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

Adrian J. Slywotzky and David J. Morrison

Times Business (Random House), 1998

342 pages, $24.50

To order: Call (800) 793-2665

"Where is the profit?"

That's the compelling question Adrian J. Slywotzky and David J. Morrison ask at the beginning of their book and then proceed to answer with insight and clarity. The narrative moves from an explanation of the essence of profit (how it happens), through a discussion of the "reinventors" (the business icons who have successfully maximized profits), and on to a presentation of a practical handbook for entering the "profit zone."

As for that opening question, the answer has changed over time, say the authors, both of whom are affiliated with Mercer Management Consulting. In the past, profit was resident in the company with the highest market share. Today, it rests with the player that has a business model designed for customer relevance and high profitability.

That business model must be squarely customer-centric, Slywotzky and Morrison insist. That is, it needs to respond fully to the two or three things that matter most to the customer. This calls for a complete rethinking of the value chain, one that moves away from the traditional product-centric focus. The customer now becomes the overriding focal point above everything else. In this new paradigm, the value chain begins with an organization's assets, which are reconfigured into a product or service that fulfills the customer's priorities.

Developing a customer-centric perspective lays the necessary groundwork for the next essential step: creating a profit-centric business design. Eleven profitability models that incorporate such a design are described. This is followed by instructive profiles of the reinventors who have brought these profit models to life. The names of these corporate elite are familiar—GE's Jack Welch, Bill Gates of Microsoft, Disney's Michael Eisner. But their accomplishments take on new meaning when viewed through the prism of innovative profitability.

If The Profit Zone stopped here, it would be a worthwhile addition to any business library. But it does more. In fact, the last chapter of the book—titled "The Profit Zone Handbook"—may be its most valuable. The handbook walks the reader though a dozen questions that will help in developing a customer-centric view and building a profit-centric model. The questions and information elicited through this diagnostic inch the reader closer to the "zone."

Logistics Software

Richard C. Haverly and James E. Whalen

Council of Logistics Management, 1997

988 pages, $75 (CLM members), $100 (non-members)

To order: Call (630) 574-0985

Here is an indispensable guide for anyone replacing, adding, or evaluating supply chain software. Prepared by Andersen Consulting for the Council of Logistics Management, this massive (988-page) document provides detailed information on more than 1,200 software packages in the following areas: order processing, inventory management, distribution location modeling, warehouse operations, purchasing, and transportation rate calculation and analysis.

Each of those 1,200 entries includes a series of relevant data points. In addition to the package name and vendor contact information, each listing gives price, maintenance fee, number of installations, functions provided, hardware, language, and database, among other features. The software offerings are presented in four sections: mainframe, minicomputer, microcomputer, and client/server.

In addition to being comprehensive, the software guide is easy to use. Readers can quickly identify those packages that have the greatest potential for their operations and systems hardware configurations. Information is cross referenced in two appendices: Readers can locate the vendor if they know the name of the software, or they can locate the software if they know the vendor's name. The authors also offer suggestions for evaluating software.

This document—the 17th edition prepared for CLM by Andersen—represents a massive research effort. The output is practical and comprehensive. It also comes complete with a Software Selection Aid, an electronic version of the document. Bottom line: It's a terrific value at the asking price.

The Globalization of Logistics

Coopers & Lybrand Consulting

No charge

To order: Call (770) 643-5100

This special report from Coopers & Lybrand chronicles the emergence of global business and the role that supply chain management plays in that development. The white paper spotlights best practices that leading multinational companies have adopted in applying a unified, global structure to their supply chain operations. It also makes a compelling argument for making global strategy a top priority while offering useful recommendations on how to proceed with that critical activity.

The report cites four boundary-spanning forces driving global logistics management today. One is the globalization of retailing, led by the international expansion of U.S.-based mass merchandisers like Wal-Mart and Home Depot as well as the growth of catalog retailing and Internet sales. Global sourcing is the second major driver, say the authors, as companies seek out the lowest-cost countries for raw materials and finished goods.

Another global driver is the emergence of regional trade hubs, such as those in Singapore and the Netherlands. The last factor is the third-party logistics services companies that are expanding internationally—either through their own operations in foreign markets or through alliances with local service providers. As they expand internationally, these providers open new avenues for moving goods to market.

The global market leaders are designing logistics strategies that fully consider these trends and strive to capitalize on them. Developed properly, Coopers & Lybrand says, the strategy can serve as the roadmap that leads to quantum benefits in customer service, inventory levels, communications, and manufacturing costs. Combined, these benefits can translate to 15- to 20-percent savings in overall supply chain costs. In the end, a global logistics strategy can deliver the lowest landed net cost while meeting or exceeding customer expectations, the report says.

For any international company struggling with supply chain challenges, The Globalization of Logistics is a worthwhile read. It helps define the logistics issues that need to be addressed in this arena, while advancing the bottom-line case for comprehensive logistics planning.

