Profit Pools Concept (PowerPoint PPT)

"Profit Pools" is a concept introduced which is defined as the total profits earned in an industry at all points along its value chain. An analysis of the profit pools of an industry can help a company better understand the economic and competitive forces driving an industry's profit distribution, and thus enhance a company's ability to make innovative decisions on its strategy.

This document answers the following key questions:
•  What is a profit pools concept?
•  Why use profit pools concept?
•  How to use the concept for innovative strategy development?
•  How to map profit pools step by step?

It also provides some client examples in applying the tool.

Understanding profit pools involves recognizing that profit can be defined in multiple ways. This document breaks down accounting profit, return on investment, and cash-flow contribution, providing clear distinctions and examples. By doing so, it equips executives with a robust framework to evaluate their company's financial performance from different angles, ensuring a comprehensive grasp of profitability.

Profit pools also illustrate the competitive dynamics within an industry. The document explains how profit concentrations along the value chain reflect the actions and interactions of companies and customers. It highlights that profit pools are dynamic, shifting as power changes among industry players. This insight is crucial for executives aiming to stay ahead of market trends and competitive pressures.

Real-world applications of profit pools are showcased, such as U-Haul identifying untapped profit sources and Merck's strategic acquisitions. These examples demonstrate the practical value of profit pool analysis in identifying new profit opportunities and informing strategic decisions. The document's step-by-step guide to mapping profit pools ensures that executives can apply these concepts effectively within their own organizations.