The headline from a recent article in the Wall Street Journal:  “PSA Chief Unviels Profit Strategy”.  It seems that PSA Peugeot (the car maker), reeling from the car industry woes, is about six percentage points below the average operating margins of five of its best competitors.  The new CEO has declared that 55% of his project increase in profits over his 3 year plan will come from general cost cutting.  The balance of his estimated increase in profits will be generated by increased sales in high growth markets and better sales performance in Europe.

I noted a couple of simple things.  When a business is in dire trouble from a profit point of view, the 911 is on creating a ‘profit strategy’ that is designed to get a business back on the right track.

How does that profit strategy take shape?  If you study profit strategies of companies seeking to climb out of losses and into the green of profitability, you begin to see a few basic ideas:

1.  Wringing excess out of the overall cost structure of a business wherever possible. This is typically where the bulk of profit improvement generally comes from.  The responses to this strategy run the gamut. Some businesses undertake a slash and burn process without much thought to the what, why, when, where, and how of cost cutting.  That results in sometimes creating more weakness in the business by cutting out things that are critical to operational effectiveness the real excess.

The other side of the equation are those businesses that are slow to make the needed cuts that gives them the ability to redirect resources to other key areas of their business.  That slow response to incrementally reducing costs over time can lead to a sudden rush to implement draconian cost-cutting measures of all shapes and sizes.

There is no easy answer to how to approach cost cutting as a strategy for managing a business.  If you think about it, shouldn’t we always be looking for opportunities to wring the waste from our businesses wherever possible?  Companies like Walmart have created a culture of making sure that expenses are always measured and alternatives can be generated to reduce them.

Unfortunately, that’s not how many businesses operate.  I was once told that profitability can cover a lot of mistakes.  True enough, when times are good and cash flow is everywhere (the good old days!), we can be much more liberal in our overall spend.  Sometimes, our businesses can suffer from ‘cost structure creep’.  One day you wake up and wonder how you ended up with such bloated pockets of expenses.

If there are any redeeming values for an economic downturn is that it creates an opportunity to manage expenses like we should have done anyway.

2.  Selling assets to pay down debt & refinancing short term debt. AB InBev, the firm that bought the mega American beer maker Anheuser-Busch did just that after the merger and the economy created a drag on profits.  That strategy lead to a healthy increase in overall profitability despite a decline in overall sales of about 10% worldwide.  Getting rid of assets that are not essential and/or central to the core business you are in is always a great way to reduce expenses and, most importantly, re-direct resources to those areas of the business that need it most.  In the case of AB InBev, the need to increase sales volume and protect its most valuable brands, like Becks, Bud, and Stella Artois is going to take some additional investment…investment that will come from the increase in profits that can be redeployed for those efforts.

3.  Cost cutting is never a substitute for investing in your core business. AB InBev has opportunities to sell more of its Budweiser branded beers in different markets where they have an already well-established marketing and distribution platform.  They are also introducing some new beer products like Bud Select 55 and Bud Light Golden Wheat.  Those are key strategies and initiatives that require investment in their core business and brands.

Another example would be Chrysler.  There is a company that could probably cut costs all day long and never approach profitability.  Aside from their auto industry and economy woes, Chrysler forgot (or perhaps it’s last owners, Mercerdes Benz, ‘forgot’) to invest in new products to help it stabilize and maintain market share.  Instead, Chrysler now has the least amount of product coming through its business compared to just about any other competitor.  Cutting investment in their core business and reducing the percentage of their car line that they replace over time with newer models was clearly not an effective cost cutting tool for them. The result is continual bleeding of profits and loss of market share in an already troubled industry.

4.  In times of peace, prepare for war.  In times of war, prepare for peace. I’m not sure who said this statement but I didn’t create it.  However, it does have immense implications for how we deal with economic upturns and downturns.  In times of robust economic growth, particular focus needs to be paid to how we manage our expense structure and how we allocate investments in our core business.  When the economy turns sour and if we have been diligent in managing our costs, we’ll have the ability to invest in our core business (creating new products, expanding into new or emerging markets, buying additional market share through acquisition, etc.) when everybody else is scurrying to cut out or drastically reduce costs and investments into the core business.

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We’re quick to focus a lot of our energies on the usual suspects of strategy:  product, competitive, marketing, sales, and operation.  I would also include making an investment in a ‘profit strategy’ as well as an overall guiding influence over all other strategies.  A profit strategy should answer to basic questions:

• Where are we going to wring out excess in our business and why?
• What areas of our business deserve additional investment to help us meet our profitability targets?

Both of these questions have implications for the short, intermediate, and long term health of our business.

