Emerson Electric and its Profit Pools
Firms and its managers usually concentrate on revenue to gain profit (Guthrie, 2006). They always think that if revenues were maximized, profits will also be maximized which is not always true. A firm can still incur losses even if it has the highest revenue. There are a lot of aspects of a business that can be a source of its profit. Emerson Electric executives can use the company’s profit pools to reduce developing ineffective strategies and maximize its profits.
As showed in the case, Emerson Electric is trying to focus on its revenues instead of profits. If only its executives will look beyond revenues and try to find out the company’s profit pools, they can avoid formulating and implementing certain strategies that are irrelevant, or worse, ineffective. The case also stated that in order for Emerson to compete globally, they began to lower their wages and salaries to minimize the company’s cost.
What is worse is that Emerson wasted almost $100 million by divesting their low class product lines in 1990’s. This is one of their strategies to stay in the global competition. Emerson could have used these products as their profit pools and earn profits with these products instead of wasting a lot of money. A profit pool is any aspect of the business that can be a good source of profit. It is also said to be anything that is included in the firm’s value chain (Guthrie, 2006).
A company’s value chain consists of activities that add value to the organization. If Emerson takes enough time to identify its profit pools, it can achieve profit maximization by also maximizing and making use of all the sources of profit in the company. One profit pool that Emerson can use to make effective strategies is through its prices. Of course, lower prices without sacrificing quality is very appealing to the consumers especially in a perfectly competitive market.
Since the market for fans is very large, Emerson can also use its differentiated product and packages to set apart from other companies in the industry. Lastly, geography can also be a potential profit pool for the company since it is competing globally.
Davis, E. W. , & Paige, K. L. (1991). Emerson Electric Company ACP Division: The Fan Subpack Sourcing Decision Guthrie, J. , (2006). Take a Dive into the Deep End (of the Profit Pool). Retrieved January 28, 2010 at http://beancounterblog. com/2006/01/20/take-a-dive-into-the-deep-end-of-the-profit-pool/