Profit Pools and Core CompetenceDarral G ClarkeProfessor of ManagementThe Marriott SchoolBrigham Young University05/10/20251Darral G. Clarke for BM 499Profit Pools: A Fresh Look at StrategyOrit Gadiesh and James L. GilbertHarvard Business ReviewMay-June 199805/10/20252Darral G. Clarke for BM 499THE PC INDUSTRY’S PROFIT POOL Value chain focus Axes Vertical—operating margin Horizontal—share of industry data40%30201000100%share of industry revenuemicroprocessorsother componentspersonal computerssoftwareperipheralsservicesThe value chain for the PC industry includes six key activities; the profitability of the activities varies widely. Manufacturers compete in the largest but least-profitable segment of the chain.05/10/20253Darral G. Clarke for BM 499The Profit Pool Lens The profit pool is the total profit earned in an industry at all points along the industry’s value chain Segment profitability may vary by customer group, product category, geographic market, or distribution channel Profit concentration may be very different than revenue concentration Shape of the profit pool reflects the competitive dynamics of a business• Interactions of companies and customers• Competitive strategies of competitors Product pools are not stagnant05/10/20254Darral G. Clarke for BM 499THE U.S. AUTO INDUSTRY’S PROFIT POOL100%operating marginsource: Harvard Business Review, May-June 1998auto rental25%1510500share of industry revenueauto manufacturingnew car dealersused car dealersauto loansauto insuranceaftermarket parts20leasingwarrantygasolineservice repairThe automotive industry encompasses many value-chain activities. The way that profits and revenues are distributed among these activities varies greatly. The most profitable areas of the car busi...
