Profitability

The Art of Profitability
by Adrian Slywotzky

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Unlock the answers and discover the Zen of business in...

The Art of Profitability

In the past, companies taught their employees about quality. In today's unstable economy, employers must stress the importance of profitability. Now with scores of examples from the global marketplace, the bestselling coauthor of The Profit Zone and Profit Patterns takes you to a higher level in the art of business. Each of the twenty-three chapters in this concise, challenging book presents a different, powerful business model ... and a provocative dialogue between an extraordinary teacher called David Zhao and his young protégé. Revealed are the invisible but significant governing principles that allow businesses to survive and prosper in any economic climate. By participating in each session with the exuberant, challenging master, you too will learn how your company and your competitors generate profit ... what approach best applies to your profit-making strategy ... what specific actions your organization can take in the next ninety days to improve its bottom line ... and more.

September 21. Steve Gardner sat quietly in a forty-sixth-floor office in downtown Manhattan.

It was 8:15 on a Saturday morning, and the offices of Storm and Fellows were nearly deserted. Steve would normally have been asleep at this hour, or perhaps sipping a first cup of coffee while skimming the Times in his cramped Soho apartment. Despite four and a half years of working at the midtown headquarters of a multinational conglomerate, he'd never fully shaken the nightowl lifestyle of his undergraduate days, to which he happily reverted on weekends.

But today was different. Early Saturday morning, he'd been told, would be his only opportunity to meet David Zhao - "the man who understood how profit happens." Through determined effort and a lucky connection or two, Steve had worked his way to the fringe of one of the circles in which Zhao was known. So he had some inkling of the unique knowledge that Zhao possessed.

Suddenly the office door opened, and Steve rose.

"Good morning, Steve. I'm David Zhao. Thanks for accommodating me by coming here at this hour. It's quiet, and I find the view conducive to doing a little bit of thinking. I see you like it, too." He gestured toward Steve's chair, which had been turned from its place alongside the ornate oak desk to face the harbor view.

Steve smiled. He quickly decided he liked this man. Zhao was a small, slender, slightly rumpled figure in a brown check jacket, khaki trousers, and battered loafers, resembling more a history professor at some little New England college than an astute businessman. His round face, topped by an unruly longish mop of coarse hair more gray than black, seemed almost unlined until he smiled, when a network of fine creases suddenly radiated from his deep brown eyes.

"It's a great view," Steve agreed. "But I'm surprised you have an office here at Storm and Fellows. I didn't know you were a lawyer."

Zhao laughed. He took his seat behind the desk, and Steve pulled up his own chair. "Not exactly," Zhao remarked. "It so happens I have a law degree from a previous life, but I don't practice law anymore. I consult to Storm and Fellows on industry structure and other business issues related to antitrust law. They let me have this spectacular office, they pay me handsomely, and they basically leave me alone most of the time. But when they call on me - even if it's only once or twice a month - I have to be very, very good. Tens of millions - sometimes hundreds of millions - are at stake."

Steve was intrigued by Zhao's apparent openness and complete ease with himself. Maybe I would be, too, thought Steve, if I worked only a couple of times a month. What a deal!

"You look impressed," Zhao commented. "You shouldn't be. I'm fortunate in being able to spend most of my time focusing on what interests me most."

"What interests you most?" asked Steve.

"Oh, a few things. For example, investing. When I left my economic research firm, they handed me a nice nest egg. I realized I'd better figure out what to do with it - for the benefit of my wife and kids, if nothing else. So I made myself a student of the discipline of investing, and only recently have I graduated to some reasonable level of proficiency. It was both harder and more rewarding than I anticipated - and, oddly enough, I'm not talking about money."

"How long did you feel clueless?" asked Steve.

"Out of ten years that I've been studying investing, I was lost for the first nine."

"Why did it take so long? Doesn't investing use the same set of skills as business analysis?"

"That's a good question," Zhao responded. He was warming to Steve. "Look at it this way. Imagine a great lab scientist - a research cardiologist, let's say. Suppose that one day you learn you need a triple coronary bypass. Are you going to let the lab guy perform the operation?"

"Never. I'd want a great surgeon - the more experienced the better."

"Naturally. Now, say the lab guy, who knows cardiology inside-out, decides to become a surgeon, because the compensation is ten times greater. How long do you think it would take him to learn?"

Steve pondered. How long does a doctor's internship and residency usually last? He couldn't remember. "Five or six years?"

"Maybe. More like ten for my taste. I'm completely risk-averse, you know."

"I get it," Steve replied. He didn't really. He wondered where all this was leading. "So what's the key to really mastering some new skill - like investing?"

"A ridiculous degree of persistence," Zhao answered. He paused, as if to mark a transition, and then leaned forward across the desk. "So tell me," he said, "what brings you to see me today?"

Where to begin? "At a cocktail party, someone introduced me to a man named Otto Kerner. I told him I had to learn about profitability. And Mr. Kerner told me that if I wanted to learn about profit, I ought to meet you."

Zhao smiled. Kerner was Zhao's closest friend. A senior partner at Storm and Fellows, he was the person responsible for connecting Zhao to the firm. At age eighty-five, he still came into the office every day, even if only to spend half the afternoon chatting with Zhao.

"An introduction from Otto Kerner is like gold in my book," Zhao remarked. "But tell me - why do you have to learn about profitability?"

Copyright © 2002 by Mercer Management Consulting, Inc.

About the Author

Adrian Slywotzky is the bestselling coauthor of The Profit Zone and Profit Patterns, and How Digital Is Your Business?, as well as the author of Value Migration. A graduate of Harvard College, Harvard Business School, and Harvard Law School, he is a vice president of Mercer Management Consulting, Inc., a global management consulting firm that focuses on profit growth in changing markets.