*     *     *Morris: Before discussing any of your books, a few general questions. First, other than a family member, who has had the greatest impact on your personal development?

Slywotzky: Three people really changed the path I travelled: my high school sophomore English teacher, who taught me how to write; my piano teacher, who taught me how to listen (to people, as well as to music); and my partner, David Morrison, who taught me management, leadership, and a values-centered approach to business.

Morris: A 12th century French monk, Bernard Chartres, once observed, “We are like dwarfs standing on the shoulders of giants.” On whose shoulders do you stand?

Slywotzky: There are lots of giant shoulders I’m in debt to. Just a few of them include: Drucker and Deming, Michael Porter and Taiichi Ohno. Drucker because of his prophetic and clear thinking on management. Deming because he taught me to keep asking “Why?” Porter because he created the foundation of pragmatic industry analysis. And Ohno because he showed how radically you can redesign a business even if you’re starting from what looks like a hopeless situation. And, of course, the Beatles and Picasso, who never stopped challenging and reinventing themselves.

Morris: Was there a turning point in your life (if not an epiphany) that set your career on the course you continue to follow? Please explain.

Slywotzky: The big turning point was my dad saying he won’t pay for any more schooling, and that I had to get a job. Having to get a job can do wonders for your professional development. In 1993/94, when I absolutely didn’t have the time, I was induced/challenged to write a book.  It turned out to be Value Migration. It showed me that: a) it could be done; b) you learned so much more by forcing yourself to do it; and c) it actually helped to challenge people to think differently about their businesses.

Morris: Of all the non-business thinkers, from whom have you learned the most valuable business lessons?

Slywotzky: For me, many of the most valuable lessons came from long ago: Henry V (Shakespeare’s creation) on leadership. Henry V could teach anyone how to lead, despite impossible circumstances, by creating a real relationship with the people you lead. Sun Tzu on strategy (not sure there’s ever been anything better since). Sun Tzu showed how to find and take advantage of the key pressure points in any situation. And I think if you read Homer’s Iliad, you will find in it the essence of every business, military, political, and family battle you’ll ever encounter, especially the endless interplay between what we can control and what we can’t (cleverly disguised as the “actions of the gods”). The other two non-business thinkers who were critical were Thomas Kuhn (The Structure of Scientific Revolutions) and Michel Foucault (The Order of Things). Both of them teach how incredibly difficult it is to see the transition soon enough to make a difference.

Finally, the comics, Yogi Berra, Steven Wright, Dave Barry. If you understand comedy, you’ll have a really good chance at understanding what makes people tick.

Morris: To what extent (if any) has your formal education in law proven to be beneficial to your consulting relationships with various clients?

Slywotzky: The law taught me (at great psychological cost) two priceless lessons:  Always keep asking the next question, no matter how tired you are. And always be looking for the impact of politics in every situation (yes, including all the judicial ones).

Morris: You have collaborated on writing books with several different people. Was that intentional and/or a coincidental?

Slywotzky: The collaboration was 100 percent intentional. I loved the give and take, and the constant debate. The constant challenge of a different point of view can be both massively annoying and completely priceless.

Morris: In your opinion, what are the essentials of effective collaboration?

Slywotzky: For collaboration to work all you need are a few simple ingredients: respect, trust, flexibility, patience, and a lot of good lunches and dinners.

Morris: Most change initiatives fail or at least fall far short of original expectations. In Leading Change, James O’Toole suggests that cultural resistance is often the reason, the result of what he apt characterizes as “the ideology of comfort and the tyranny of custom.” What do you think?

Slywotzky: Ah – “The ideology of comfort” and “the tyranny of custom” – beautifully put. In Value Migration, I call it “institutional memory,” the things we love to do because we’re good at them. But, when an external transition occurs, we need to learn new things, to get way out of our comfort zone. We often need to do the opposite of what we used to do (e.g., get much lower cost, much faster, or more solutions oriented).

