Profit Pools and Core Competence.ppt

1 26 2020 DarralG ClarkeforBM499 1 ProfitPoolsandCoreCompetence DarralGClarkeProfessorofManagementTheMarriottSchoolBrighamYoungUniversity 1 26 2020 DarralG ClarkeforBM499 2 ProfitPools AFreshLookatStrategy OritGadieshandJamesL GilbertHarvardBusinessReviewMay June1998 2020 1 26 DarralG ClarkeforBM499 3 THEPCINDUSTRY SPROFITPOOL ValuechainfocusAxesVertical operatingmarginHorizontal shareofindustrydata 2020 1 26 DarralG ClarkeforBM499 4 TheProfitPoolLens Theprofitpoolisthetotalprofitearnedinanindustryatallpointsalongtheindustry svaluechainSegmentprofitabilitymayvarybycustomergroup productcategory geographicmarket ordistributionchannelProfitconcentrationmaybeverydifferentthanrevenueconcentrationShapeoftheprofitpoolreflectsthecompetitivedynamicsofabusinessInteractionsofcompaniesandcustomersCompetitivestrategiesofcompetitorsProductpoolsarenotstagnant 2020 1 26 DarralG ClarkeforBM499 5 THEU S AUTOINDUSTRY SPROFITPOOL 100 operatingmargin source HarvardBusinessReview May June1998 autorental 2020 1 26 DarralG ClarkeforBM499 6 ProfitPools CompanyExamples CompaniesAutomakersU HaulElevators OTIS HarleyDavidsonPolaroid CoreBusinessAutomanufacturingTruckRentalElevatorManufacturingMotorcyclesInstantPhotographyCameras SourcesofHighestROIAutoleasing insurancePackingmaterials storageServiceAccessories consumerproducts leasing service restaurantsFilm 2020 1 26 DarralG ClarkeforBM499 7 ManagerialImplications FocusongrowthandmarketsharecanleadacompanytofocusonunprofitablesegmentsofanindustryToday sdeeprevenuerevenuepoolmaybetomorrow sdryhole ThegoalshouldbetofocusonprofitableopportunitiesIndustryshouldbeconsideredmorebroadlythantraditionaldefinitionAutomobileindustryincludesComponentmanufactureandsupplyNewcarassemblyanddeliveryNewcarwarranteeandserviceNewcarfinancingandinsuranceUsedcarsalesandservice 2020 1 26 DarralG ClarkeforBM499 8 Turbulentindustries Profitpoolsareespeciallyimportantandusefulinindustriesundergoingderegulationand ortechnologicalchangeSuchchangescanopennewprofitpoolopportunitiesanddrainoldonesChokepointsmaychangeorbeeliminatedOpportunitiesforeitherforwardorverticalintegrationmayemergeCurrentverticalintegrationmaybedisintermediated 2020 1 26 DarralG ClarkeforBM499 9 Creatingandmanagingaprofitpool ProfitpoolanalysismayindicatenewopportunitiesorthreatsImperativesBeopentoanewperspectiveonyourbusinessandindustryDevelopingnewstrategymayrequireoverturningelementsofthecurrentstrategyBeopentoreevaluatetheroleplayedbycurrentcompetitorsBevigilanttoidentifypossibilitythatnewentrantsmayseektoenteryourindustrywithradicalstrategies 2020 1 26 DarralG ClarkeforBM499 10 LookingAhead ProfitPoolsandtheFiveForces ProfitpoolsarecomputedbymultiplyingthesizeoftherevenuebytheunitprofitmarginEssentiallyanaccountingprocess notheoryMostvaluableinsituationsinwhichexternalconditionsareessentialstableand orunimportant Oftendominatedbyinternaldataalone Thefiveforcestellsus whichwillstudynext theunderlyingdeterminantsthatdetermineboththerevenuesizeandtheunitprofitmarginTheprofitdriverswhichallowustoforecastthedirectionofchange 1 26 2020 DarralG ClarkeforBM499 11 MarakonRunners ThomasA StewartFortuneSept 28 1998 2020 1 26 DarralG ClarkeforBM499 12 