Sustainable Profitability

Last week’s post, Three Strikes – or the Trifecta? began:

“In order for a manufacturer to be sustainable, it must be persistently profitable. To do this, the manufacturer needs a durable competitive advantage and a globally competitive costs structure. Profitability is a prerequisite to sustainability. Notice that the terms ‘sustainability’, ‘persistently’ and ‘durable’ all connote extension well into the future.”

Last week’s post then focused on three aspects of a globally competitive cost structure. This week, we take a look at durable competitive advantage. Famous investor Warren Buffett doesn’t pick stocks to invest in. Instead, he picks companies. And the companies he likes to invest in are those with some sort of durable competitive advantage that manifests as a healthy and consistent stream of net earnings over time.

The Art of ProfitabilityOf course, everybody is in favor of a healthy and consistent stream of net earnings. But not so many people know how to do that. Adrian Slywotzky does, and he wrote a clever book on how profits happen. His book, The Art of Profitability, amounts to a course of study, presented as a very readable story. Slywotzky discusses 23 different profit models and supports each with enlightening reading recommendations. The 23 profit models are not intended as a comprehensive list; but rather as examples to stimulate insight and to teach the Art.

In today’s global business world, Slywotzky’s profit models are a good start, but only a start. The world and its markets are changing too fast to rely on any static profit model. A truly durable competitive advantage needs an understanding of how profits happen, and it needs a process for systematically evaluating and adjusting your firm’s strategic posture. Remember that durable profitability requires defensive thinking, as well as offensive. All of this is hard work, requiring much attention to working on your business, rather than in your business. Failure to do this thoroughly can result in a buggy whip factory – or a typewriter factory – or the largest television picture tube factory in the world.

Thoughtful comments are always appreciated. You may need to click on the title of this post to open the comments section.

…  Chuck

  There is a lot more information on Sustainability for the smaller manufacturer on the Jera website,