Sometimes it takes a degree of internal shock therapy to make the switch. Sometimes, it means doing both the old and new well. As Yogi Berra once advised: “When you come to a fork in the road, take it.” He could have added: “Especially during the really big transitions.”

Morris: In your opinion, are business opportunities today better, worse, or about the same as they were (let’s say) five years ago? Please explain.

Slywotzky: Today’s economic conditions are much worse, and yet the opportunities greater, precisely because business conditions are worse. Customers today (consumers and business) need a lot more help. They face a lot more problems. And it’s those problems that define tomorrow’s opportunities. Henk Kwakman of Nespresso once said: “Discover a problem, discover a business.” If that’s the case – today is a time filled with tremendous new opportunities.

Morris: Now please shift your attention to Value Migration. It’s subtitle, “How to Think Several Moves Ahead of the Competition,” reminds me of Henry Kissinger’s observation at the height of the Cold War that leaders of the (then) Soviet Union were playing chess whereas U.S. leaders were playing checkers. Like playing chess, is “thinking several moves ahead” in what you characterize as “the new game of business” a skill that can be mastered?

Slywotzky: Business chess-playing is a skill that can absolutely be mastered. But, like real chess, it takes a lot of games (practice and actual) to get it right. Studying, and really internalizing the relevant precedents and how they played out (and why) is priceless. It’s what all chess players do. We should, too.

Morris: When, how, and why does value “migrate”?

Slywotzky: You start feeling, in your gut, that things are somehow “not quite right.” That’s when we have to be most attuned to even the subtlest external changes, when we have to look for even the tiniest clues of shifts around us. Value migrates from old business models to new business designs when:

• Customer priorities change
• New solutions are made possible by technology, cost changes, regulation, or other enablers, and
• New business designs/new ways of doing business are invented

The process is accelerated by our desire “not to know” the bad stuff. A Japanese management proverb says that senior management doesn’t like two things: a) a bad dinner, and b) the truth. That’s particularly costly when things change “out there.”

Morris: Is that a never-ending process?

Slywotzky: Richard Tedlow, the great business historian, often says that successful companies fall into the trap of thinking that “history stops with me.” But history never stops, value never remains stable. Think of it: are customer expectations stable? Do we ever stop inventing new ways of doing things?

Morris: Who are the “grand masters of value migration” in today’s global marketplace?

Slywotzky: Probably the best I’ve seen are the Chinese economic bureaucrats/managers, who led China’s economy since 1980, as well as Steve Jobs, Jeff Bezos. Two other great ones are Ron Doerr and Bill Joy of Kleiner Perkins. There’s also Richard Brown of Eurostar and Speight Jenkins of the Seattle Opera.

Morris: Here’s a follow-up question: However different they may be in most other respects, what do these “grand masters” share in common and what lessons can be learned from those commonalities?

Slywotzky: Just about all of the grandmasters are merciless in challenging both commonly accepted assumptions and their own thinking

Morris: Please explain the meaning and significance of The Profit Zone’s subtitle, “How Strategic Business Design Will Lead You to Tomorrow’s Profits.”

Slywotzky: We’re all obsessed with product innovation and design. That’s good. It’s essential. But it’s innovation in the design of the business that can have a 5x to 10x impact on how much value is created from the product. Paradoxically, we know who’s responsible for product innovation, but there’s rarely formal accountability for (and expertise in) business design. It’s a bit like Parkinson’s Law: we devote the least attention to the most important skill.

Morris: When and why did you, David Morrison, and Bob Andelman decide to collaborate on writing the book?

Slywotzky: We decided to work on The Profit Zone on the same day that Value Migration went to the publisher. Practitioners loved the ideas and examples in Value Migration, and asked for two things: 1) more in-depth case examples, especially those of successful transitioners, and (2) more ideas on methodology.

Morris: To what extent (if any) does the book in final form differ from what you originally envisioned? Please explain.

