Profit Pools

Extracted Attributes

• Definition

  The total profits earned at all points along the value chain of an industry

• Conceived By

  Orit Gadiesh and James L. Gilbert

• Core Objective

  Focusing on profits rather than revenue growth

• Key Publication

  Profit Pools: A Fresh Look at Strategy (Harvard Business Review)

• Originating Organization

  Bain & Company

Timeline

• Orit Gadiesh and James L. Gilbert publish 'Profit Pools: A Fresh Look at Strategy' in the Harvard Business Review, introducing the concept. (Source: Wikipedia)

  1998-05-01

Profit pools

The Profit pools is a strategy model that can be used to help managers or companies focus on profits, rather than on revenue growth. The method was conceived by Orit Gadiesh and James L. Gilbert, both consultants at Bain & Co. presented the following definitions: "the total profits earned at all points along the value chain of an industry. Companies that see what others do not see, will be best prepared for capturing a larger share of the profits in an industry." The idea states that managers need to look beyond revenues to see the shape of their industry's profit pool. Strategies can then be created which result in profitable growth. While the concept is simple, the structure of Profit Pools can usually be quite complex. Some segments of the value chain will have deeper pools than the others. The depths may also vary within an individual segment. For example, the profitability of a segment may vary widely by customer group, product category, geographic market, and distribution channel. The pattern of profit concentration in an industry will often differ from the pattern of revenue concentration. The model is often applied to identify new sources of profit, to rethink the role of a company in the value chain, refocusing a company on its traditional sources of profit, and also applied when making product, pricing and operational decisions.

Web Search Results

• Profit pools - Wikipedia

  Wikipedia The Free Encyclopedia ## Contents # Profit pools The Profit pools is a strategy model that can be used to help managers or companies focus on profits, rather than on revenue growth. The method was conceived by Orit Gadiesh and James L. Gilbert, both consultants at Bain & Co. presented the following definitions: "the total profits earned at all points along the value chain of an industry. Companies that see what others do not see, will be best prepared for capturing a larger share of the profits in an industry." [...] The idea states that managers need to look beyond revenues to see the shape of their industry's profit pool. Strategies can then be created which result in profitable growth. While the concept is simple, the structure of Profit Pools can usually be quite complex. Some segments of the value chain will have deeper pools than the others. The depths may also vary within an individual segment. For example, the profitability of a segment may vary widely by customer group, product category, geographic market, and distribution channel. The pattern of profit concentration in an industry will often differ from the pattern of revenue concentration. [...] The model is often applied to identify new sources of profit, to rethink the role of a company in the value chain, refocusing a company on its traditional sources of profit, and also applied when making product, pricing and operational decisions. ## References | | | --- | | Stub icon | This business term article is a stub. You can help Wikipedia by adding missing information. | Stub icon This business term article is a stub. You can help Wikipedia by adding missing information. Wikimedia Foundation Powered by MediaWiki

• Profit Pools | Think Insights

  ## Profit pool A profit pool is defined as the total profits earned in an industry at all points along the industry's value chain. Profit pools can be divided into numerous categories, including business segments, rivals, products, regions, & stages of the value chain. A firm in any industry may operate in one or more segments along the value chain of that industry, & its profitability is determined by the profitability of the segment in which it operates. Profit pools can help a business stay ahead of the competition & maintain good margins. ## Industry analysis When analyzing any industry, keep in mind that: [...] Summary The Profit Pool is a great strategy for managers & companies to improve the profitability of a company. This strategy concentrates heavily on profits & not only on revenues. Orit Gadiesh & James L. Gilbert came up with the Profit Pools strategy. Over time, this strategy has been employed by various industries from supply chain to electronics. This strategy is not limited to any industry as it explores all the different avenues available for a business to increase profits in its industrial value chain. Sponsor Log in to post comments #### References 1Profit Pools: A Fresh Look at Strategy 2How to Map Your Industry's Profit Pool Mithun A. Sridharan Author Mithun A. Sridharan [...] Orit Gadiesh, an Israeli consultant, & James L. Gilbert, an American consultant, both from Bain & Co., published the Profit Pools approach in the Harvard Business Review article - Profit Pools: A Fresh Look at Strategy1. The approach advocates that managers & businesses should concentrate on profits rather than solely on revenues. According to Gadiesh & Gilbert, a profit pool is defined as the entire profits made in an industry at all points along the value chain: > the total profits earned at all points along the value chain of an industry. Companies that see what others do not see, will be best prepared for capturing a larger share of the profits in an industry.

