The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits (Hardcover)

by Adrian J. Slywotzky (Author), David J. Morrison (Author), Bob Andelman (Author)

Editorial Reviews

Amazon.com Review
For years, the prevailing wisdom in business was that profitability was a byproduct of market share; get the biggest piece of the market and profit will surely follow. But in the last 10 years, this formula has time and again proved itself wrong. Companies such as DEC, GM, Ford, United Airlines, Kodak, and Sears have all demonstrated that market share does not necessarily lead to profitability.

The Profit Zone looks at how profit happens in today's customer-driven economy. The authors demonstrate why market share often leads to a "no-profit zone" and identify 22 profit models that have helped dozens of companies consistently make money. Included are in-depth looks at companies--Disney, GE, Microsoft, Intel, Charles Schwab--that have successfully redesigned their businesses and dramatically increased the value of their companies. Instead of focusing on market share, these innovators first looked at their customers' needs and how they could profit from fulfilling them. The book considers example after example of how the profit zone works, from Disney's theme parks to Schwab's marketing and selling of mutual funds. The final chapter is a handbook that allows managers to apply the ideas to their own companies. Clearly written and immensely practical, The Profit Zone deserves a place on every manager's bookshelf.

From Library Journal
Slywotsky (Value Migration, McGraw-Hill, 1995) and Morrison, partners in a management consultancy, offer a number of insights into corporate strategy, presenting a theoretical framework that crosses a number of enterprise sectors and employs a number of specific strategies. The authors point out that market share, once the sine qua non, can no longer be equated with profitability. For the authors, profitability today comes when organizations move from a value chain based on core competencies to one based on consumer priorities. This work has a textbooklike feel; besides defining 22 specific profit models, it details how a number of successful companies from SMH (Swatch and Omega watches) to Coca-Cola and Microsoft employ strategies either singularly or in multiples. If this book has a drawback, it is that the authors were unable to capture fully the pain and hard work that came about in the development and execution of a strategy. Definitely worth considering for business collections and a good choice for general collections.?Steven Silkunas, SEPTA, Philadelphia
Copyright 1998 Reed Business Information, Inc.

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Product Details

• Hardcover: 352 pages
• Publisher: Crown Business; 1st edition (December 29, 1997)
• Language: English
• ISBN-10: 0812929004
• ISBN-13: 978-0812929003
• Product Dimensions: 9.3 x 6.5 x 1.3 inches
• Shipping Weight: 1.4 pounds
• Average Customer Review: 4.7 out of 5 stars See all reviews (43 customer reviews)
• Amazon.com Sales Rank: #445,725 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

27 of 27 people found the following review helpful:

5.0 out of 5 stars The Place to Be, January 5, 2000

By	Robert Morris (Dallas, Texas) - See all my reviews (TOP 50 REVIEWER)    (REAL NAME)

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.

15 of 16 people found the following review helpful:

5.0 out of 5 stars Moving from product efficiency to customer solutions, February 8, 2005

By	Golden Lion "Reader" (North Ogden, Ut United States) - See all my reviews (TOP 1000 REVIEWER)

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 not want?" Next ask: who are my innermost competitors? How are they meeting the needs and priorities of customers and thus taking away business. Who are my external competitors? Competitors that are emerging with disruptive technology that will meet the silent needs of my customers." Last, "What do I need to do to gain dominance in the market space?"

Start by identifying the profit model or models that explain, "How do we make money?"

