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The Profit Pools method of Orit Gadiesh, James L. Gilbert
is a strategy model that can be used to help managers or companies focus on
profits, rather than revenue growth. The idea behind it is that to create strategies that
result in profitable growth, managers need to look beyond revenues to see
the shape of their industry's profit pool.
Orit Gadiesh, James L. Gilbert,
both consultants at Bain & Co., in their
Harvard Business Review Article Profit Pools: A Fresh Look at Strategy (May
1, 1998) presented the following
definition of a profit pool: the total profits earned at all points along the industry's value
chain. Companies that see what others do not will be best prepared to capture a
disproportionate share of industry profits.
Although the concept is simple, the structure of a profit pool is
usually quite complex. The pool will be deeper in some segments of the
value chain than in others, and depths will vary within an individual
segment as well. Segment profitability may, for example, vary widely by
customer group, product category, geographic market, and distribution
channel. Moreover, the pattern of profit concentration in an industry will
often be very different from the pattern of revenue concentration.
The
Profit Pools framework can be used to:
-
identify new
sources of profit,
-
rethink a companies value-chain role;
- refocusing on traditional sources
of profit;
-
make product,
pricing, and operating decisions.
Compare with Profit Pools:
GE / McKinsey Matrix |
BCG Matrix |
ADL Matrix |
Core Competence |
STRATPORT |
SWOT Analysis |
Benchmarking |
Product Life Cycle |
Bass Diffusion
model |
Industry Change |
Positioning
| Relative Value
of Growth
More management models
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