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  • Profit Pools: A Fresh Look at Strategy: Presented by

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    RAVI KOTHARI
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    The document discusses profit pools, which are sustainable sources of profit found at different points along an industry's value chain. It argues that managers should look beyond total revenue when deciding strategy, as profit concentration can differ from revenue concentration. Using the examples of the US auto and PC industries, it shows how the most profitable elements of the value chain are not always those with the largest revenues. A profit pool analysis can help identify where future profits may emerge and is important for a company's long-term survival, even if total revenue is growing."

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    The document discusses profit pools, which are sustainable sources of profit found at different points along an industry's value chain. It argues that managers should look beyond total revenue when deciding strategy, as profit concentration can differ from revenue concentration. Using the examples of the US auto and PC industries, it shows how the most profitable elements of the value chain are not always those with the largest revenues. A profit pool analysis can help identify where future profits may emerge and is important for a company's long-term survival, even if total revenue is growing."

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    Descărcați ca PDF, TXT sau citiți online pe Scribd
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    152 vizualizări11 pagini

    Profit Pools: A Fresh Look at Strategy: Presented by

    Încărcat de

    RAVI KOTHARI
    The document discusses profit pools, which are sustainable sources of profit found at different points along an industry's value chain. It argues that managers should look beyond total revenue when deciding strategy, as profit concentration can differ from revenue concentration. Using the examples of the US auto and PC industries, it shows how the most profitable elements of the value chain are not always those with the largest revenues. A profit pool analysis can help identify where future profits may emerge and is important for a company's long-term survival, even if total revenue is growing."

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    Profit Pools:

    A Fresh Look at Strategy


    Orit Gadiesh, James L. Gilbert
    Harvard Business Review, May-June, 1998

    Presented By
    - NITIN KUMAR
    - AKASH SHARMA
    - HIMANSHU ATWAL
    REVENUE BUSINESS
    GROWTH STRATEGY

    PROFIT POOLS MANAGER’S


    APPROACH

    INDUSTRY’S SUSTAINABILITY
    VALUE CHAIN
    Deciding MANAGER’s
    STRATEGY
    • Where and how is the money being made in an industry?
    • Whether total Revenue is a indicator of company’s growth in
    true sense?
    • What other factors should a manager keep in mind while
    deciding the growth strategy of company?
    • Is profit pool analysis sufficient to decide “The Company is
    GROWING or NOT”?
    Profit Pools (Success Potential)
    • “Total profits earned at all points along the industry's value
    chain.”
    • “Any sustainable source of profit.”
    • This means, buying something cheaper or selling something at a
    higher price than the competition (and therefore making profit).
    • Future Business Strategy depends on Present & Future Profit
    Pools.
    • ‘Atom’ of Profit – Profit Pools
    • ‘Molecule’ of Profit – Value Chain
    • ‘Business Model’ – System of Profit Pools
    Profit Pools (Cont.)
    • Assumption – Profit will Follow Revenue
    • Managers need to look beyond revenues to see the structure of
    their industry's profit pools.
    • Profit concentration vs revenue concentration.
    • Automobile financing is the most profitable element of the
    automobile value chain.
    • Concessions sales are an attractive profit pool to entertainment
    venues.
    • Profit Pool Analysis is not essential for strategy making, they
    may be vital for the future survival of the company as a whole.
    THE U.S. AUTO INDUSTRY’S PROFIT POOL
    25%
    The automotive industry encompasses
    many value-chain activities. The way that
    profits and revenues are distributed
    among these activities varies greatly. The
    20 most profitable areas of the car business
    are not the ones that generate the biggest
    revenues.

    15

    6
    operating margin

    10

    0
    auto loans gasoline
    100%
    0 new car dealers
    used car dealers leasing auto insurance service repair
    warranty auto rental
    auto manufacturing

    Share of Industry Revenue aftermarket parts

    source: Gadiesh and Gilbert, Harvard Business Review, May-June 1998


    THE PC INDUSTRY’S PROFIT POOL
    40%
    The value chain for the PC industry
    includes six key activities; the
    profitability of the activities varies
    widely. Manufacturers compete in
    30 the largest but least-profitable
    segment of the chain.
    operating margin

    20

    10

    0
    0 other
    personal
    peripherals 100%
    components
    computers software
    microprocessors services
    Share of Industry Revenue

    source: Gadiesh and Gilbert, Harvard Business Review, May-June 1998


    MARUTI SUZUKI Value Chain
    Profits always follow Revenue - with
    reference to corporate India.
    - John Maynard: A Treatise on Money, 1930

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