22 Profit Models

1. Customer Solutions (Invest to know the customer, create a solution, develop the relationship.
2. Product Pyramid (At the base are products and services that are low price and high volume; at the top products and services that are high price and low volume)
3. Multi-Component (Several of the components represent a disproportionate share of the profits)
4. Switchboard (Multiple sellers communicating with multiple buyers. The more buyers and sellers join the great the organization builds on itself.)
5. Time Profit (Takes advantage of uniqueness, profit margins erode as competition seeks to imitate. Time profit companies must take the lead and maintain a "two year" lead over their competitors.) Example: Intel and Microsoft
6. Block Buster profits (Revenue realized is so powerful and fast that in a quick swoop the model pays for development and marketing costs)
7. Multiplier (Strong customer brand.) Example: Disney
8. Entrepreneur Profit (Hierarchical design with multiple subsidiaries to maintain closeness with the customer)
9. Specialization (Specialist are several times more profitable than the generalist. Characterized by lower cost, higher quality, stronger reputation, shorter selling cycles, and better price realization) Example: Home Depot
10. Install Base (Initial product sales or profits are slim and profit is realized on the follow-up products and services) Examples: HP printers and Gillette Razors
11. Defacto Standard (The more players who buy that enter in the system, the more valuable the network) Example: Microsoft, Oracle, SAP, and American Airlines
12. Brand (The Company expends significant marketing investment in order to build awareness and is reinforced by customer experience. You know Brand is working when a consumer says, "I won't change because I trust AT&T".
13. Specialty (Specialty companies enjoy a higher premium for their products and services until competitors start to imitate. Examples: Merck and 3M
14. Local Leadership (Many businesses and their company economies are totally local. Risk occurs when these companies fail to recognize they are a local business model) Example: Walmart - "Carpet bombing", county by county.
15. Transactional Scale (Transactions go up but the cost to provide the transaction does not go up as quickly.) Example: Morgan Stanley
16. Value Chain (Specific activities pass through a chain of specialist offering value)
17. Cycle Profit (Industries characterized by distinct and powerful cycle. The company can not control the cycle, but it works to maximize its position within the cycles grip. As capacity tightens the companies lead price increases, as capacity loosens, its lag price declines)
18. After-Sales Profit (The company's profit does not direct come from the sale of hte product, but the after sale financing or services of the product) Example is GE capital financing of credit cards, auto loans, and insurance.
19. New Product Profit (As new products are introduced profit margins are high and growth rapid. As the product mature the profit margins fall.)
20. Relative Market Share Profit (Companies with high market share tend to be more profitable. Large companies have price advantages due to manufacturing experiences and volume economies, such as purchasing capability and economies of scale)
21. Experience Curve Profit (Experience drives down the transactional cost)
22. Low Cost Business Design (The company trives on reducing the cost per unit through cumulative experience)

1. Who are my customers?
2. How are their priorities changing?
3. Who should be my customer?
4. How can I add value to the customer?
5. How can I become the customers first choice?
6. What is my profit model?
7. What is my current business design?
8. Who are my real competitors?
9. What is my competitors business design?
10 What is my next business design?
11. What is my strategic control point?
12. What is my company worth?
a. Return on Sales= EBIT/Sales
b. Profit Growth=Projected Earnings growth (value line)
c. Asset Efficiency=(Asset-Cash and Equivalents-Account Payable)/Salesd
d. Market Value=(Shares Outstanding X Share Price)/Sales
e. Strategic Control Index=
(10) Own standard
(9) Manage value chain
(8) String of superpositions
(7) Own customer relationship
(6) Brand copyright
(5) Two year product development lead
(4) One year product development lead
(3) Commodity with 10 to 20 percent cost advantage
(2) Commodity with cost parity
(1) Commodity with cost disadvantage

In the book, the author discussed, Schwabs "OneSource" switchboard model for selling mutual funds: no transaction cost and no front load. The brokerage model eliminated direct customer costs by providing zero transaction cost mutual fund and allowed the customer a cheap introduction to the market. Schwab continued to make available financial advise by agent or 3rd party financial planner and Schwab as a discount broker leveraged the single source for customers to purchase mutual funds, thus reducing confusion cause from massive variety. On the flipside, the mutual fund companies paid Schwab a small commission to list their mutual fund. Schwab provides the customer a single financial report and gains the brand recognition and prestige of the mutual fund company. Furthemore since OneSource is not asset intensive, Schwab does not face excessive risk and smaller profit margins. Schwab is able to defend its position from competition by providing a high volume and low priced commodity and gain more premium fees by offerring financial advise to higher paying customers.

7 of 7 people found the following review helpful:

5.0 out of 5 stars 12 Breakthrough Questions for Looking Backward in Time, August 26, 1999

By A Customer

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.