A small fourth group (6% of the companies) we call the “
Outperformers.” The companies in this group have pioneered the
trend towards active technology licensing, and they have established highly proficient licensing organizations. In particular, these
companies differ from other companies in the comparatively large
number of dedicated licensing employees, who usually form a separate department. These employees’ main task is the identification
of licensing opportunities.
The findings of the benchmarking study show that managers
should not oversimplify the realization of licensing opportunities
by excessively focusing on open licensing strategies rather than on
their implementation. To successfully implement open innovation
strategies that involve licensing technologies from within the or-
ganization, companies need to organize effectively for licensing.
Reprint 52202. For ordering information, see page 8.
Copyright © Massachusetts Institute of Technology, 2011. All rights reserved.
Increasing Profits, Sans Pain
Jonathan Byrnes offers techniques to improve your organization’s profitability.
Imagine if you could make your organization more profitable — without the substantial pain that often accompanies
significant cost-cutting. Odds are good that you can achieve that goal, according to Jonathan Byrnes, a senior lecturer at the MIT Center for Transportation & Logistics. In his recent book, Islands of Profit in a Sea of Red Ink: Why
40% of Your Business Is Unprofitable and How to Fix It (New York: Portfolio/Penguin Group, 2010), Byrnes argues
that in a typical company, 30 to 40% of revenues are actually unprofitable, while another fraction of revenues —
often more like 20 to 30% — accounts for most of the organization’s profitability. MIT Sloan Management Review
senior editor Martha E. Mangelsdorf asked Byrnes to share some insights about how managers can pinpoint — and
increase — their companies’ sources of profitability. Here are some of his tips:
First, create a profit map to identify how profitable — or unprofitable — specific product
sales to specific customers are. “Traditional
accounting categories are too broad to see
which accounts and products are profitable,
and which aren’t,” Byrnes explains. His recommended solution? Develop a “profit map”
that estimates the profitability of every order
line for each customer — using transactions
over a representative period, such as three to
four months. The key? Don’t get bogged
down in trying to create something precisely
accurate. Instead, Byrnes recommends striving for “70% accuracy” — a level good
enough to discern trends accurately without
requiring inordinate investments of time and
money. Working at 70% accuracy, “two managers can build a profit map in a month or
two using standard desktop tools,” he notes.
Next, identify, protect and grow the “islands
of profitability” within your company.
Armed with your profit map, you may be
tempted to start by addressing the problem
of unprofitable customers. But Byrnes main-
tains that your first priority should instead
be to “secure and grow your sweet spot” —
those highly profitable customers that are
critical to your organization’s financial suc-
cess. “Typically, the best customers are
being overpriced and underserved,” he ob-
serves. “The key is to focus your resources
on your islands of profitability and find ways
to make these customers more profitable.”
Reprint 52216. For ordering information, see page 8.
Copyright © Massachusetts Institute of Technology,
2011. All rights reserved.
WINTER 2011 MIT SLOAN MANAGEMENT REVIEW 19