Slywotzky: I thought it would be really short. I was really wrong. In terms of the content, a lot of our initial hypotheses didn’t work out. Painful, but inevitable. We also learned a lot of things we didn’t expect to find. The final version was to the beginning as a 747 was to the first flight at Kitty Hawk – thank goodness.

We initially thought that the book would be mostly centered on the leadership attributes of the reinventors. Instead, it turned out to be about understanding the very specific methods used by every successful reinventor, and that enabled us to create a codified methodology that any leader and any company can apply.

Morris: It has been almost a decade since the Paperbound Edition was published. In the Preface, you post five “crucial questions.” Here’s my two-part question: “Have all of them remained ‘crucial’”? and “Are there any that you would add today, if you could?” Please explain.

Slywotzky: Amazingly, thankfully, they still work 100 percent. In today’s world, I think you absolutely need to add two tough questions: “How does demand really happen?” and “How can I learn to be really good at creating it?” Today, for most companies in most industries, the #1 challenge is creating profitable new demand. That’s the challenge that led to the research of the last three years on how demand really happens, and how we learn to be better demand creators in our own business.

Morris: Does profitability remain “the number one problem in business today?” Please explain.

Slywotzky: Deciphering profitability is still hugely important, but it’s not the #1 problem for most managers. Today’s #1 issue for most companies in most industries is how do I create new demand. Because of the structural challenges in today’s economy, growth has stalled, and stagnation is ubiquitous. Being successful is no longer just about designing great businesses for current demand, but also learning to create new demand. That’s the set of issues that the new research on Demand works to address.

Morris: If anything, the “Customer-Centric Business Design” you introduce in The Profit Zone makes even more sense now than it did in 1998. That said, to what extent (if any) do you now think the original design requires modification to accommodate changes since then in the global marketplace?

Slywotzky: The big change brought by the global marketplace is that now business innovation ideas come from everywhere. The exact same principles still work, but the vocabulary of applications to choose from has become dramatically richer. As a result, it’s become a much more demanding, and a much more rewarding discipline.

Morris: What are the defining characteristics of what you call a “reinventor”?

Slywotzky: Reinventors are always unhappy with current solutions, and they keep looking until they clearly see the flaws in the current system. They constantly think about the system, not just the pieces in it. They are blessed with, and work on improving their economic imagination. And they all have a tremendous amount of fun doing their work, because they manage to get a step ahead of their rivals, and they enjoy working on the edge.

Morris: The book was first published in 1997. As is usually the case with your insights, only later have others addressed the same issues. For example, recently has there been a proliferation of books and articles about design thinking, notably books written by Tim Brown (Change by Design), Roger Martin (The Design of Business), Thomas Lockwood (Design Thinking), and Roberto Verganti (Design-Driven Innovation).

Here’s my question: For those unfamiliar with design thinking, what are its core principles?

Slywotzky: When designing a business, please always ask yourself five questions:

1. Customer Selection: What customers will I serve, and which ones will I not?
2. Unique Value Proposition: Why do customers buy from me rather than others?
3. Profit Model: Exactly how do I make money (and no, it’s not just volume)?
4. Strategic Control: How do I protect my profits – not just from competitor imitation, but also from growing customer power?
5. Scope: What activities do I do myself, and on what activities do I partner with others?

Morris: Here’s a follow-up question: What is the relevance of those core principles to occupying and then remaining in “the profit zone”?

Slywotzky: These principles make all the difference in whether I get to a state of high profitability, and stay there. How so?  They help me recognize when the shelf-life of my business design is going to expire, and I therefore have to invent the next generation model to stay successful.

Morris: For those who have not as yet read The Profit Zone, you and your co-authors identify and then examine four dimensions of business design: customer selection, value capture, differentiation/strategic control, and scope. Which of the four seems to pose the greatest challenges for most organizations that seek long-term viability? Why?

Slywotzky: Almost always, the toughest dimension is strategic control. It’s hard to find, hard to implement, and there’s never enough of it. The best business designers always keep working until they’ve built three of four sources of strategic control.

Morris: Why is customer-centric thinking so difficult to master?

