True Profitability

Unmanaged complexity destroys profitability and makes life miserable for everyone in the organization. It usually begins with growth at any cost: botched acquisitions, unsuccessful products, loss-making customers, and the belief that all business is good business.

This book is not only about simplification. It studies the companies that use the right kind of complexity to their advantage. These masters of complexity carry vast numbers of products, sometimes millions, to attract new customers while remaining profitable. They can tell useful complexity from harmful complexity, and they steer by true profitability.

True profitability is pure profit without the arbitrary allocations of conventional accounting. It starts with contribution margin, a clean ratio between the price the market sets and the direct cost the company achieves, and ends with the free cash generated by each combination of products and customers. The second edition adds a worked Pareto-model example in Excel and a section on optimizing inventory investment.