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Interview with Adrian J. Slywotzky, Author of "The Art of Profitability"

Adrian J. Slywotzky is a Vice President and member of the Board of Directors of Mercer Management Consulting, the global strategy consulting firm. A Harvard University, Law and Business School graduate, Mr. Slywotzky has worked extensively at the CEO level at major corporations, and has consulted across dozens of industries. “Industry Week” recently dubbed him one of the top six most influential people in business history.

Mr. Slywotzky has written six outstanding books. His most recent tome, “The Art of Profitability,” outlines 23 lessons no business student should be without. The Harbus was fortunate enough to be granted an interview with Mr. Slywotzky.

Questions:

1. You’ve worked at the CEO level at many companies, consulted to countless other corporations and are now a VP at Mercer Management. How did you get there? Where did you start?

I started a firm called Corporate Decisions in 1983. In contrast to many other firms that were in the market then, we were focused on customers and revenue growth, rather than just market share. In 1987, we merged with Mercer, which gave us exposure to a great deal of intellectual capital that was available through the network. Over the past twenty years, we developed more, different ideas, which came to the attention of senior management. This exposure then led to an expanded set of speaking opportunities (for example, at Davos and the Forbes Forum).

I would say it was really a three-part process.

1) We spent more than a decade learning about growth and how customers are changing.

2) Converting business practice into books and articles, explaining how the rules were changing.

3) Gaining speaking and writing invitations, which gave us increased exposure to senior management.

2. You’ve also found time to be a best-selling author and have a new book out called “The Art of Profitability.” What made you start writing? How did you get into that business as well?

When we started doing intensive research in the early ’90s, we realized we were developing perspectives that were quite, quite different than everyone else’s. It was really our clients who started to say, “You ought to write this up.” So in the first ten years, it was really word-of-mouth from our client base with our clients saying, “This is different. This is interesting.” A 1993 article in the Harvard Business Review was out first attempt, and then we went on to write our first book, “Value Migration.”

After that came “Profit Patterns,” “Adaptive Enterprises,” “The Profit Zone,” “How Digital is Your Business,” and then “The Art of Profitability.”
We never had to guess what to write about because our clients kept giving us real cases to work through. The projects our clients gave us directly led to the first four books.

It is a little bit of a crazy process. It’s like having two full-time jobs. But if you tried to do just the writing without the practice, it wouldn’t work because you’d be focusing on the wrong things. Our clients really set the agenda.

3. If you had to choose the most important of the 23 lessons you impart in “The Art of Profitability,” which one would it be and why?

The purpose of the book is not to give you “the answer,” but to suggest a style, a mode of inquiry, to develop your own innovative answers to how profitability will happen in your business today. There are 23 profit modules because there were a lot of lessons to teach about profitability.

Profitability used to just be market share, but now creative business people are really asking how profit happens.

By all means, look at what people have done. But apply it to your own business. How does customer behavior determine where profitability is possible in our business? How is our internal cost structure changing over time? The interplay of these two factors determines what can happen.

4. You mention that market share is no longer the leading indicator of profitability. Which metrics do you consider to be most important?
Before getting to metrics, you first have to ask, how does profit happen? Why is it lumpy? Why is it high and low in different parts of the business? How can I get the least profitable areas to manage costs to at least break-even or become profitable? How do the levels of profitability differ by segment, consumer and purchase occasion? You have to measure profitability in each specific area.

5. In your video on the Mercer website, you mention that reading non-business books makes people better problem-solvers. How so? Which books would you recommend?

There’s no question that one of things we do as a firm is to recreate or create a reading habit for business and non-business books, especially in a business like ours in which a lot of success is a function of experience. A lot of what reading is about is getting challenged to think in other ways. It’s almost like learning a different language; it helps you deal with new situations.

In “The Art of Profitability,” there are books recommended in each chapter so readers can choose which is most relevant to them. The ones I like to recommend are the Ogilvy books, especially “Ogilvy on Advertising,” first, because his style and personality make the book a delight to read, but also because Ogilvy was a great leader in his industry. He was in advertising in the ’50s and ’60s when the industry was more strategic than it is today. If you’re interested in strategy, there’s no better way to learn than by reading his books.

I also recommend “The ABCs of Reading” by Ezra Pound. Very few people actually read the whole thing, but that’s okay. The book teaches how to go about thinking and looking at things directly, which is a great way to do it. The ability to transpose these lessons to business and learn not to just read about customer behavior but go out and watch it, and not just to analyze the store data but actually go to the store, is extremely valuable whether you’re an investor or a manager.

I read a story about Warren Buffett when he started out learning about the insurance industry. He went to DC and met with the insurance commissioner to understand how the industry worked. He took the direct approach, which is a wonderful habit to develop to ensure long-term success.

