| How To Map Your Industry’s Profit Pools | Bus J-411 | | Carl Greeno III | 10/1/2013 |

In this article it describes a useful framework for analyzing how profits are distributed among the various activities that form an industry’s value chain. A profit-pool opens a window onto the underlying structure of the industry, helping managers see the economic and competitive forces that are determining the distribution of profits. The strategy of a firm should be informed by an understanding of the sources and distribution of profits generated in an industry. Gadiesh and Gilbert took a value chain perspective to this when developing the profit pool framework. Profitability in different segments and stages of the value chain may vary a lot by product and customer group, by geography, or by channel.
Step 1: Define the pool
Key is to look at the industry broadly, beyond its traditional boundaries. Include all the activities that are meaningful to influence your organization’s ability to earn profits today and in the future. Examine the industry from three perspectives, your own, your competitors’, and your customers. Take a step back and take a look at your industry through the eyes of the customer. When referring to capsim, one of the most important aspects in the game is the customer survey. In being profitable and achieving a high percent of the market, you must fulfill the customers’ needs and expectations better than the competition. Defining the bounds of a profit pool requires, in short, not just analytical skills but also good, basic business judgment. The pool you draw must be tailored to fit the strategic questions you face.
Step 2: Determine the size of the pool.
At this point, the goal is to estimate overall industry profits, which will serve as a base line. This may require some estimates for individual companies, and already an initial breakdown