The Profit Zone

From my personal days of retail, our motto was increase sales everything else will follow. Honestly, this is a short sided method of trying to increase profits. Slywotzky has one evaluate where is the market going, who should your customers be, where is the value migrating towards, so you can be more effective in business. Slywotzky presents a very well thought out method of looking at your business or a potential business and asking those probing questions that seperate you from your competitors. He offers a variety of business models as well as profit models. All are valid, and hybirds are suggested, but the point is to know what you are driving towards, and develop your strategy after this. I have read many different business books, and this one has to be one of my favorite. If you enjoyed Built to Last or from Good to Great, you will like the depth this book has to offer.

A company paradigm shift must occur before profits can happen. Management must move away from product-centric thinking and migrate to customer-centric solutions. Re-Inventors know that customer-centric solutions help identify the business design modification and enhancements to invest resource, talent, and raw materials to build. Customer expectations, beliefs, and problems are constantly changing. Companies, who listen to their customers' needs and priorities are more likely to change processes to meet those customer needs. Traditionally, companies have focused on selling more to anyone willing to buy products and services. The driving belief was growth was a function of capturing larger amounts of market share. This belief is not factually true. Many companies gained significant market share only to discover, they were not growing in profits. The authors main argument is that market share does not equate always to profits because the customers needs and priorities are changing. This observed fact means companies not responding to the customer needs and priorities will loss market share even if they currently have massive market share. Failure to hear the customer needs and priorities will lead to the lost of profits: IBM (IBM had the market share in mainframes)yet faced decreasing trends in profits. IBM moved towards customer solutions. IBM mainframe business struggled (Read Who said Elephants can't dance) - IBM moved to solutions. IBM profits increased as they responded to the customer not the fact that they acheived market share. Market share is an indicator the company is meeting the customer needs not the reason to meet the customer needs. The egg before the chicken philosophy where meeting the customer needs produces the gold egg of profits. As with more of the same philosophy so was the advocacy. Companies continued focusing on what they did well and continue tryingtoo sell more of the same without understanding the needs and priorities of the customers; sustaining a false premise that more of an unwanted or unresponsive product will generate high profits. When companies were small, they listen to their customers; when they became a mid size companay, they struck a balance in between the company and the customer; and as a large company they mostly ignored the customer needs and a priorities and focused on company productivity. So the company eventually focused only on increasing efficiency and delivering products with the goal of gaining market share believing revenue would be generated from each unit sold. The internet and high speed communication has changed everthing. Business are becoming more digital and companies are expected to respond to the customers needs and priorities. The most important question to ask is "How do I get paid?" Without a clear understanding of how profit is generated and how a business must be designed, there will be no profit. Next ask: "Who are my customers? Which customers do I

In Part One, the authors argue that "market share is dead" as an overall strategy goal. Instead, to achieve sustained growth in profits and shareholder value, companies need a "customer-centric business design" which anticipates and addresses constantly shifting customer priorities. There is no single design which fits all circumstances. but the most effective designs will start with customer priorities. In Part Two, the co-authors shift their attention to several "reinventors" who have achieved extraordinary success. Most are familiar: Welch, Hayek, Goizueta, Schwab, Grove, Eisner, Hatsopoulos, Barnevik, and Gates. However, and this is an excellent example of the book's unique and substantial value, Slywotzy & Morrison note that "the principles and techniques of reinveniting a company's business design to get it into the industry's profit zone...apply with equal force to small companies, to divisions of larger companies, and to the middle managers who run them. In fact, the reinventors we will be reading about in the future are already honing their skills at innovative business designs today." The authors then examine several smaller firms such as Madden Communications, Cardboard Box, Inc., and Clozaril Patient Management System.In Part Three, the authors provide a "handbook" which explains in detail how innovation works.This book is relevant to all organizations (both for-profit and non-profit) which seek to increase their economic value. Non-profits must also make critically important decisions (such as those involving allocation of resources) if they are to achieve their objectives. The appendices provide additional guidance so that the reader can implement whichever of the book's ideas and suggestions are most relevant.If optimizing your organization's profits is your destination, here's a map to get there.

This outstanding book has 12 incredible questions. Answer these questions and you will be as successful as Bill Gates, Jack Welch, and Roberto Goizueta, as this incredible book points out using them as examples! Here are a few samples to whet your appetite: (1) Who are my customers? (7) What is my current business design? (12) What is my company worth? In only 15 pages, you can answer these questions for yourself. What a great deal! I think you should quickly order this book and solve these problems for yourself. You'll be amazed how much you learn.

There are some wonderful ideas in the profit zone and many reminders of things we have heard about for years and often forget. For example, the real focus on the customer is critical to success and we must always identify which parts of the business generate the profits, or are THE PROFIT ZONE. I remember a study done in the 1970s which found that most of a brand's profit came from the smallest size can that the product could be purchased in. There are lots of other examples here. The author's are correct in that the most successful companies have been innovators in business design. Ten companies are profiled, althugh surprisingly, Dell Computer is not one of them, having innovated a new profitable business model based on their "Customer Initiative". The authors get into a little trouble when they try to get quantitative. The Value Growth Curves have too few points to draw useful long-term conclusions, but the Business Design Tables are interesting because they will make you think about your business structure. The two best parts of the book are the Pilot's Checklists of questions to ask yourself and Chapter 15, the "How To" section to get discussion and hopefully agreement going inside your company to find and grow THE PROFIT ZONE. For more ideas on how to develop new business models that allow you to achieve twenty times the usual benefits or get there twenty times as fast, I also recommend you read THE 2,000 PERCENT SOLUTION. THE PROFIT ZONE may just be one of your solutions.