that structure produces in its firms, and the financial performance that follows.
In plain language
Some frameworks study an industry's competitive forces. SCP analysis goes one step further and connects those forces all the way through to the financial numbers they eventually produce.
It looks at an industry in three linked stages: how it is structured, how firms in it behave because of that structure, and how well those firms actually perform financially as a result.
How it works
The workbook: SCP analysis, set out in Chapter 6.6.4, looks at "the industry structure (monopoly, oligopoly), its conduct (commoditized or specialized, seasonal or round the year, cyclical or non-cyclical etc.) and finally its performance (RoE, RoIC, WACC, etc.)." It is explicitly framed as an extension of Porter's Five Forces — structure and conduct cover similar ground to Porter's model, but SCP adds a financial-performance leg that Five Forces does not directly compute.
Structure covers player count, concentration and market size. Conduct covers pricing behaviour, seasonality and cyclicality. Performance brings in the return-based ratios covered elsewhere in the workbook's quantitative chapters.
A worked example
Illustrative. Applying the three legs to the Indian cement industry: Structure — an oligopoly, with the top five players holding roughly 55% of capacity. Conduct — cyclical, seasonal pricing tied closely to construction activity. Performance — a sector average Return on Capital Employed of around 14% against a cost of capital (WACC) of about 11%, a roughly 3 percentage-point spread showing the industry is creating value on capital employed, not just generating revenue.
Why NISM asks about it
Chapter 6.6.4 (Structure Conduct Performance Analysis) sets out the three legs. Expect a question classifying a described industry feature into structure, conduct or performance, or one testing SCP's relationship to Porter's Five Forces.
Common exam traps
- SCP is not identical to Porter's Five Forces, even though structure and conduct cover overlapping ground — SCP's distinct contribution is the performance leg, built from return-based financial ratios, which Five Forces does not itself calculate.
Where this is taught
Free preparation for NISM Series XVRelated terms
- BCG matrixThe Boston Consulting Group's grid classifying a company's business segments as Stars, Cash Cows, Question Marks or Dogs by market growth, market share and cash generation.
- Porter's Five ForcesMichael Porter's framework for judging how much profit an industry can sustain, through five competitive pressures: rivalry, new entrants, substitutes, and the bargaining power of suppliers and of buyers.
- Return on Capital EmployedOperating profit as a percentage of all the capital in the business, equity and debt together — the return the enterprise earns before any question of how it was funded or taxed.
- WACCThe blended after-tax rate a company pays on all its capital, equity and debt weighted by how much of each it uses — and therefore the discount rate for free cash flow to the firm.
- Same-store sales growthGrowth in sales at stores that were open for a full year in both periods being compared, stripping out the effect of newly opened stores — the key like-for-like growth metric for retailers.
- Industry landscapingStudying every player in an industry — competitors, customers, suppliers, regulators and new technology — and how they interact, so the analyst can predict how the industry reacts to an outside shock.