Slywotzky: I think the real culprit is human nature. We wake up every morning thinking about “my product, my skills, my assets, my sales.” Success in a value migration world requires thinking about the customer’s problems, hassle map, economic difficulties, the politics (corporate or family) of their decision making, and so on.

Morris: What does “cracking the code on profitability” involve?

Slywotzky: It means constantly asking ourselves how does profit really happen? It means studying the two dozen or so profit models already invented, and asking which of these are relevant to me. It means comparing our profit model to that of others. Comparing our profit model today to yesterday’s. Most importantly, it means comparing it to what it could/should be.

Morris: In Part Two, you discuss a number of reinventors who include Jack Welch, Nicolas Hayek, Robert Goizueta, Andrew Grove, and Michael Eisner. However different they may be in most other respects, what do they share in common?

Slywotzky: They all share a passion for the customer and for balancing the extreme tension between two powerful forces: maximum value for the customer and maximum profit for the company.

Their point of departure is creating great value for the customer, but they know they have to balance the power equation – vis-à-vis the customer – in order to be rewarded for delivering that value. That’s why they’re obsessed with differentiation, uniqueness, and creating strategic control.

Morris: Here’s a follow-up question. What specific lessons about strategic business thinking can be learned by others, especially by both middle managers in large organizations and owners/CEOs of small family-owned businesses?

Slywotzky: Study, in-depth, at least a dozen effective leaders. Learn their methods. Infer the ones they don’t talk about (they always keep their very best ideas hidden from view). Be as specific as you can be, then select the methods that apply to your situation. Spend 10x less time reinventing answers already invented, and 10x more time applying and customizing.

Morris: At the end of Chapters 4-13 (in each of which a reinventor is discussed), you provide a set of questions. I think that is a brilliant device because, in my opinion, responding to the questions requires the reader to interact with it by correlating it with her or his own circumstances. In other words, the sets of questions create a tutorial relationship for you with the reader. Is that a fair assessment?

Slywotzky: It’s an eminently fair assessment. The whole purpose of the device is to help move us from being a passive reader to an active problem solver. The minute we start to answer those questions, we start looking for help (the questions are tough), we start a dialog with others, we start looking for the right data, and within a few months we can get to some truly outstanding results.

Morris: When business leaders attempt to use business design innovation to create their own profit zone, what serious mistakes are most often made?

Slywotzky: The biggest and most common errors include:

•  Stopping at the first draft, the first “good” solution.
• Trying to do it yourself as opposed to engaging many other good minds that think differently than you do.

We always have a strong tendency to go with the first workable solution we find. We also have a strong tendency to think we’re right. Opening our thinking to the challenges of others changes that picture very, very quickly.

Morris: How best to avoid or recover from those mistakes?

Slywotzky: The best way to avoid those mistakes is to keep iterating, keep debating, keep testing. We should all read the first version of “To be or not to be” and compare it to the final version. What a lesson in humility!

Morris: I think “The Profit Zone Handbook” provided in Chapter Fifteen is one of the book’s most substantial value-added benefits. Obviously, it will facilitate, indeed expedite frequent review of especially important material but I think it has other possible uses, also. For example, as a self-audit and/or periodic checklist. What are your own thoughts about how the “Handbook” could be used?

Slywotzky: I would check in with the Handbook once every quarter, just to revisit and review the questions. It’s a discipline. You’ll be surprised by the things you come up with.

The first few times around, it’s uncomfortable; the questions aren’t easy to answer. But like every skill –  from drawing to piano to chess – once we get the hang of it, once repetition starts to make us stronger, we can get frighteningly good at it.

Morris: Please explain the meaning and significance of The Upside’s subtitle, “From Risk Taking to Risk Shaping — How to Turn Your Greatest Threat into Your Biggest Growth Opportunity.”