Purchasing Consortiums: Horizontal Alliances Among Firms Buying Common Goods and Services. What? Who? Why? And How?

Thomas E. Hendrick

The Center for Advanced Purchasing Studies, 1997

76 pages, $20 contribution

To order: Fax requests to (602) 491-7885

Have you ever considered entering into a purchasing consortium? If your company is like most of those that responded to a survey by the Center of Advanced Purchasing Studies, the answer is probably no. But if you haven't looked into this method of acquiring raw materials and components, you may be foreclosing on some significant savings. The average savings reported by the large companies surveyed who did participate in buying consortia was $2.3 million.

As author Thomas E. Hendrick of Arizona State University points out, the concept of joint multi-company purchasing agreements is not new. Agricultural cooperatives, for example, for decades have been combining their purchasing power to gain leverage for the individual farmer members. Independent grocers, retail hardware stores, and college bookstores have been doing the same.

It's been far less common, however, for other businesses—particularly large corporations—to enter into such cooperative agreements, Hendrick writes. The reasons for this hesitancy are manifold...fear of antitrust violations, worry about disclosing proprietary information, and strong relationships with existing suppliers. Furthermore, many suppliers themselves resist such joint agreements, particularly if they believed that they were selling "strategic" items.

For the 20 percent of the Fortune 500 firms studied that are in a purchasing consortium, the rewards are abundant. The respondents report that participation in the joint buying arrangement saved them an average of 13.4 percent on the items purchased. This translates to approximately $2.3 million for each member of the buying group. "Comparing this to the average annual (membership) cost of $300,000 and using a liberal interpretation," Hendrick says, "this results in an average return on 'investment' of 767 percent!"

Now, one might argue with this extrapolation of the numbers, but the overall point is well made. In the right situation, purchasing consortia can save companies a significant amount of money.

This booklet from CAPS does a good job of explaining the consortium concept and describing how it works not only in theory but also in practice through a summary of case study examples. For companies interested in pursuing the joint purchasing option, the publication provides examples of consortium agreements that can be used as a guide.

Uncommon Sense: Peter Drucker on the Profession of Management

Peter F. Drucker, edited by Nan Stone

Harvard Business School Press, 1998 201 pages, $29.95

To order, call (888) 500-1016

As a writer, teacher, and consultant, Peter Drucker has spent more than half a century advancing management practices that can help modern enterprises succeed. Earlier than most other observers, he recognized how the paradigms that ruled business management for many years must shift to meet changing realities. This collection of 13 essays by Drucker, all of which first appeared in the Harvard Business Review, serves as an excellent summary of his business insights and observations.

Early on, Drucker recognized that the business world was shifting from one dominated by capital to one ruled by knowledge. He understood that the shift required fundamental changes in the ways businesses are managed. The essays in this collection date from 1963 through 1975. (Drucker first wrote for HBR in 1950 and has written more than 30 articles in all for the journal.) Drucker's thinking even in the earliest essays holds up surprisingly well today. Of course, that is due in no small part to editor Nan Stone's careful selection.

As important as Stone's choices is the coherent way in which she has organized the material. The articles appear in a logical order, giving the book the feel of an intellectual whole rather than a collection. The text is divided into two main sections: "The Manager's Responsibilities," which examines the fundamental work of managers within their companies, and "The Executive's World," an analysis of the competitive and economic challenges facing business executives.

Drucker himself sets the stage for the collection with a preface titled "The Future That Has Already Happened." Ever the forward-looking thinker, he argues that the greatest challenge facing business is not globalization or technology, but demographics. That is, as their population growth slows, industrialized nations will have to achieve economic growth by developing what he calls "the productivity of knowledge and knowledge workers." It's a theme that is consistent with these essays.

Drucker looks at how even successful organizations—or perhaps successful organizations in particular—have difficulty understanding the need to change to meet changing demands. He makes a persuasive case in one essay that traditional hierarchical management cannot work in the emerging knowledge economy. As early as 1963, he focused on principles that would eventually evolve into modern activity-based costing, when he showed in his essay "Managing for Business Effectiveness" that much energy is wasted on unproductive and costly activities. This served as early proof of what's now popularly known as the 80/20 rule—80 percent of the profits come from 20 percent of the activity.

The concluding essay in the collection is actually a 1993 interview with Drucker conducted by his long-time collaborator T. George Harris. It is a nice finishing touch that allows the master to expand on what will be required of modern managers as their business enterprises change.

One of Drucker's great strengths is that he is as good a writer as he is a thinker. (He was a journalist before he was an academic.) In fact, he makes a point in one essay that clarity is an essential requirement for good management. Most of the essays mix actual cases with his analysis of executive challenges. Unlike most books on management, there is little heavy going here. The ease of reading, however, in no way diminishes the import of the messages.