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Profitability iQ

What drives your profitability?

To develop a good business strategy, it is essential that you understand the reason for your current level of business profitability and how it might change in the future in order to decide how best to intervene.

An early model was developed by the Boston Consulting Group. Industry growth rate was the sole measure of industry profitability and market share the sole measure of competitive position.

We believe that a business that has a relatively poor competitive position in a very profitable industry (e.g. a pharmaceuticals business) will be more profitable than a business with a relatively good competitive position in a bombed out industry (e.g. a PVC business).

It is therefore important to understand what drives the profitability of the industry in which you operate as well as what drives your competitive position.

The Profitability iQ iPad app helps you or your business team to explore and identify the causes of a particular business's profitability (or lack of it!). It provides a disciplined process that will assist managers come to a common understanding of the causes.

The issues it covers include:

The expected profitability of the industry in which this business operates.

This includes a consideration of the price sensitivity of customers (degree of product differentiation, cost importance to customers, profitability or wealth of customers), capital intensity and balance of power between suppliers and customers (number of customers and suppliers concentration, ease of switching suppliers, entry barriers and spare capacity in the industry).

The competitive position of this business.

This includes the perceived value relative to competitors of product attributes and services, and the relative cost structure including raw materials, fixed costs and scale effects.

Click here for details of the Profitability iQ iPad app.
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