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hanges can open new profit pool opportunities and drain old ones ? Choke points may change or be eliminated ? Opportunities for either forward or vertical integration may emerge ? Current vertical integration may be disintermediated 6/22/2020 Darral G. Clarke for BM 499 9 Creating and managing a profit pool ? Profit pool analysis may indicate new opportunities or threats ? Imperatives ? Be open to a new perspective on your business and industry ? Developing new strategy may require overturning elements of the current strategy ? Be open to reevaluate the role played by current petitors ? Be vigilant to identify possibility that new entrants may seek to enter your industry with radical strategies 6/22/2020 Darral G. Clarke for BM 499 10 Looking Ahead: Profit Pools and the Five Forces ? Profit pools are puted by multiplying the size of the revenue by the unit profit margin ? Essentially an accounting process no theory ? Most valuable in situations in which external conditions are essential stable and/or unimportant ? (Often dominated by internal data alone) ? The five forces tells us (which will study next) ? the underlying determinants that determine both the revenue size and the unit profit margin ? The profit drivers which allow us to forecast the direction of change 6/22/2020 Darral G. Clarke for BM 499 11 Marakon Runners Thomas A. Stewart Fortune Sept. 28, 1998 6/22/2020 Darral G. Clarke for BM 499 12 Marakon Associates’s Approach to Corporate Strategy ? Consultants to many large corporations ? Coca Cola, HP, GM, CitiCorp, etc. ? Clients have returns % higher than industry peer group ? Goal is to increase shareholder value through analysis of economic profit ? Deep drilling in business data to measure value creation ? Product segments ? Customer segments 6/22/2020 Darral G. Clarke for BM 499 13 How Strategy Happens ? Learning where value is created ? Waterfall charts by product and customer segments ? Evaluating strategy ? Industry average profit per unit ? Company’s profit vs industry average ? Managing value ? Current strategy ? Change product focus ? Change customer focus 6/22/2020 Darral G. Clarke for BM 499 14 Learning where value is created Product segments Customer segments Profit/loss ($ per unit) Volume (units) Volume (units) 0 6/22/2020 Darral G. Clarke for BM 499 15 Evaluating Strategy Company profit per unit Industryaverage profit per unit 6/22/2020 Darral G