Islands of Profit in a Sea of Red Ink
Why 40 Percent of Your Business Is Unprofitable and How to Fix It
By: Jonathan L. S. Byrnes
Published: October 14, 2010
Format: Hardcover, 304 pages
ISBN-10: 1591843499
ISBN-13: 978-1591843498
Publisher: Portfolio/Penguin
"The most important issue facing most managers is how to make more money from their existing business without starting costly new initiatives", writes profitability expert and Senior Lecturer at MIT, Jonathan L. S. Byrnes in his visionary and revolutionary book Islands of Profit in a Sea of Red Ink: Why 40 Percent of Your Business Is Unprofitable and How to Fix It. The author makes the startling statement that 40 percent of any business is unprofitable by any measure. He points out that managers are not only not examining or taking action to correct the problem; but are very often not even aware of its existence.
Jonathan Byrnes presents sobering evidence that while 40 percent of a company's departments are drowning in losses, a mere 20 to 30 percent of the business is so profitable that it subsidizes the entire organization. The balance of the departments are marginal at best and just barely break even. Through his intensive research, the author uncovered two problems with the modern corporation. The issue of why today's companies all share a similar 40 percent red ink profile is because business is in the midst of massive transitional phase. The former Age of Mass Markets, according to the author, is being replaced by the Age of Precision Markets. This historic sea change is especially traumatic for business leaders as they lack the tools to accommodate the transition within their own companies. Business leaders must become aware of this revolution in markets and take appropriate action to manage the change.
Jonathan L. S. Byrnes (photo left) recognizes that this structural loss scenario plays out in company after company, and in a vast array of industries. It is not an isolated problem. Managers must understand the challenges and uncover ways of achieving profits in other areas of the company, which is where the current tools available to managers break down in the face of change. The management and information control techniques, including accounting methods, were developed in the earlier era, and are completely ineffective in the burgeoning new era of business. These challenges require attention and management must adapt their understanding to the evolving business paradigm. One of the areas described by the author as requiring a complete revamping is that of accounting. Standard accounting categories were devised in the mass market era, and they are insufficient for providing complete understanding in the market precision era. The accounting principles, as currently devised, perpetuate the dangerous myth that more revenue equates to greater profits, when there is no correlation between them within most companies.
For me, the power of the book is how Jonathan L. S. Byrnes describes the changing market environment from the Mass Markets Era to the Precision Markets Era, and the effect of that ongoing transition on company profits. Through his intensive and perceptive research, the author points out that only about a quarter of a company's efforts are actually profitable. The balance of the company is either treading water or suffering outright losses. The failure of these departments and subsidiaries to achieve profitability not only drains the profits from the effective areas of the company, but also masks the weakness of the failing sections.
The usual solution, applied by managers with experience formed in the previous paradigm, is to either increase revenue or cut costs. The illusion of profits is then created, according to the accounting measures developed in the earlier era. The prescription of a new accounting model is timely and necessary to adapt to the new precision market realities. The author also recognizes that employees simply doing their jobs is no longer enough. They must manage change, develop relationships with customers, supply chains and managerial counterparts, as well as manage at the proper level.
I highly recommend the groundbreaking and must read book Islands of Profit in a Sea of Red Ink: Why 40 Percent of Your Business Is Unprofitable and How to Fix It by Jonathan L. S. Byrnes, to any managers seeking clarity about the reality of profitability in the modern company. The eye opening fact, described in this book, that only 20 to 30 percent of a company's operations are profitable serves as a critical wake up call to business leaders. The clear understanding that increased revenue doesn't equal more profit should also be recognized and internalized by by managers in this transitional business era.
Read the essential and important book Islands of Profit in a Sea of Red Ink: Why 40 Percent of Your Business Is Unprofitable and How to Fix It by Jonathan L. S. Byrnes, and discover how to increase the profitability of your company in the new business era of precision markets, and move ahead of your competition to become an industry leader.
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