Slywotzky: It’s a strange thing – I didn’t expect to find it, but the research showed that when you’re suddenly faced with a huge risk, it literally is a two-sided disturbance. Handled poorly – it leads to disaster. Handled astutely, it is almost always a huge growth opportunity. We approach risk the wrong way – we play defense. However, when things are in flux, playing offense wisely turns potential disaster into a big win. All the great risk managers did this.

Morris: When and why did you decide to collaborate on writing The Upside?

Slywotzky: As with all the other books, the initial impetus came from clients. About seven years ago, they began to sense that their world was becoming more volatile, more unpredictable, more full of bad surprises. They asked two simple questions: “Is my gut feel justified?” and  “If it is, are there ways my organization can get ahead of the risks that are facing my company and my industry?

What drove them, in particular, was one simple observation: the enormous organizational costs that were incurred when a company had to go through an unprepared-for crisis.

Morris: Here is an observation that caught my eye: “Your moment of maximum risk is also your moment of maximum opportunity.” Please explain and include a few real-world examples.

Slywotzky: All the great risk managers were literally, risk reversers. Example: Samsung turned brand risk into brand upside. Toyota turned massive project risk into a triumph. Target turned competitive risk (Walmart) into a victory by forcing itself to invent a very different business design.

Morris: We both know how important attitude is. Years ago, Henry Ford observed, “Whether you think you can or think you can’t, you’re right.” My own opinion is that a specific mindset is absolutely essential to “turning big threats into growth breakthroughs.” Presumably you agree. What are the behavioral characteristics of someone who has developed the right mindset?

Slywotzky: You’re dead on. It makes all the difference. Risk reversers have three attitudinal characteristics in common:

• They’re OK with talking about “what are our big risks, our nightmare scenarios” (most people don’t want to talk about it), so they give themselves longer lead times.
• Mental flexibility.

If A happens, I’ll do X.
If B happens, I’ll do Y.
If C happens, I’ll do Z.

• They step back and look at the bigger picture. Why is this risk happening, what disturbance does it represent? Where there’s a disturbance, a break, there are always several possible responses. What are they? Which is the best?

Morris: What specifically can be done to improve the odds in a severe crisis?

Slywotzky: Get outside views as quickly as possible to counter internal group think. Especially – talk to customers, get their view, their “feel”, and their ideas. Multiply your possible responses – really sketch out all the possibilities, including the fringe ones. Create a genuine debate inside so you can clearly see two sides, three or more. Then pick a response, create a sense of focus and urgency, and have two backup plans (yes Plan B, but also Plan C), so that if your choice was wrong, you’re immediately ready to adjust. It’s just what chess players do, just not on the chessboard but in reality.

Morris: Please explain the reference to “the genius of knowing 5 percent more.”

Slywotzky: I think it was Proust who quoted the Japanese as saying: “He who lasts 15 minutes longer wins the war.” In business, it’s the little bit of extra knowledge about the customer that can make all the difference between winning and losing the account. Not only what are the most important things to them, but all of the little idiosyncrasies on which they base their decisions. Same for competitors. During a youth league soccer game, my son’s coach pulled him aside and said simply, “Your opposite number kicks from the left. Guard him from that side.” That little extra 5 percent of knowledge all of the sudden made him much more effective. It was really neat. I’ve been looking for those 5 percent differences ever since.

Morris: What specifically can C-level executives do to “de-risk” their business?

Slywotzky: C-level executives can de-risk their business by:

• Reducing fixed costs
• Reducing cycle times for decision making
• Asking employees what the risks are. They know already. Then ask for their ideas in crafting solutions

Getting into deeper dialogues with customers about how their priorities will change over the next two to three years. They can have lunch with venture capitalists to learn what new ideas are being funded (that can kill their business three to four years down the road). And they should always ask an internal team to come up with the idea for a new business model that can kill their business. If it’s a really good idea, they should invest in it before others do.

