Customer Reviews

Islands of Profit in a Sea of Red Ink: Why 40 Percent of Your Business Is Unprofitable and How to Fix It

5 star:		(27)
4 star:		(1)
3 star:		(1)
2 star:		(1)
1 star:		(0)

 

 

As the Owner of a small business (50 employees), we are always looking for ways to improve our bottom line. I read a review of this book in INC. Magazine and thought it sounded like it had potential. However I was disappointed that many of the strategies suggested by the author are designed for large businesses with large product lines, and thousands of customers. For example, one of the strategies discussed in depth is to create more of a partnership with your customers, share information, create sales goals together which I agree is an excellent way to go. However, as a supplier of just a couple of products, to very large retailers, its a struggle just to get them to answer phone calls, let alone work on forecasting together.

There are some basic principals that can be applied to businesses of all types, hence the 2 stars, not 1. However they are few and far between. I am sure that this would be a great book for someone at a larger organization, but for me it wasn't a fit.

That being said, the information is presented clearly and in an easily understood manner, with helpful examples.

This book gets 5-stars from me, because it breaks new intellectual, business ground AND provides an implementation framework that will get readers fast, big profit improvement results.

The fundamental premise of the book is that: nearly 40% of the average company's sales activity is unprofitable, and 20-30% is so profitable that it provides all the earnings after offsetting the losses. This premise is not new. As a consultant to independent distribution channel firms, I've been preaching on how to address this opportunity for 32 years with frankly little impact on audiences of distributors and manufacturing distribution-channel managers.([...])

While many managers know or suspect - more or less- that significant cross-subsidies exist between -customers, products, suppliers (especially for distributors and retailers) and even sales territories, very few have been able to both measure and capitalize on these subsidies. This book will help readers do both at an economic time when trying to sell and grow our way to greater profitability -as always in the past- just isn't going to work.

Byrnes has a good logical flow to the book, and it all is quite readable sprinkled with good case illustrations. His summarizes key points at the end of each chapter which the impatient reader might skim through first before diving more deeply into the content.

Byrnes has reasoned well that we must first (re)-"think" our assumptions about how to be successful and profitable (first 10 chapters). Then, we will need to "sell" our new assumptions and "micro-level" profit analysis to all of our stakeholders who naturally will be reluctant to give up fine-tuning what they habitually know how to do best. And finally we will have to "lead" change in "operations" to get results.

The biggest, first hurdle is the "think" part: to get our heads around the answers to questions like:

1. Why do such large, structural embedded losing customers exist within our business? How did this come to past so consistently across so many industries?

2. Why if our financial performance has been good for our industry and all key managers are hitting their budget numbers do such big profit improvement opportunities still exist for:

a. Securing and growing our best, most profitable core customers.

b. Transforming many big losing customers into winners.

c. And learning to say "no" to some existing and all new prospective customers who don't fit our re-focused, strategic scope and re-aligned functional capabilities.

3. How do we create an optimally complex cost-model ("profit mapping") for determining where we are making the big profits and losses that has enough credibility to take action?

4. Going forward how will all of our employees from top to bottom re-learn how to be part of the managing for both service value and net profits? Will, for example, our CFO welcome the opportunity to expand their job description and impact by also becoming the "chief profitability officer"?

5. How is it possible to grow profits and free cash-flow quickly with little upfront investment or expenses in these particularly tough economic times?

Byrnes answers these and more questions in the first section of the book entitled: "thinking for profit".

The second section on "selling for profit" improvement is comprised of 8 chapters. Highlights include:

1. How to turn "account management" from an art to a science.

2. How to turn annual sales forecasting into a profit-improvement and untapped core potential measurement and development tool.

3. And, why we have to sell service innovations that turn lose-lose, inter-business friction activities into win-win profit gains to key customers.

The third section (7 chapters) is on "operating for profit". After we sell our employees and our key customers (and suppliers) on win-win profit improvement possibilities, then we have to actually change our ways and (inter-business) processes. It turns out, of course, that our one-size fits all business service models and processes don't work for different sizes and types of customers and products. The solution to the one-way doesn't necessarily economically benefit the company is to re-think company processes to economically, precisely serve different sub-sets of customers hence a key theme of the book: "age of precision markets". We don't know, however, exactly where the economic boundary lines are for different service models to serve different customers unless we can calculate the horizontal process costs to serve which when subtracted from margin contribution determines net profit for a product or customer.

