7. If a business uses the idea of Profit Pool management to set market direction, what sort of results are realistically possible?
Market strategy can use Profit Pool management to boost shareholder value in two timeframes. In the near-term, a focus on internal Profit Pools gets the existing capital invested in the business working on all cylinders. Again, we have found the typical healthy Fortune 500 Division and mid-cap business has 20% to 40% of invested capital in business areas that don’t even support the cost of that capital, while half of that is actually draining cash. Once a company has looked through its business areas and created a granular picture of cash profitability – looking at offerings, customers, channels and geographies – it is in a position to limit some of the cash drains and certainly stop growing them. Of course, many business areas are interconnected, so its often not desirable to simply cease operations – but cash drains can almost always be neutralized. More often than not, this results in immediate cash flow increases of 10% - and usually much more. The impact to shareholder value is rapid, and has a more pronounced magnitude as investors see the existing business model delivering more cash flow to shareholders, and expect it to continue to do so into the future.
Long-term gains are much more industry and market specific – and reliant on the ability of business leaders to characterize their business vision in tangible strategies and fact-based reality. It also depends on the opportunities available. With that said, the probability that opportunities will be identified increases by orders of magnitude when a process to characterize future market Profit Pools is used, as is the likelihood of fully exploiting those opportunities. There is simply no comparison with approaches that manage market strategy to a three to five year horizon and focus on sales – that’s a model mostly based on chance.