• Profit pools: a fresh look at strategy - PubMed

  In charting strategy, many managers focus on revenue growth, assuming that profits will follow. But that approach is dangerous: today's deep revenue pool may become tomorrow's dry hole. To create strategies that result in profitable growth, managers need to look beyond revenues to see the shape of their industry's profit pool. The authors define an industry's profit pool as the total profits earned at all points along the industry's value chain. 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 [...] 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 authors describe how successful companies have gained competitive advantage by developing sophisticated profit-pool strategies. They explain how U-Haul identified new sources of profit in the consumer-truck-rental industry; how Merck reached beyond its traditional value-chain role to protect its profits in the pharmaceuticals industry; how Dell rebounded from a misguided channel decision by refocusing on its traditional source of profit; and how Anheuser-Busch made a series of astute product, pricing, and operating decisions to dominate the beer industry's profit pool. The companies with the

• Profit Pool Analysis: How to analyze Profit Pool - Tristram Ouma

  Tristram Ouma Avatar Tristram Ouma A profit pool represents the total profits earned across different business activities within an industry value chain, while profit pool analysis evaluates how those profits are distributed, concentrated, and retained among market participants. Businesses analyze profit pools by measuring margin concentration, pricing power, operational costs, customer value capture, and revenue distribution across suppliers, manufacturers, distributors, platforms, and service providers. The analysis helps organizations identify high-margin segments, understand competitive value allocation, optimize strategic investments, and improve long-term profitability. ## What Is Profit Pool Analysis? [...] ## What Is Profit Pool Analysis? Profit pool analysis is a strategic business method used to identify where profits are generated across an industry, value chain, product category, or market segment. Instead of focusing only on revenue or market share, profit pool analysis examines how total industry profits are distributed among competitors, business activities, customer groups, and operational stages. The concept was popularized by Tristram Ouma to help organizations understand which parts of a market generate the highest margins and long-term economic value. ### Profit Pool Analysis Definition A profit pool represents the total profits earned within an industry at different points across the value chain. Profit pool analysis evaluates: [...] Profit pool analysis identifies where profits are generated across an industry by examining revenue streams, margin distribution, cost structures, and value creation activities. Instead of measuring only total market revenue, profit pool analysis focuses on which products, services, customer segments, or business functions produce the highest economic returns. Businesses use profit pool analysis to determine: which segments generate the highest margins where industry earnings are concentrated which activities create the most economic value how competitors capture profits across the value chain ### Revenue Stream Analysis Revenue stream analysis evaluates how companies generate income across products, services, subscriptions, licensing, advertising, or recurring customer payments.

• [PDF] How to Map Your Industry's Profit Pool

  Such an analysis can provide a company’s managers with a rich understanding of their industry’s profit structure—what we call its profit pool—enabling them to identify which activities are generating disproportionately large or small shares of profits. Even more important, a profit-pool map opens a window onto the underlying structure of the industry, helping managers see the economic and competitive forces that are determining the distribution of profits. As such, a profit-pool map provides a solid basis for strategic thinking. (See our article “Profit Pools: A Fresh Look at Strategy” in the May–June 1998 HBR.) Mapping a profit pool is, in one sense, a straightforward exercise: you define the value chain activities and then you determine their size and profitability. But while the goal [...] Orit Gadiesh (orit.gadiesh@bain.com) is the chairman of Bain & Company in Boston. James L. Gilbert is a director of Bain & Company, a consulting firm based in Boston. Related Topics: Strategic Planning | Competitive Strategy | Strategy | Competition This article is about FINANCIAL ANALYSIS  Follow This Topic Comments Leave a Comment Post Comment 1 COMMENTS Panayiotis Sardos 8 months ago  Reply 1  0  Profit pools, in my opinion, provide a powerful concepual tool. Admittedly, to use them in practice may prove for some cases cumbersome and probably impractical. Given that some 20 years have elapsed since the concept was introduced, it would be interesting to be informed about the authors views on how the profit pools met their intended strategic purpose. [...] There are several different ways to chart a profit pool, each of which provides different insights. One of the simplest but most useful charts is what we call a profit-pool map, in which profit distribution is compared with revenue distribution. (See the chart “RegionBank’s Profit-Pool Map.”) The map takes the form of a series of building blocks—each representing a value chain activity— plotted on a graph. The horizontal axis of the graph represents the percentage of industry revenues, and the vertical axis represents operating margins. Thus the width of each block indicates the activity’s share of total industry revenues, its height indicates the activity’s profitability, and its area indicates the activity’s total profits.