The idea of a truly paperless office has been the subject of many discussions within many different business communities but with very little results to show for the effort.  We’re talking today about the so-called, paperless office.  It’s a concept that’s been bantered about for many years now.  How many businesses do you know that actually operate without a huge paper trial?  If you’re like me, you haven’t found many if any that have a truly paperless office.  So, I ask you, is the concept paperless office dead or alive?  Is it real or a dream?  And if you can implement a paperless office, the question of what’s the business benefit begs to be asked.

To help us understand the process of creating a paperless office and the benefits to both the clients and the business itself, is Dr. Mark Driver and the Office manager of Hudson Valley ENT, a medical practice that has actually created a true paperless office and has reaped the many benefits that come with harnessing technology.

Note:  This is a podcast of a recent Dirks On Strategy show that aired on November 11, 2009 on WTBQ in New York.

The economy is in shambles. Competition for the same consumer buck is global and fierce. But one sales management consultant takes a unique approach to addressing the sole area that requires minimal improvement but can yield tremendous profit growth. Ziad Khoury, with nearly two decades of helping major companies reap profit windfalls, has authored a new book that centers on the frontline – entry level sales positions, call center agents, customer service staff– and shows how the most substantial new revenue opportunities involve those not traditionally associated with sales rainmakers.

“Indirect sales opportunities are ones that tend to be the most overlooked in many organizations,” says Ziad, author of FRONTLINE PROFIT MACHINE:  The Blueprint For Exploding Profits with your existing Sales and Service Team. “The positions that offer them are often viewed as entry-level, with little thought to the profit influence they have:” Executives of great companies like Nordstrom’s and Enterprise Rent a Car understand the impact of the Frontline and know what an incredible competitive edge that can be in your business.

Ziad helps turn order-takers into sales professionals and poses the question every company must ask itself, “Will we invest in creating a thriving, nearly matchless service-based sales culture that will give us a leg up on our competitors?”

Thomas Harpointner is a seasoned business executive with over 20 years of sales, marketing, and
management experience. He’s a speaker, author, business strategist and successful entrepreneur.

In 1997, Thomas co-founded AIS Media, Inc., today, an award-winning interactive media and web services company, where he serves as the Chairman and CEO.  Under his leadership, the company has emerged as a recognized leader in its field, serving hundreds business clients world wide
ranging from small retailers to Fortune 500 corporations.

Mr. Thomas is frequently interviewed and has made guest appearances on numerous local and national television networks and radio stations including, CNBC, Fox Business News, Bloomberg, The Today Show, and CNN Radio. He’s been published in The Wall Street Journal, Entrepreneur Magazine, Wired Magazine, Forbes, Fortune, and dozens of newspapers, trade publications and web portals.

AIS Media, Inc. develops, deploys and manages world-class applications and services that harness the power of the Internet to help companies successfully drive revenues, cut operating expenses and increase productivity.

www.aismedia.com

Michael McGrath is recognized as an expert in decision making. He created Decide Better! in September 2008, a company dedicated to helping companies and individuals make better decisions. The Decide Better series of books was launched with Decide Better! for a Better Life in August 2008 followed by Decide Better for College in March, 2009.

His newest book, Business Decisions, is the culmination of more than 25 years of advising executive globally, managing one of the most successful consulting firms in the world, launching new businesses, and doing a successful turnaround at i2 Technologies. Released in the beginning of October 2009, it has already received critical acclaim.

Michael has appeared as a decisions expert for CNN International, ABC, and Fox Business. In addition he has done more than 100 radio interviews, presented speeches around the world and been quoted in many articles.

Website:  www.decidebetter.com

Listen to this podcast of a previous show on the Dirks On Strategy Radio show.

Tom Searcy, author or “RFPs Suck!” and co-author of “Whale Hunting,” is a national speaker, trusted authority on large account sales and founder of Hunt Big Sales, a fast growth sales consultancy and thought leadership organization. Searcy’s primary expertise is working directly with companies and sales teams throughout their big sales “hunts,” helping them to compete and win disproportionately large sales in highly competitive markets. His philosophy and process have resulted in over $3 billion in new sales for his company and its clients.

Before entering the national stage, Searcy headed four corporations, each of which he was able to take from annual revenues of less than $15 million to over $100 million–all before the age of 40. Since then, Searcy has helped more than 100 companies grow exponentially with his proven process for fast growth and company-wide transformation.

In his newest book RFPs Suck!, Searcy shares his rich understanding of the RFP process with companies across the board to help them conquer the RFP system once and for all to win corporate and government contracts.

Searcy’s first book with co-author Barbara Weaver Smith, “Whale Hunting: How to Land Big Deals and Transform Your Company,” was published by Wiley in 2008.

Contact him at: www.huntbigsales.com

Listen to this podcast of a previous show on the Dirks On Strategy Radio show.