MarakonAssociates sApproachtoCorporateStrategy ConsultantstomanylargecorporationsCocaCola HP GM CitiCorp etc Clientshavereturns3 1 higherthanindustrypeergroupGoalistoincreaseshareholdervaluethroughanalysisofeconomicprofitDeepdrillinginbusinessdatatomeasurevaluecreationProductsegmentsCustomersegments 2020 1 26 DarralG ClarkeforBM499 13 HowStrategyHappens LearningwherevalueiscreatedWaterfallchartsbyproductandcustomersegmentsEvaluatingstrategyIndustryaverageprofitperunitCompany sprofitvsindustryaverageManagingvalueCurrentstrategyChangeproductfocusChangecustomerfocus 2020 1 26 DarralG ClarkeforBM499 14 Learningwherevalueiscreated 2020 1 26 DarralG ClarkeforBM499 15 EvaluatingStrategy 2020 1 26 DarralG ClarkeforBM499 16 Managingforvalue Currentstrategy Changeproductfocus ChangeCustomerfocus Value 2020 1 26 DarralG ClarkeforBM499 17 Applicationtoourcases Retailindustry Wal Mart Softdrinkindustry Coca ColaandPepsiCo Steel Nucor andaluminumcans CC S Hitech Intel Cisco andDell Videogames Nintendo Webbusinesses eBayandYahoo 1 26 2020 DarralG ClarkeforBM499 18 TheCoreCompetenceoftheCorporation Prahalad C K andGaryHamelHarvardBusinessReview May June1990 2020 1 26 DarralG ClarkeforBM499 19 CoreCompetence AFirmismadeupofresourcespeople patents brandnames plant equipment processes etcAcompetenceistheabilitytoemploydiverseskillsandresourcestoperformtasksandactivities Acorecompetenceisabroadlybasedand orabroadlyappliedfundamentalcapability 2020 1 26 DarralG ClarkeforBM499 20 CompetenceandTechnology CompetenceisnotthesameastechnologyCompetencerequirestechnologiessocialorganizationcollectivelearning 2020 1 26 DarralG ClarkeforBM499 21 Corecompetencequestions Whatarewereallygoodat Howcanwebuilduponit Whatdoweneedtobegoodat 2020 1 26 DarralG ClarkeforBM499 22 CharacteristicsofEffectiveCompetencies Durability Technicalequipmentcanbeshortlived Reputationorknowledgemaydepreciatemoreslowly Transparency Themorecomplexthesourceofcompetence theharderitistoimitateit Transferability Theavailabilityofresourcestocompetitors Replicability Acompetitor sinternalabilitytoreplicateacompetenceusingavailableresources 2020 1 26 DarralG ClarkeforBM499 23 ChoosingCompetencies Howcentralisthiscompetencetooursuccessinthemarket Howlongcouldwepreserveourcompetitivenessinthisbusinesswithoutthisparticularcompetence Whatfutureopportunitieswouldbeforeclosedifweweretolosethisparticularcompetence 2020 1 26 DarralG ClarkeforBM499 24 CoreCompetenceandCoreProducts 2020 1 26 DarralG ClarkeforBM499 25 AHierarchyofCompetencies 2020 1 26 DarralG ClarkeforBM499 26 BuildingStrategyfromCapabilities Source RobertM Grant TheResource BasedTheoryofCompetitiveAdvantage CaliforniaManagementReview Spring 1991 page151 1 26 2020 DarralG ClarkeforBM499 27 Howtomapyourindustry sprofitpool OritGadieshandJamesL GilbertHarvardBusinessReviewMay June1998 2020 1 26 DarralG ClarkeforBM499 28 Astraightforwardexercisewithcomplications ConceptisstraightforwardDefinevaluechainactivitiesDeterminetheirsizeandprofitabilityApplicationofconceptiscomplicatedFinancialdatadoesn tcorrespondtovaluechainactivitiesCompanydataisaggregatedacrossbusinessesProducts customerpurchases channelvolumesrarelymatchupwithboundariesofanactivityConsiderablecr