CFOs who want to eliminate certain career risks may want to shed their current title in favor of a new role: chief profitability officer (CPO).

“For CFOs and all finance managers, profitability management offers the opportunity of a lifetime – a chance to drive profit improvements of 30 to 40 percent or more without the need of capital investment,” asserts MIT Senior Lecturer Jonathan Byrnes in his forthcoming book, Islands of Profit in a Sea of Red Ink: Why 40 Percent of Your Business Is Unprofitable and How to Fix It (Portfolio Penguin, 2010).

Byrnes’s thesis is astute and timely. He argues that nearly 40 percent of every company is unprofitable; 20 to 30 percent of the company is so profitable that it essentially subsidizes the rest of the entity. The book, available in October, then examines how managers can “isolate the islands of profit” from the larger money-pit areas of the company. The effort consists of identifying which businesses and customers are profitable and which efforts are more of a resource vacuum.

This profitability management effort, alas, also confronts several barriers – which is where the chief profitability officer (née CFO) is desperately needed.

The barriers include:

• Insufficient financial and management control information (e.g., the traditional budgeting process masks unprofitable areas throughout the enterprise);

• Too many projects, too little focus (individual manager’s projects and initiatives lessen the focus on “getting the day-to-day activities of the business right all the time,” Byrnes notes);

• Earnings/investor pressure clouds decision-making; and

• A lack of responsibility for profitability management.

Enter the CFO/CPO.

“To be fully effective, a CFO must go beyond broad, departmental performance measures to build grassroots profitability management processes into his or her company’s core management activities,” Byrnes writes, noting that this role has three components:

(1) Road Map: The CPO needs to conduct what Byrnes describes as “profit mapping” – developing a systematic and highly detailed understanding of where low, medium, and high profits are generated.

(2) Process: This involves integrating profit mapping into daily decision-making and processes throughout the company as well as linking profitability management to incentive compensation.

(3) Transition Management: How CPOs effect the changes necessary to move to the organization to a profit management mind-set “will make or break” the initiative, Byrnes asserts. For example, the equity market may not take kindly to a public company’s swift elimination of unprofitable revenues.

“Profitability management opens a new realm of opportunity for the creative CFO,” Byrnes adds. “Using it, a CFO can generate revenues, profits, and cash surprisingly quickly.”

The book will be available in October. In the meantime, I’m curious to hear your take on this idea … ###