Although the cost-modeling and rethinking processes for different subsets of products and customers sounds difficult, Byrnes gives wise advice on how to keep everything simple and how to implement new ideas on an incremental basis: no jumping in any new rivers with both feet.

Even with terrific new, informational insights as to where your company historically has really been making and losing its money, the ultimate challenge will be to lead and execute on the changes that become informationally apparent. Byrnes addresses this in the last, "leadership" section of the book. The key points he makes are that leaders just have to expand their own boundaries of who they are and what they are responsible for. We can't just be traditional, departmental, silo cost and incremental change players, but horizontal-process, team, profit innovation players. The CFO must expand, for example, to be also the "chief profitability officer". Easy, simple, but wise and necessary advice.

This is a book that you may eventually buy multiple copies for a management team or a horizontal-process team. Don't ask or expect them to read it all on their own. Assign, instead, specific reading assignments and prepare specific homework questions that blend Byrnes' thinking with your company's related opportunities. The key to adopting new paradigms is lots of repetitive reading and case example application discussions followed by very small, pilot test experiments. Byrnes points out often that you can't justify experiments based on horizontal-process profitability insights with traditional experience math. When you are blazing a new trail for the company, there isn't an historic map lying around to use and refer to. You have to make your own as you go along.

In sum, in this tough economy, we can't sell our way to prosperity while harboring and growing embedded unprofitability. We have to make a lot more out of what we are already doing by transforming most losing elements into profitable ones and doing a better job of securing and penetrating what we do best. Then, we will have the cash-flow, confidence and corporate agility to entertain the possibilities of new adjacent growth opportunities. Buy the book!

First of all, let me disclose my bias; I had Jonathan Byrnes as a professor at Sloan. He was my favorite professor from all of my educators from both Harvard and Sloan (and that's saying a lot).

Jonathan Byrnes has always had a way of cutting through the noise to help direct you to the "heart of the matter." In addition, the style in which he performs this analysis is entertaining, informative and logical. You not only see the steps that he goes through, but you learn the process - so you can do it yourself "out of the classroom."

He brings nothing less than this (exceptional) didactic method to Islands of Profits in a Sea of Red Ink.

The fundamental premise of this book is an astonishing proposition: nearly forty percent of every company is unprofitable by any measure, and twenty to thirty percent is so profitable that it is providing all of the reported earnings and cross-subsidizing the losses. The rest of the company is only marginal.

It's a must read for any business leader who's faced with the question "How do I make more money?" as it gives you practical, tangible & useful steps for answering that question in your business.

Just as the title indicates, this book is "not just a Read, it's a Revelation!"

A revelation in the sense that for so long, and in so many companies, top managers/executives, and business owners have ignored one crucial aspect of Business Management - that being Profitability Management. For decades, we have taken revenue from the right hand, put it in the left hand and called it profit.

What Dr. Byrnes has done (with Islands of Profit in a Sea of Red Ink..)is point the reader to core discrepancies and critical business-management decisions & practices that have "blanketed" many of the problems stemming from the lack of, or poor execution of, Profitability Management. One being that nearly half of all your business is unprofitable, or that only a small (20 - 30%) of your business provides for the bulk of your profits!

Dr. Byrnes has also given the reader a sensible and solid outline for structuring your Profitability-Management process in a context that can be applied to just about any level of business. And being the "book prude" that I am, by always keeping them [books] in pristine condition, I find it interesting that within the first chapter, I was using a highlight pen marking several quotes or paragraphs in the book for future reference. This book will be a "business tool" for me, for many years to come!

I often find myself asking "how did I manage without a computer?", or "how did we ever manage without cell phones..?"

After reading Islands of Profits.., and applying the business knowledge (I've gained from it) into my career, I can see myself asking a similar question in the near future.

What will you be asking?

David R Mullins

Keller, TX

This is a well-organized, clearly-written, how-to book that lays out many ways to improve profitability at minimal cost. Each chapter is self-contained guide addressing a specific aspect of managing more effectively. While profitability is an underlying theme, the book tackles a surprising range of management issues and solutions in an innovative, thought-provoking, and most of all, practical manner. Among my favorites:

Who's Managing Profitability? In most businesses, effectively nobody, although most managers think that they do. The impact on profitability of this simple insight can be enormous.

Is Your Organization Reptile or Mammal? An amusing way of looking critically at customer and supplier relations that offers solid guidance on strengthening these.

