The Best Strategic "Moves" To Put Your
Company in The Profit Zone

Business Nugget by Robert Morris

How can a strategic business design lead your company to tomorrow's profits? Adrian J. Slywotzky and David J. Morrison answer this question in The Profit Zone, a brilliant book which should be read in combination with their subsequent Profit Patterns, both published by Times Business (Random House).

In Part One of The Profit Zone, 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 Profit Zone 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.

Appendix 1 provides a template that can be used to profile a company's business design and those of its competitors. Appendix 2 explains how a business design ultimately determines a company=B9s market value. Stock analysts rely heavily on four elements of competitiveness to arrive at a value: return on sales, profit growth, asset efficiency, and strategic control.

In their next book,Profit Patterns, Slywotzky & Morrison begin: "How do we learn from experience? By learning patterns....Great managers are skilled at strategic pattern recognition. Every industry is reshaped by patterns of strategic change that can drastically shift profit and power across the landscape."

Profit Patterns is organized as follows:

Part I The New Game of Business
Part II The Thirty Patterns
Part III Putting Patterns to Work

In Chapter 1, the authors suggest that chess "is a game of patterns -- patterns about how the game has unfolded, about where the game stands at the moment, and most importantly, about where the game is heading. In chess, the player with the best skill at pattern recognition has a critical advantage." The metaphor is apt. Throughout the balance of Part I, the authors explain with compelling eloquence how pattern thinking can be applied to business strategy, why pattern recognition is becoming more important, the correlations between pattern thinking and leadership, and why understanding value proportionality and value migration may well determine the difference between success and failure. Because the market value gap between the first-place company and the next-best has been polarizing in recent years, it is imperative to recognize and respond to unfolding patterns ahead of competitors. Thus Microsoft "got it" ahead of Apple and Lotus; Coca-Cola before Pepsi and Schweppes; Cisco before Bay Networks; and so on in industry after industry.

Throughout Profit Patterns, the co-authors pose and then answer key questions. They also provide numerous checklists which enable the thoughtful reader to undertake a rigorous self-diagnosis. For example, in Part II, such questions and checklists direct and enrich understanding of Mega Patterns, Value Chain Patterns, Channel Patterns, Product Patterns, Knowledge Patterns, and Organizational Patterns. In effect, the authors create an infrastructure within which to organize and then correlate the most relevant experiences of dozens of corporations with the specific circumstances of the reader's own organization. Better yet, although most of the corporations discussed are among the Fortune 100 this infrastructure is of substantial (if not even greater) value to small-to-midsize companies as well.

In Part III, Slywotsky & Morrison explain HOW "Strategic Anticipation" enables managers to anticipate and respond quickly to patterns as they unfold. Strategic Anticipation helps managers to "move where the value will be. Patterns hint at the future strategic story of a company or industry, explain the past and describe the present."

For example, the communications industry, during the past decade, has seen several major patterns: disintegration of the value chain, collapse of the middle, convergence, a shift from products to solutions, channel multiplication, and digital business design. Pattern Thinking offers a highly disciplined, rigorous means by which to evaluate such industry shifts. As Wayne Gretsky's put it, the best players know "where the puck will be." Every company struggles to control several pucks at once. The challenges are (a) that competitors seek the same control, (b) that the game is played at ever-increasing speed with ever-increasing intensity, and (c) that the pucks are constantly moving. As Jack Welch once observed, "When the rate of change in the marketplace exceeds the rate of change in the company, the end is in sight."

In Chapter 13, the authors review a number of key approaches best understood in light of the chess metaphor:

• Understanding the true nature of strategic risk
• Constantly seeking the best move (multiplying strategic choices)
• Exploiting how time works
• Building and applying an action repertoire of key moves and countermoves
• Building-in profit insurance (strategic control)

The final chapter provides The Abridged Patterns Workbook which (by itself) is worth the price of Profit Patterns. The workbook is divided into five parts: Learning Patterns, Understanding the Full Strategic Landscape, Strategic Anticipation -- Decifering the Leading Indicators, Multiplying Strategic Options, and Profiting from Patterns: "What's My Best Move?" In-depth exercises help the reader to learn how to detect patterns and how to create value from them. Profit Patterns concludes with an Appendix in which the authors examine the game of chess through the eyes of a grandmaster. Specifically, the four elements of position, lines of force, seeing the whole board, and candidate moves. The relevance of chess to business strategy is stunning.

One benefit which the authors may not have anticipated is that Profit Patterns provides an intellectual framework within which the thoughtful reader can organize even more effectively the wisdom and experience found in other business books. ...

Those who have not read Profit Patterns and do not plan to do so can only hope is that the same is true of their competitors. But don't bet on it.

Based in Dallas, Robert Morris is an independent management consultant who specializes in accelerated executive development and organizational growth. He is the author of almost 150 Business Nuggets and frequently conducts workshops based on material selected from them by a client company. For example: e-business, intellectual property measurement and management, EVA in combination with open-book management, and what he calls ÏCompeting with the Big GuysÓ strategies. His formal education includes graduate study at Yale (MA in comparative literature), Northwestern, U.C.L.A., and Chicago universities. He has served in several senior-level corporate positions, has launched and later sold three companies, and is currently at work on preparations to launch his own website (interllect.com) in Y2K which will become the permanent home of Business Nuggets as well as other resources. He welcomes suggestions of subjects for new Business Nuggets. Please contact him at rmmorris@airmail.net.