Inc. Magazine’s Newpreneur of the Year semi-finalist Jacqui Rosshandler her new venture insights since launching her new start-up company, Jacquean Products, LLC.

Jacqui Rosshandler turned an idea she had one New Year’s Day into a reality and a career. She makes and sells a product that is fast becoming the ultimate “must–have” purse item.
A native of Australia, Jacqui Rosshandler now calls New York City home. Trained as a lawyer, she never felt at home in the structured corporate world and in 2007 took the entrepreneurial leap to give “eatwhatever” a whirl.

Her idea was unique, an all-natural breath freshener that would really eliminate your garlic laden breath and not simply mask it temporarily like so many other products on the market.

In the 10/22/09 issue of the Wall Street Journal was a short article on Steven King’s latest novel, Under the Dome.  His publisher, Simon & Schuster has decided not to release the e-book edition until the day before Christmas, 2009.  That’s six weeks after they release the hardcover edition, which retails for $35.  The strategy here is to give bookstores both online and brick & mortar a chance to sell the more expensive hardcover edition well before the inexpensive (estimated retail for the e-book version is 9.99) digital edition.

At the same time, a price war between Amazon, Walmart, and Target has erupted.  All three retailers are pursuing a loss-leader strategy of dramatic cost cutting on highly anticipated new hardcover books, which is designed to attract shoppers to their online sites.

Consumers are thrilled with the ability to buy first edition books from great authors at a dramatically reduced prices.  However, publishers are chagrined at the long term effect of two trends that will not be going away:  1) loss-leader discounting of key book titles and 2) the emergence of the digital e-book reader.  Under attack is the traditional publishing model of printing hardcover & softcover editions and selling them in bookstores and online retailers like Amazon.  In the ‘old’ days, this model worked well and publishers made their money from the sales of high profile authors.

Truth be told, book publishers made money on the 80/20 model: 80 percent of their revenues came from 20 percent of their books.  The percentages might vary a bit but I’m pretty close.  The other 80% of their published titles during a year either broke even or lost money.  So it’s a very tough business model from the get go.

For the moment, publishers are trying different distribution models like waiting a decent interval before releasing the cheaper e-book version.

My question for publishers:  Why fight the digital age?  Instead, grab a hold of it and look at the possibilities.  How much do you think it costs a publisher to provide a hardcopy of a book versus an e-book version?  Yes, it’s much more expensive to print a book than to distribute the e-book version, which we all know.

If it were up to me, I’d pursue a different strategy:

1)  Print less hardcover books than usually required based on sales estimates.  If you want a hard copy edition, you’ll have to be quick because there won’t be many of them.  Instead of flooding the market with stacks of high-profile books, keep the supply limited.  By limiting the supply of hardcover books, you create a different dynamic in the market.  Of course, publishers are looking to sell as many copies as they can in order to cover the costs of the author advances paid and all the other costs associated with being a publisher.  However, by purposely limiting the publishing production, you create an ability to keep hardcover book prices higher…and that’s where the second part of this strategy picks up.

2)  Start moving your distribution fully into e-book versions sold on any and all e-book readers (by Amazon, Sony, etc).  The advantages and quality of e-book readers will now begin to accelerate faster and faster as more competitors provide their own versions of e-book readers.  Already, retailers like Barnes & Noble are introducing their own e-book readers.  The idea is to  switch the sales dynamic to 80% of books sales coming from e-book reader sales and 20% from ‘limited edition’ hardcover sales.

Think about it.  You might make less total revenue but your margins are improved when you factor in the cost of providing an e-book version versus printing a hardcover version.  Then factor in higher volume sales of the e-book version and you have a much improved and digitally supported business model.

I’m willing to bet that the trend over the next 5 years is a larger migration from hardcover dependence to e-book version flexibility.  Will there be a market for hardcover books?  Yes, but by making them in shorter supply, you reduce your overall costs and keep the margins on hardcover books stable.  If you want a hardcover version, you’re gonna pay more.   I’m willing to bet that the secondary market for books will become much more dynamic than it is today because of limited printed hardcover

Now, what impact would this model of embracing digital book publishing have on the heavy discounting, loss-leader wars conducted by Amazon, Walmart, and Target?  In the long run, I think it makes their discounting less viable since we want the e-reader versions to become the larger volume of sales.  If they want to discount the hardcover edition of a book, go for it.  As a publisher, I’d rather rely on selling higher margin, high volume e-book versions as time goes on.

So, instead of trying to save the existing model of printing hardcover books in quantities that puts tremendous pressure on their ability to maintain margins, publishers should grasp the e-book revolution fully.  Publishers should drive and lead the e-book business instead of following it.

There are plenty of times when changes within your industry justify a shift in your core business strategy.  Industry changes like new product or service innovation, pricing, manufacturing processes, delivery mechanisms and such can create an opportunity for the business that is able to detect and executive on such changes.

