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The modelling of business profitability: A new approach

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  • Arthur R. Burgess

Abstract

Various methods are in use for the ‘top down’ assessment and comparison of the future profitabilities of businesses. The most advanced is the PAR equation of the PIMS programme, which combines quantitative evaluations of the average effect of various business characteristics on profitability. However it is not a true model in the OR sense being essentially a linear regression equation. The proposed new approach is a first attempt to combine the characteristics in a way which models the bargaining of customers with suppliers who are in competition for the supply of a bulk product. All the constants in the resulting non‐linear equation (called 5C) are meaningful in marketing or production terms. The model is in a preliminary non‐optimized state, but seems to offer opportunities for ongoing development. It is in this spirit that it is offered for discussion.

Suggested Citation

  • Arthur R. Burgess, 1982. "The modelling of business profitability: A new approach," Strategic Management Journal, Wiley Blackwell, vol. 3(1), pages 53-65, January.
    • Handle: RePEc:bla:stratm:v:3:y:1982:i:1:p:53-65
    DOI: 10.1002/smj.4250030105
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    Cited by:

    1. Scott L. Newbert & Erno T. Tornikoski, 2013. "Resource Acquisition in the Emergence Phase: Considering the Effects of Embeddedness and Resource Dependence," Entrepreneurship Theory and Practice, , vol. 37(2), pages 249-280, March.

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