The Age of Precision Markets. Every manager and executive should read and understand this absolutely fundamental concept in market evolution. It is critical to business success in the coming years.

Managing Change: Garden, Sand Castle, Mountain, Spaghetti. No one has better described the vital challenges of major change and approaches for managing change effectively. These humorous metaphors will stick with you as you apply them to your organization.

Managing at the Right Level. Another insight that you will not find anywhere else, this one goes directly to the heart of manager effectiveness. Get this wrong and you will have a poorly performing manager or executive.

These examples should give you some sense for the breadth and style of this valuable reference book. And, for action-oriented managers, each chapter concludes with several action ideas that you can put to work immediately. I think that this is what a good management book should be -- solid concepts followed up with a practical action guide. If you, like me, are tired of reading management feel-good tomes, grossly simplified storybooks with lots of colorful kiddy-cartoons, or endless anecdotes without any clear links to practical use, then Islands of Profit will be your kind of book too.

I started the book and had a hard time getting into it. I am not a top executive so I also not the target audience of the book. This book is developed from Executive training courses at MIT and mostly aimed at the CIO, CEO, CFO, President, and others in the executive suite.

With that being said I enjoyed some discussions on the customer service side and supply side of the business. I do have a hard time thinking this book is "revolutionary" or "opened someone's eyes" at the executive level who found this information to be new. The 80/20 rule applies to profit as well as revenue when you talk about customers and what they bring to your business.

From a front line manager and individual contributor level the example of a profit map was most helpful. This helps to determine profit levers or the operating profit of an order. This part of the book is the sweet spot and where most will recognize the value of the book. This process of profit mapping can be applied to any size company really in any industry (examples in the book are from a wide range of industries).

The Service Differentiation Matrix is a good resource as well. This involves four customer types broken out into strategic accounts, integrated accounts, emerging accounts, and stable accounts. This helps to categorize customers and understand what type of customization, innovation, and alignment to create. Nice way to organize customers and get your mind around how to improve customer service while also improving profitability.

Overall a good read for business owners and the executive suite of any size company. Improving REAL profit is the key to any company along with managing customers and providing "out of the box" customer service. I Would have loved an appendix with some more examples and maybe a few templates, but would have been a bonus and not required.

Jonathan Byrne's book corrects common misconceptions, such as the idea that any customer is a good customer. Instead it encourages managers to identify which customers and suppliers are essential to the business. It encourages rethinking relationships with customers in an "age of precision markets," in which both parties have new tools and incentives to adapt to each other. Coupled with strategic advice is a nuts and bolts method for analyzing balance sheets to understand profitability, making this book a truly invaluable guide for managers.

This is an excellent book from a great strategic mind. Jonathan Byrnes has uncovered one of the dirtiest little secrets of corporate America and that is most companies do not have the first clue about customer profitability - most companies want to understand it but they just don't have the tools - until now. The author does an amazing job of clearly describing the problem and solution. There is something here for everyone - MBAs, strategy consultants, financial planning analysts, senior executives, etc. - this book is a must read! I, for one, would have been saved much time and effort in some of my engagements if this book existed a few years ago. It is my top gift for colleagues this holiday season. Enjoy!

As a management consultant, I have advised many companies in different industries and geographical markets on strategy, segmentation, product portfolio optimization, sales enhancement, etc. with a focus on improving the bottom line. Jonathan's Byrnes has nailed it on the head with this book. Not only has he created a systematic process for mapping profitability and identifying value in a creative and practical manner, his approach offers concrete profit enhancement levers along with a management process to sustain economic value.

The approach outlined in the book can help organizations better understand the economics of their business and key drivers of profitability along the entire business value chain. Profitability can be increased substantially without costly new initiatives by calibrating the levers around customer accounts, product portfolio, sales processes, supply chain, etc. Jonathan has included some great examples in the book on how to do this. Every level of your organization will benefit from Jonathan Byrnes's approach to optimizing profitability.

Dr. Byrnes provides universal insights and frameworks as essential in the trenches of startups as in large corporations. "Pounds-per-square-inch," one of my favorite of Byrnes' metaphors, can even be applied to personal careers and life in general. Byrnes organizes the frameworks for decision-making in a way that's easy to absorb for managing in confusing environments with endless variables. In startups without old legacy strategies or thousands of employees, even small decisions can create unintended and powerful trajectories. I'd argue that Byrnes' concepts are the most critical when the inertia is being created--at the vertex of the angle.