Hewlett-Packard is just such a company that has recognized some major changes within the personal computer industry and is striking hard to take advantage of them.  In the September 9, 2009 issue of the Wall Street Journal,  writer Justin Scheck wrote that, “Hewlett-Packard Co. is using the dismal technology market to  bolster its position as the world’s largest personal-computer maker.  How it’s doing so is evident from a $298 laptop it sold at Wal-Mart Store Inc. in July.”

H-P has long been a big player in mid-and upper priced personal computers.  You could call it a ‘premium player’ in the non-Apple world if you compare it to the low-priced gang of Dell and Acer in particular.  Like Apple, H-P has positioned it’s brand as a higher quality, premium priced PC maker.  The folks that I  know who own H-P sound very similar in their praise and brand loyalty to people like me who are just nuts about iMacs and Macbooks.

So let’s review the changes in the PC market that led H-P to make a shift in its core strategy of positioning itself as a premium PC brand (still much less in price than Apple but higher than Dell or Acer) and shifting some emphasis on low-cost PC’s.

1.  H-P demanded cheaper rates from both suppliers and contract manufacturers using the leverage from its huge sales volume to drive prices down.

2.  According to the Wall Street Journal, it has “taken advantage of an improved supply chain to quickly design and deliver new, less expensive PC’s.”  H-P is working closer with retailers like Wal-Mart to improve sales forecasting for PC demand.  They are focused on maintaining a competitive edge based on large efficiencies in their entire design-to-ship process.

3.  H-P is also taking advantage of a weaker competitor in Dell.  With Dell not willing to match H-P with discounting of its own, H-P has been able to increase market share by almost 20% in the second quarter of 2009 (global shipments of PC’s).

While H-P has lowered it’s margins on PC’s, it is faring better than it’s other competitors and the additional marketing share (meaning more volume!) helps to keep the profit margins moving in the right direction.

What does the H-P experience mean for you?  Here are just a few top-line points to consider for your own business:

1.  H-P has demonstrated that it can take in the changes going on around it and move quickly with a strategy to take advantage of it and trounce competitors.  Lot’s of businesses note changes in their industry, the economy, global shifts, competition, and consumer preferences but how many are willing to act on those changes?  Are you prepared to take in the changes in your business & industry and create ways to take advantage of them for your business?

2.  H-P is willing to make a shift from its core strategy in order to increase market share and keep profits moving in the right direction…up.  Many businesses, comfortable with strategies that have worked very well in the past (or recent past), are reluctant to change or shift strategy and risk ‘killing the golden goose’.

3.  Outside of external changes, H-P continues to find ways to make their PC’s cheaper by constantly improving its own internal operations.  H-P demonstrates that sometimes it takes a two-pronged approach to get the results you need instead of relying on one factor alone to help you grow your business.  In their case, the combination of leveraging a changing PC industry landscape and creating greater operations efficiencies from within is the perfect duo for increasing market share and keep profits stable.

Shifting a business strategy doesn’t always mean that it will be successful.  However, business is about risk and making investments in strategy options that seemed to show the most promise.  Often times the need to shift business strategy is driven by events outside the span of control that a company normally exercises.  Then again, prior business strategy decisions that didn’t pan out with the necessary results will require you to re-adjust.

IBM has long been known for its huge investment and consistent commitment to research & development, the incubator for innovative products and services the feed revenues and profitability.  In the September 7 issue of BusinessWeek, there was a story on how IBM is making some significant changes in how it manages its R & D process.  One change that is particularly eye-opening is how IBM is shifting how it shares and partners with others in R & D efforts.

Traditionally, IBM research was in locked-down mode; a closely guarded and very secretive organization.  Now, IBM is cutting deals with corporations and research universities across the globe to collaborate on research.  Intellectual property issues aside (and that is no small issue by the way), this shift in business strategy gives IBM several key advantages:

1.  By sharing the cost of R & D with key partners, IBM gets more bang for its research budget than ever before.

2.  The collaborative process allows IBM to get viewpoints and insights to research that it normally wouldn’t get access to and thereby exposes its researchers to potentially more ideas.

3.  Globalization of IBM research by collaborating with foreign governments and major research universities gives IBM a leg-up on competitors when it comes time to start selling products and services.  If you have a critical relationship with someone like IBM that is working, why wouldn’t you consider buying their products and services?  This strategy allows IBM to develop key customer relationships in places that it had not considered before in the context of sharing research.

Will this R & D strategy shift work?  The jury is still out on that and it will take some time to see the full measure and benefit of the new open collaboration on research.  IBM is willing to make a real investment in this strategy primarily because it has so many positive outcomes for the company if it executes it effectively.