Can Profitability Management Help You Grow? Profitability management helped PC maker Dell pull off a turnaround. Can it help you do the same?

Today, Dell is a business behemoth,the world's largest PC maker with $35 billion in fiscal 2003 revenues, $2.1 billion in after-tax profits, and the moxie to take on Cisco Systems in network gear and Hewlett-Packard in printers. But a decade ago, Dell was coming off a string of troubles that included a misadventure into retailing, serious questions about product quality, and a net loss in fiscal 1994.

Most observers credit Dell's direct sales approach with driving the company's turnaround, but one analysis says the Round Rock, Texas, company's approach to profitability management is what really did the job. Profitability management is largely a matter of selling what you have so that you neither disappoint customers nor incur heavy inventory costs, says Massachusetts Institute of Technology lecturer Jonathan Byrnes, who studies supply chain managment. And you don't have to be Michael Dell to do it. "Most companies have tremendous increases in cash flow and profitability available for free," Byrnes says. "All it takes is good management."

Path to Profits
Profitability management starts with selecting the right customers. For Dell, the right customers were large corporations and sophisticated consumers who replaced their computers regularly and cared more about getting the latest technology than the best price. These buyers provided a more predictable revenue stream than other markets.