Morris: I am very impressed by the brilliant use of “Figures” and other reader-friendly devices in The Upside. For example, Figure 3-1 on Page 92 (“Some Major Transitions of the Past 50 Years”). It evokes this question: However different the circumstances may be in most other respects, what do all “major transitions” in business (e.g. from garbage collection in residential neighborhoods to full-service waste management in residential, commercial, and industrial sectors) share in common?

Slywotzky: All major transitions require us to step out of our current position, step way back and ask:

a)           Are our old assumptions wrong? Why?
b)           Have customer priorities changed?
c)            Have the economics changed?
d)           Is there a new set of rules that define what works, what doesn’t?
e)           Is there a new set of players with different ideas/models that just work better in the new rule-set?

Morris: You point out that the Target CEO, Bob Ulrich, “played a different game” in competition with “unbeatable” Walmart. Please explain.

Slywotzky: Bob Ulrich understood you couldn’t “out-low cost” Walmart. So he was very careful about being low cost, but he also asked if discount shoppers wanted anything beyond low price. Turns out they did: style, flair, exclusivity. Target started building relationships with great designers in areas from apparel to housewares to accessories, and offered consumers a combination of very low cost, fast service, and distinctive styles that was irresistible.

Morris: What is “brand risk”? How best to reduce (if not eliminate) it?

Slywotzky: Great brands create preference and price premium. They convey specialness. Brand risk happens when that specialness collapses. The risk often plays out gradually (that’s a problem), but it can also happen overnight. Think Arthur Andersen, or Perrier, or Firestone.

Morris: What is “brand erosion”? How to reduce (if not prevent) it?

Slywotzky: Brand erosion is the almost imperceptible loss of specialness in the customer’s mind, from year to year, even quarter to quarter. The best brand companies are obsessed with avoiding it, and they measure brand strength constantly. At the first signs of erosion they react, and over-react, and they invest in every corner of the “Golden Triangle” to halt and reverse the erosion.

Morris: Please explain the reference to “Golden Triangle.”

Slywotzky: Brand power is a function of three factors: Brand image, product power, and business design – that’s the golden triangle. You have to score a 10/10 on product and a 10/10 on business design for the brand investment to work. Samsung turned around its brand from “commodity” to distinctive, greatly engineered and well-designed offers.

It did so by working simultaneously to get the product right and the business design right (distribution strategy, organizational strategy, in particular). Only then were investments in brand message effective.

But, when you get all three right, competitors – watch out. Samsung up – Sony down (in relative terms) was the stark result.

Morris: In your opinion, what can be learned from IKEA about “turning big threats into growth breakthroughs” that will be of greatest value to other organizations, whatever their size and nature may be?

Slywotzky: IKEA failed multiple times: First foray into Japan, first foray in the U.S., and on many new product introductions. The response to the mis-steps was always the same. Why did we fail, what did we miss, and how can we fix it? They did it in Japan, in the U.S., and bounced back with a much stronger entry the second time around. The lesson for us? Hope for success, prepare for failure, and be ready to turn failure into the raw material of the next big win.

Morris: Please explain the title of Chapter 9, “Treasure Island.”

Slywotzky: We think risks are bad. Period. When we understand that every major risk is just a mask for the opportunity concealed behind it, our motivation changes completely. We want to map all or major risks, because we know that reversing them will lead to major new growth for the company. That’s why the map of our major strategic risks is simultaneously the map to Treasure Island.

Morris: Why do you conclude The Upside with “Reversing Strategic Risk: The Upside Half-Day Workshop”

Slywotzky: Ideas are great, applications are even better. The Half-Day workshop forces us to:

• Learn the ideas
• Come up with ways to apply them in the specific context of our own unique business situation.

That in turn, leads to:

• Better preparedness
• Better mental and organizational flexibility
• A much, much richer portfolio of growth opportunities

*     *     *

Adrian Slywotzky cordially invites you to check out the resources at these websites:

http://www.inc.com/tech-blog/adrian-slywotzky-interview-new-book-in-october.html

http://www.businessweek.com/bios/adrian-slywotzky-38.html

http://www.youtube.com/watch?v=EKJ4zmmahMg