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PCs of Profit

Updated on October 13, 2018

For any organization there are factors that make the job of a CEO, a dynamic job. The factors are both internal as well as external to the entity/the organization.

PC's of PRofit
PC's of PRofit

Native / Internal PCs (Capital, Product, Calibre/People, Process) : These factors are under direct control of the CEO and the team and help to chalk the direction and the path of the organization. The CEO and his team have to continuously fiddle around with these factors to sustain and grow the profitability of the organization.

Foreign / External PCs (Control/Policy, Parts/Suppliers, Competition and Partners) : These factors influence the organization to act on its native PCs . Any change in these foreign PCs may or may not be countered by the changes in the native PCs by the CEO and his team. Alternatively the organization may try to influence these

The area covered by the external PCs represent the profit potential of the industry as a whole. In Actual it is the profit potential estimated by a firm in a market/segment for a specific period. Ideally, the firm would like to have the biggest chunk of this area for itself.

The area under the internal 4Ps is the profit that is profit potential the firm estimates for itself during the specific period. The CEO and his team job is dynamic for the reason to sustainably achieve and grow this profit estimate on regular basis.

The estimates of the profits based on the length and width of the internal PCs are more deterministic and likely to have smaller variances and variations. In contrast, However influence of the position and tilt of the foreign PC generally has a larger impact on the profitability not only of the firm but also of the industry.

A firm can gain higher share or increase its share of profits within the industry by having an advantage in either of the native PCs . Sustaining or growing the profits of the firm is squeezing/expanding the native PCs on continuous basis . The changes in the native PCs are deterministic and easy to arrive / evaluate as they are in the direct control of the firm. However the profit expansion potential would be limited

Note : the farther you are from the external P’s, more better situation is what you are in. The farther you are more is your bargaining power/ negotiating advantage from that external party. However as you move farther from one external P, you move nearer to corresponding P on the other side. e.g if you move farther from government regulation by keeping the price of your products low, you will have to spend more on dealing with the part suppliers so as to sustain or grow the profits. The move should be such that you maintain a balanced distance from the external P’s. e.g if a firm increases the product depth ( variants of same products) and if the parts suppliers are limited, then the firm looses relatively its bargaining power.

Hence the job of the CEO and his team is to continuously balance the PCs so as to sustain and grow the profits


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