Profit Pools: A Fresh Look at Strategy

1
Profit Pools A Fresh Look at Strategy

• Orit Gadiesh, James L. GilbertHarvard Business
  Review,
• May-June, 1998

2
Profit Pools A Fresh Look at StrategyOrit
Gadiesh, James L. GilbertHarvard Business
Review, May-June, 1998

• Where and how is the money being made in an
  industry?

3
An industry Value Chain

• An industry Value Chain is the collection of all
  business activities necessary for the end user to
  benefit from the product.
• This includes both supply and distribution chain
  activities, as well as complementary products and
  activities.

4
Profit Pools

• Profit concentration among activities of an
  industry value chain is often different from
  revenue concentration.
• Automobile financing is the most profitable
  element of the automobile value chain.
• Concessions sales are an attractive profit pool
  to entertainment venues.

5
Choke Points

• Positions which can influence participation in an
  industry, and the distribution of its profits
• Control of a choke point can be very profitable

6
Implications of Profit Pools

• Be sure to participate in the best profit pools
  of your industry
• Look for and capture choke points when
  possible.