Gadiesh and Gilbert described strategy models that need to be adopted by managers in not only focusing the profits, but also the growth of revenue. The ideas asserted by Gadiesh and Gilbert create strategies that can lead to profitable growth. Therefore, managers are required to observe the idea of revenue so as to achieve profit pool for their companies. The pool is required to be deep in some parts of the chain compared to other value chains, and the depths vary within the individual parts. For example, parts profitability can vary by product category, customer group, distribution channel, and geographic market. The article, How to Map Your Industrys Profit Pool plays an essential role for the managers. Reading and understanding the article will help managers to realize essential strategies that can help in gaining companys profits rather than focusing on the growth of revenue.
Summary of the key points in the article
According to Gadiesh and Gilbert, there are four ways of mapping profit pool. Defining the boundaries of the pool is the first way of mapping the profit pool. Before any manager starts to analyze the profit of industry, the manager needs to define the key boundaries through the identification of the essential activities related with value-chain that are considered applicable to business. At the end of the definition of the pool, the manager is required to have defined a listing of entity value-chain actions that are essential for their profit pool. Value-chain is required to be broadly defined so that to incarcerate all the essential actions that has affirmative weight on your aptitude to gain profits not only at present, but also gaining profits in the future. Definition of the boundaries of the pool is done by first observing your business and breaking the business into its small value-chain activities. Also, the activities of other competitors should be observed during the definition of the pools boundaries. The manager must, at first, understand if he adopted the business models that involve various sets of activities required for realization of profits. Besides, the manager must understand the availability of the opportunities for performing novel activities. Finally, the manager is required to take a step back by understanding the customers needs. The manager is required to know how the customers define the life cycle of the product the company is producing (Gadiesh & Gilbert 150-151).
Determining the size of the pool is the second way of mapping profit pool. Gadiesh and Gilbert (1998) suggest that once a manager has defined the industrys profit pool, the manager needs to identify its size. Its size is the cumulative profits that are being received in all the activities in the value-chain. At this stage, the manager needs to estimate the total profits of the organization. The idea of estimating the total profits of the organization is to establish the baseline activities (Gadiesh & Gilbert 151). The size of the industrys pool can be estimated by reading the companys reports from stock researchers or analysts. Besides, the size of the pool can be estimated by finding the reliable estimations of the revenues of the company.
Determining the distribution of companys profits is the third way of mapping a profit pool. Determining the distribution of companys profits is a key issue of mapping profit pool. Aggregation and disaggregation are the strategies to determining the distribution of companys profits (Gadiesh & Gilbert 151-152). In case you are in an industry focusing on the single value-chain activity, a manager will need to compute the prosperity of the activity by aggregating the earnings the pure players involved. Besides, if you are in an industry with mixed players, you need to disaggregate financial data of each company so as to attain the estimates for the particular activity.
Reconciling the estimates is the last way to mapping profit pool. Reconciling the estimates is the essential last step that is useful in checking the reality of the industry. The step involves adding the estimated profits for each activity and lastly comparing the total with the estimates of the companys profit. In case a manager finds discrepancies, he is required to recheck the assumptions and calculations or collect additional data (Gadiesh & Gilbert 154).
Applying the key points from the article specifically to the strategy and simulation decision-making for your team
The discussed four ways of mapping a profit pool are the key points in the article. The points can be applied to the strategy and simulation decision-making for a team in an organization. Defining the boundaries of the pool requires a manager to adopt business models involving various activities required for realization of profits. The step can be applied to a strategy and decision-making for my team by developing novel models that will permit my team to the substantial industry, thus drastically shifting the profit pool. Also, adopting the four ways of mapping profit pool will help my team in getting a thorough understanding of the company together with its profit-creation patterns. Besides, my team can generate profits following the four mapping profit pool by generating attractive profits and understanding the reasons for the rising and falling of profitability of other companies. Adopting the strategies will help the team in the decision-making (Gadiesh & Gilbert 154).
Also, the defining the boundaries of the pool can be applied to my organization by setting the boundaries of my profit pool. Setting the boundaries can be done by observing the activities that are being performed by the team, activities that are being performed by other competitors, and the perception of customers towards my business. Observing the activities of my team, competitors, and perception of my customers will help in defining boundaries of my profit pool, thus helping in the decision-making process. Determining the size of the pool can be applied to the strategy and decision-making for my team since it can help in determining the collective proceeds earned by my company and the cumulative profits earned by the competitors. Moreover, I can apply the distribution of profits by understanding funding, servicing, and acquisition value-chain activities. The three value-chain activities are essential in analyzing problems in the organization. Reconciling the estimates is a final step that I can apply to the strategy and decision-making since I will compare the cumulative profits of my industry and other industries. Comparison of the cumulative profits will help in estimating the reasonable profits (Gadiesh & Gilbert 154-160).
In conclusion, Gadiesh and Gilbert played an essential role in suggesting four ways of mapping profit pool that are important in visualizing the profit pool. The strategies are essential for revealing the size and location of profit concentration with the industry. Adopting the fours ways will help managers in visualizing their profit pool, thus helping them in the decision-making process.
Gadiesh, O. & Gilbert, J. L. Do You Know Where the Moneys being made in your Industry?: How to Map your Industry's Profit Pool. Harvard Business Review. 1998. Print.
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