6. What do you mean by “pattern thinking is in?”
In the last ten to fifteen years, companies started to change more quickly and become more complicated. One thing that led to that was people asking, “Is there a methodology for cutting through the complexity and understanding things better?” And if you look at how profitability and success have changed over the years, it’s not all random or chaotic. It evolved in a certain well-defined pattern.

For instance, one pattern is “the collapse of the middle.” Let’s say you have a winning market mechanism. Over time, as the customer base changes, there will be ultra-low cost providers and high value providers, and not as many competitors in the middle. It’s important to be aware of this and change your business model. For example, look at retail. This industry has evolved into discounters and high style outlets. In computers, you have a low-cost provider like Dell, and a premium service provider like IBM. This pattern repeats itself.

In business, it’s difficult to see how much your business will change over several years. But understanding patterns will allow you to develop a picture of what could happen and gives you enough lead-time to change the company’s strategy.

7. As a leading strategist, what tools have you found to be the most important in analyzing business strategies?

There are a couple. Always number one is the whole array of methodologies, both qualitative and quantitative, for analyzing how the customer base is changing.

Second, there is a methodology of business design. There is a set of systematic questions. What is your customer strategy? What is your value proposition? What is your business model? How does that have to be different to adapt to to
morrow?

Third, there’s this database of patterns we have. The patterns are a short-cut to be able to get answers to complex questions in a reasonable timeframe. Without the patterns, you can always figure the things out, but it might take longer, and at the end of the day, your business has to change and you need that longer lead-time to make that possible.
To summarize all that, you have to ask yourself two questions:

1) How is my customer base changing?

2) How will my profitability be different tomorrow?

8. You went to Harvard, HLS and HBS. What are the three classes you got the most out of and why?

The first one was at Harvard Law School and it was Contracts taught by Phil Areeda, who was an anti-trust expert at the time. And the reason why is that he forced us to really think about what we were saying.

The other two were at Harvard Business School. The first was Operations taught by John Bishop and Industrial Marketing by Ben Shapiro. These teachers were the components of the main character in “The Art of

Profitability.” They forced me to learn how to think in a different way.

9. How has your HBS education helped you in business?
Two ways.

1) The teachers who taught me a new style of thinking characterized by rigor and persistence.

2) The incredible exposure to dozens of industries and hundreds of companies dealing with tough business situations helped build up experience quickly.

10. What has been the most rewarding part of your career to date?
I would say, without going into individual companies or industries, the opportunities to either help turnaround a company or prevent a company from going into a difficult economic situation which made a significant difference in helping people keep their jobs or in creating new jobs. At the end of the day, that is the most important part of doing this job right.

11. Have you made any mistakes that you’ve learned an invaluable lesson from?

Countless mistakes! The most important mistake to learn from is to make sure not to feel so excited about the strategy and the ideas and the components of creating a strategy that you forget about being equally excited about the people in the organizations who will make the changes happen. The combination of great answers and great enthusiasm equals great success. Doing one without the other is always dangerous.

12. As you know, many HBS students are interested in consulting. What tips do you have for students entering the business?

Be especially good at or focus on understanding profitability and how it works. That will be a top priority for companies in the next few years.
Close behind that is if you could develop skills or an area of expertise, it would be about growth. In the market today, the number one issue is optimizing profit in a tough economic environment. How do we create growth again? Think about the market and what it might mean. These questions are uppermost in managers’ minds.

13. What do management consulting firms, especially Mercer, look for in their employees? Is there a consulting type?

Let’s keep it specific to the firm, because firms differ by culture and how they approach things. There are several attributes that come to mind, and these are not in order of priority:
1) Intellectual curiosity
2) Analytical rigor
3) Great ability to communicate and work with a team, creating excitement and enthusiasm in the client and Mercer team
4) Balance of analytical and intellectual curiosity with an equal focus on what gets people in organizations to cause something great to happen.
You should have as much interest in that as in getting the right answer.

To sum up, you should have great relationship skills and the recognition that this is extremely important and as challenging and important as the analytical challenges.

14. Do you have any general advice to impart to future business leaders heading out into the business world under tough economic circumstances?

I’d echo what I said earlier about profitability and growth in companies and organizations. The second thing would be to be very pragmatic. It’s a tougher market. So what? You just have to approach it differently. Approach a larger number of companies than you would have. You have to do a little more homework on each company than you did before. But in any market, good or bad, doing your homework really makes a difference.

15. Is there anything else you would like to add?
Yes, even though this market is tough, don’t go into it without keeping an 8 – 10 year perspective. Don’t go in without some picture of where you’d like to head.

Also, the most valuable thing to remember in this process is to be yourself. At the end of the day, that’s the most valuable thing you have to offer yourself and the people you work with.

The last thing is in this tough environment, when most people are disoriented and waiting for things to get better, there are more opportunities to exercise leadership. It’s a paradoxical truth. Organizations are looking for leaders, not just at the top, but throughout the organization, more now than at the up times in the market cycle.

Thank you!

December 9, 2002
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