The Art of Profitability
In The Art of Profitability the author takes the subject of profitability out of the realm of strategic planning and away from the number-crunching; instead he writes about how profit happens. It reads like a play with many scenes.
The protagonist, Steve Gardner, works in the stategic planning department of a multinational conglomerate that sounds as if it has the sclerosis that afflicts many large corporations on the descending curve of the life-cycle. Instead of just packing it in, Steve wants to make a positive contribution by influencing the company to move out of the doldrums. Through a social contact, he is fortunate enough to get an introduction to David Zhao - "the man who understood how profit happens." They strike up a contract that has Steve meeting Zhao for a one-hour lesson almost every week for the following six months. Each session is to deal with one aspect of profit and between times there is to be about four hours of reading and study.
Slywotzky, the author, sets out twenty-three chapters that are identified as 'lessons' that Zhao has Steve sweat through, each one dealing with a specific strategy in the generation of profitable business activity.
Just as with Steve, the reader is also advised to take in one chapter a week. In the author's words, "Think about it a bit. Let it stew. Play with the ideas." He challenges the reader to "continually refocus on the implications for your organization. Make notes. Discuss with colleagues." And he poses several questions to get us started in the process.
Back to the content of The Art of Profitability and in particular the profit model Switchboard Profit, as an illustration of a typical 'lesson'.
Switchboard Profit identifies the components that led to the business success of the Hollywood agent Michael Ovitz who took the bundling-of-talent concept that he so successfully perfected in television, and applied it to film-making, but with a difference, because it was much more difficult to create a concentration of power in an industry fragmented by many movie studios. Ovitz' first step was to assemble talent; the second, to find a source of stories through a great literary agent; and third, the creation of critical mass. In the author's words, "The more critical mass you build, the higher your probability of putting together a package that works. That, in turn, means that a star, a writer, or a director will be better off being represented by you rather than any other agent, because the odds of being part of a winning combination are so much higher. ůSo now the studios have to deal with you, and the stars want to deal with you." Thus the analogy of the old-fashioned switchboard Ovitz became that all his various contacts needed to plug into. The lesson, of course, isn't that simple. Predictably, much work is needed to arrive at the numbers constituting the critical mass that is required to generate revenues seven to ten times greater than in the traditional model for that industry. And Zhao coaches Steve through the mental ordeal of working out how Ovitz arrived at this successful profit model.
In all of these profit models Slywotzky's informal presentation does away with reference footnotes in favor of direct quotes and chapter or page numbers, as he has Zhao dole them out to Steve in the form of homework, or in making a point. In some cases it is suggested Steve buy the quoted reference book itself.
The Art of Profitability is a concise study of the uniqueness of many different profit models and the rigorous thought process required to get it right - and a thoughtful challenge to the reader to apply the principles to his/her own particular business situation.
Brainfood for Business!
Adrian Slywotzky draws on a wealth of consulting, senior management, and academic experience for The Art of Profitability that is the latest of several books he has authored, or co-authored. More information on the art of profitability is to be found at www.artofprofitability.com .
Ian Bullock is an author, reviewer, co-editor of The CEO Refresher, investor & shareholder champion, former CFO and consultant, residing in Toronto, Canada. Contact Ian by e-mail: email@example.com .
Many more articles on Competitive Strategy in The CEO Refresher Archives