(Business) TWENTY-TWO PROFIT MODELS

TWENTY-TWO PROFIT MODELS

Well, several months ago I was able to find and download a PDF of the chapter on profit models. I apologize that I cannot find the PDF now.

This chapter discusses 22 different profit models that can be a part of a new business or product strategy. I wish I knew about this a couple years ago when I was starting up a new business. I think I understood the idea conceptually but I was not able to articulate my business plan’s profit model as well as I could now.

I really wish I had the PDF so that I could give you the 22 graphics that describe each particular profit model. I will give you a couple examples of profit models and if you are interested in knowing more you can pick up the book at the library or from the bookstore.

1. Customer Solutions Profit
Invest to know the customer, create a solution, develop the relationship. This causes losses early in the relationship, and significant profits thereafter. Outstanding practitioners include GE (from hardware to services and solutions), USAA (financial services), and Nordstrom (retailing services).

9. Specialization Profit
In many industries, specialist are several times more profitable than generalists. The specialists’ superior profitability derives from a multitude of factors, including lower cost, higher quality, stronger reputation, shorter selling cycle, and better price realization.

15. Transaction Scale Profit
Certain industries are transaction-based. In many of these arenas, as the size of the transaction goes up, the cost to perform or deliver a transaction does not rise as quickly as the revenue received. All the profit is concentrated in the big deals. Examples include investment banking, real estate, and long-haul air travel.
Transaction scale businesses reward those who control the largest transactions. Customer selection – investing in those customers with the largest deals – is key.

If you are interested in knowing more, here is the book.

How Strategic Business Design Will Lead You to Tomorrow's Profits
By Adrian J. Slywotzky and David J. Morrison
Times Business/Random House, December 1997

The Profit Zone, named by Business Week as one of the ten best business books of 1998, describes how executives can redesign their businesses to capture their industry's profit zone-the place where customers will allow you to earn a return above the cost of capital. Through the stories of twelve "reinventors"-executives who have successfully steered their companies through multiple value creation cycles-the book argues for a dynamic, customer- and value-centric strategy development process centered around the discipline of business design. It also introduces twenty-two profit models companies have harnessed to capture their profit zones.

Some Sad IT Facts

Some Sad IT Facts

 

These are fairly known but often dismissed facts about the IT industry. If you see these facts presented you will find IT managers and developers nodding their heads in agreement.
That is as far as it goes.

I'm always amazed to see an IT manager hesitate to purchase a piece of software because he is afraid of wasting 300 dollars but there is no hesitation to waste 10's of thousands or even 100's of thousands through his/her indifference to good software management practices. 

I found a company that specialized in process. I was very excited to be a part of a team dedicated to making quality software at an affordable cost. One week into this project, I realized that very basic steps were missed. They were not oversights. It was simply thought that gathering quality requirements was not worth the time and effort. I was shocked. Don't these people realize that while not sexy, this is still a critical step in the process?  All quality is related to requirements.

As I predicted, we went over budget around 200 percent. We missed our deadlines on a fix priced project and pissed off the customer. All because gathering quality requirements was not sexy enough. Seems it was more important to measure employee productivity and create schedules. Of course, it's impossible to measure productivity if you don't have a clear definition of what you are supposed to produce and let's not get into the impossibility of predicting a schedule without requirements.

SIDE NOTE: I'll cover this in another blog, after further thought. NEVER measure your employees for the purpose of criticism. When you do this, you will never get accurate numbers from your employees ever again. It's just a fact of life.

The following are the sad truths of IT:

From the Hugh W. Ryan article of Outlook Journal

• Only 8 percent of application projects costing between $6 million and $10 million succeed.
• Among all IT development projects, only 16% delivered to acceptable cost, time and quality.
• Cost overruns from 100 to 200 percent common.
• Cost overruns for IT projects have been estimated at $59 billion in the United States alone.
• IT workers spend more than 34% of their time just fixing software bugs.

Other reports make the following claims:

• Only 28% of projects are completed.
• In the UK, over $1 billion a year is wasted on poor software quality.
• 70% CRM project strategies fail.
• 90% companies cannot show a positive ROI for CRM.

Here is an interesting fact that I 100% believe is true but it is still shocking to comprehend the incompetence that must allow this.

"According to the Cranfield School of Management, the more ambitious the return on investment for the project cited in the business case, the more lacking the project plan is likely to be."