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

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.

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All Customer Reviews
Average Customer Review:
0 of 0 people found the following review helpful:

Slywotzky gives clear and simple advice, 2008-06-28
Good book, especially the first three chapters. The other chapters give examples of his principles.


0 of 0 people found the following review helpful:

Keep your eye on the ball!, 2008-06-25
In the first part of the book Slywotzky and Morrison argue convincingly that the profit zone has shifted from the player with the greatest market share to the player who has the best business model. This model must be designed to meet customer needs and provide higher profitability. And, the business model must flexible enough to change as the landscape of profitability shifts.

Customer centric thinking is key to being in the profit zone. Slywotzky and Morrison explain that many upper level management types are not easily able to make the shift to customer centric thinking because of two reasons:

1. For twenty or more years of their career they were successful at focusing on improving products, increasing market share, and growing revenues. They functioned well in this world. Change to new thinking patterns is difficult.
2. Young companies focus on customers, but mature companies many times lose site of this. When companies are mature they focus more on themselves (internal budgets, resource concerns, politics and more).

Once the concepts of how to enter the profit zone is explained in detail, the book provides several examples of companies that were able to reinvent themselves and succeed.

Overall an excellent book about keeping your eye on the ball. In this case the "ball" is profits!

The Re-Discovery of Common Sense: A Guide to: The Lost Art of Critical Thinking


1 of 1 people found the following review helpful:

There is more to running a business than increasing sales, 2005-06-29
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.



13 of 14 people found the following review helpful:

Moving from product efficiency to customer solutions, 2005-02-09
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.





2 of 6 people found the following review helpful:

A MUST HAVE!!, 2002-07-17
EXCELLENT BOOK! One of thee best business books. The book is well structured. All the strategic business models are well detailed with real world applications. Clearly illustrates how the most formidable business gurus have used various strategy models to migrate to profitability and isolate competitors. You will go into the realm of overpowering companies such as Microsoft, Intel, Coca Cola, to name a few.
When you have a book that is highlighted and filled with scribbled notes in almost every page than you know you have a winner. Can hardly wait for the next book by these two great authors.

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