Adrian J. Slywotzky - The Profit Zone: How Strategic Business Design Will Lead You to Tomorrows Profits

Table of Contents

Praise forTheProfitZone

The Profit Zone is so insightful that most managers will pray that their competitors never read it.

Richard DAveni, Amos Tuck School of Business,
Dartmouth College; author of Hypercompetition

The Profit Zone is by far the best, most informative, and most instructive business book Ive read in over a decade.

David L. Sliney, president, Lamco Ventures, I.L.C.

The Profit Zone could safely come with a guarantee that it would increase a companys profit if management read it and acted on it.

Philip Kotler, Kellogg School, Northwestern University

This important and meaningful book is must reading for anyone responsible for business strategy formulation. Slywotzky and Morrisons strategic approach is woven through a range of real-world examples that reinforce the power of creative business design and ongoing reinvention.

Richard L. Keyser, chairman and chief
executive officer, W. W. Grainger, Inc.

Adrian Slywotzky and David Morrison show how to achieve profitable results by developing superior insight into customers and adapting a companys business design to stay ahead of customer needs, rather than attempting to do more of what youve always done faster and better. The Profit Zone gives the reader confidence that these ideas work through clear and detailed examples.

Samuel J. Palmisano, chairman and CEO of
the IBM Personal Computer Company

Riveting portraits of how some of our great executivesRobert Goizueta, Andrew Grove, Bill Gates, Jack Welch, and Michael Eisnerhave reinvented their companies from product and market-share centered to customer and profit-centric.

Michael Useem, professor of management and director
of the Center for Leadership and Change Management,
Wharton School, University of Pennsylvania

The Profit Zone leads you to a fundamental understanding of your customer. It forces you to examine the value they have on your products and services and drives you to design a business that captures a fair share of the value created. It leads you to be well placed in the zone where profits will be created tomorrow.

Terence Lennon, senior vice president, Met Life

Even better than an exciting whodunit, here are twelve terrific how-they-did-its.

Stan Davis, author of Blur (1998) and Future Perfect (1996)

The Profit Zone moves your thinking beyond the classic world of product and market strategies. Slywotzky and Morrison reinforce the message that profit is created not by the best products alone, but by the best integrated business designs. If you want to rethink your business and its value proposition to customers and shareholders, The Profit Zone is must reading.

Jay Alix, Questor Partners Fund/Jay Alix & Associates

Preface to the Paperback Edition

IN THE YEARS since the original publication of The Profit Zone, the quest for profitability has become more important than ever. The hype of the Internet, the free flow of excess venture capital, and the strength of the equity markets collaborated to create many foolish business models. These facts have increased the need for the discipline of business design reinvention, which we introduced in this book. A high price is being paid by companies and investors that fail to master this discipline or fail to apply its basics to their businesses.

Just looking at one industry, it has become increasingly obvious that traditional product-centric, manufacturing-based business growth is dead. Weve recently experienced a time of turmoil in the stock markets, triggered in part by unrealistic expectations from the dot-coms. This turmoil has forced millions of managers and investors to recognize the failure of many companies to develop plans for long-term, sustainable growth. Yet even before the recent market meltdown, once-great product-based companies were already stumbling. In just months, firms like Gillette, Polaroid, Lucent, Procter & Gamble, Maytag, and many others lost between forty and one hundred percent of their market value.

The collapse of the high-tech sector ratified the sense of gloom. The apparent strength of that sector during most of the 1990s was really little more than a series of bottle rocketssizzling, dizzying ascents followed by equally spectacular crashes to earth. Most had products that played to the markets endless excitement for low-cost digital bandwidth, but had business designs that were neither profitable nor sustainable. (Intel, IBM, Cisco, and Microsoft seem to represent exceptionsgreat businesses with long-term prospects built on a high-tech base. Are there any others? Were hard put to name them.) This short-lived tech era was simply a replay of the bankrupt, unworkable strategy of Grow first and profit later, which people have tried to practice for decades, without success. The Japanese tried to grow their product-centric, manufacturing-led economy into profitability during the 1980s. They spent the 1990s paying for that mistake. The similar attempt by the Asian Tigers ended in the collapse of 1997.

In short, the No-Profit Zones whose existence we warned about in The Profit Zone have spread and multiplied globally, engulfing thousands of companies in arenas from consumer packaged goods to automobiles to telecommunications to the Internet.

Now, were looking forward to the real possibility that the next decade will be a sustained period of low profit and low growth for all of the thousands of businesses that dont understand where tomorrows profit will come from and how to reinvent their obsolete business designs accordingly.

Major economic trends are involved, of course. The current slow-down has made it impossible to ignore the structural weaknesses of many poorly designed companies. But this doesnt mean that businesses are helpless, or that theres no effective, proactive strategy for business leaders to pursue in a time of recession. In fact, theres no question that real, sustainable profitability and growth can be achieved, even in a highly challenging business climate like the one we face today. One need only look at a company like IBMa remarkable example of a major company that has successfully transformed its disadvantageous hardware business model to fit the profitability demands of a new economic landscape. Dozens of smaller companies have achieved similar turnarounds in almost every conceivable business arena. It can be done.

The first step for any business leader is to ask the crucial questions:

How does profitability happen in my business today?

How will it happen in the foreseeable future?

Who will be my most valuable customers?

How will their critical priorities evolve?

How must I reinvent my business design to take advantage of the new paths to profitable customer-centric growth?

Though the same questions must be faced by every business, the answers will vary widely. In The Profit Zone, we offer our analysis of the experiences of some of the great businesses of the recent past as a guide for discovering the answers that will work for your company today and tomorrow.

ADRIAN SLYWOTZKY
DAVID MORRISON
Boston, Massachusetts
February 2002

PART ONE

Succeeding in the ChangingWorld of Business

ONE

MARKET SHARE IS DEAD

THE NUMBER one problem in business today is profitability. Where will you be allowed to make a profit in your industry? Where is the profit zone today? Where will it be tomorrow?