This is the Part 1 of a 2-Part blog about industrial codes that apply to US organizations, and their importance to organizations that sell and market to US industry.
Industrial Codes and their Significance
Don’t be sad, business leaders! It isn’t that bad. Honestly, this is a dry subject, and I can’t help that. Buckle down and read this, it is like taking that nasty cough syrup that helps you sleep thru the night and quickly overcome an annoying runny nose and cough. Read on.
As marketers and sellers to an industry landscape that is deep and wide, we need to understand this stuff so that we are targeted and don’t waste our time or other’s time with the wrong messages or the right message delivered to the wrong audience.
So...what are they? How did they come about? Who cares?
Here we’ll discuss the two code systems you’ll encounter in the US as well as other certain other countries:
- The Standard Industrial Classification code system (SIC system), and
- The NAICS North American Industry Classification code system (NAICS system).
When I was a pre-teen, dreaming of marrying Deborah Harry and being just like Pelé (although my soccer was, and still is weak), I never imagined that I would need to know about industry codes. Little did I know, even in this era, that the again SIC was in peril, with the young upstart NAICS system looking to make its mark. [ominous sound, duh duh duuunnnn…]
A SIC Code Primer. Unlike Amazon, Beyond it’s Prime.
According to ever-faithful Wikipedia, the SIC system was originally developed in 1937. Although it is officially replaced by the NAICS system in 1997, it is still used by certain government agencies such as the US Securities and Exchange Commission (SEC) and the Department of Labor (DOL), which includes the Occupational Safety and Health Administration (OSHA). So although it is past it’s prime, you still need to do your time. Drink up, it tastes better with lime.
That is where the SIC metaphor ends. The SIC System is nothing like tequila, although too much exposure to either can make you sic [sic]. The SIC System does, however, classify organizations by the primarily activity they are engaged in. In layman’s terms, the point of having SIC codes is to provide a way to compare organizations within a sector, and compare and track the impact of different sectors within the US economy. The entire SIC structure is available in locations including the US Department of Labor website.
As an example of how to interpret an SIC Code:
- The first two digits, such as “13”, indicate the major group, in this case “Oil and Gas Extraction”
- The first three digits, such as “131”, indicate industry sub-group, Crude Petroleum And Natural Gas
- The entire 4 digit code “1311” indicates a specific product group, in this case Crude Petroleum and Natural Gas
Note that in many cases, the 4th digit of the code doesn’t impart any additional information to the user. Then, why the 4th number?
Well, sometimes it does impart additional information.
Now, on to NAICS.
The NAICS System, A Tale of Two Taxonomies.
You maybe wondering what the NAICS system has in common with Charles Dickens classic tale. I wonder that too, and I’ve yet to read an entire Dickens novel. If you find a correlation, hit me up, firstname.lastname@example.org. I have, however, studied the 2017 NAICS Manual.
You can download this beauty for FREE! Note, however, that the actual cover art does not have a sad face.
In a model of multinational cooperation, the NAICS codes were created with the input of, and apply to, 3 countries: The US , Mexico and Canada. [fake news alert] It is rumored that the US may pull out of the NAICS System, and implement our own system that does not give our neighbors any insight insofar as how our economy is functioning.
Fake news aside, interestingly, the international NAICS agreement fixes only the first five digits of the code. The sixth digit, where used, identifies subdivisions of NAICS industries that accommodate user needs in individual countries. Thus, 6-digit U.S. codes may differ from counterparts in Canada or Mexico, but at the 5-digit level they are standardized.
The NAICS system structure works as follows:
- The 1st 2 digits, such as “21” indicate the Industry Sector, in this case “Mining, Quarrying, and Oil and Gas Extraction”
- The 1st 3 digits, such as “211” indicate the Industry Sub Sector, in this case “Oil and Gas Extraction”
- The 1st 4 digits, such as “2111” indicate the Industry Group, in this case “Oil and Gas Extraction”
- The 1st 5 digits, such as “21112” indicate the Industry, in this case “Crude Petroleum Extraction”
- The 6th digit is specific to the country, that is to the US, Canada or Mexico. In this case, it is same as the 5-digit code.
As with the SIC System, the last digits of the NAICS code don’t always give the user additional specificity about the coded organization.
But Wait, There’s More!
That’s it for now. Don’t worry, a story this good couldn’t possibly end here. We’ve discussed the background of these fascinating systems of industry codes. Next time, we’ll discuss how industrial markets put them to good use!