Review: Profit from the Core

Profit from the Core - Cover Profit from the Core: Growth Strategy in an Era of Turbulence
by Chris Zook and James Allen
Harvard Business School Press, March 2001
224 pages, $27.50

Chris Zook runs the worldwide strategy practice for Bain & Co., a $1 billion global consulting firm. His book, Profit from the Core, arose from a 10-year Bain study on how companies grow and why companies that seem to have all the ingredients for growth often fall short. The findings are surprising: Only about one in 10 companies actually achieves what Zook defines as sustained, profitable growth—5.5 percent of real growth in profits and revenue on an average annual basis over the 10 years of the study. Zook was interviewed by Karen Southwick.

CIO Insight: I’ve often heard consultants advise sticking with your “core competencies.” What new advice does Profit from the Core offer?

Zook: What’s new in the book is a set of techniques and approaches to go beyond the concept of focus to determine exactly where and how you should focus. We answer the questions, “How do I dominate the area of my focus?” and “How do I grow around that area of focus and extend that into new areas?”

What role does information systems, and specifically the CIO, play in achieving sustained, profitable growth?

Since 55 percent of capital spending is on information technology, CIOs are the custodians of a majority of capital spending and investment resources. They must ask themselves: “How much of the spending is strengthening and reinforcing the core?” and “How much of it is in secondary activities or businesses?” If significant spending is not toward the core, they should note that.

Companies with sustained, profitable growth out-invest their competitors by a ratio of more than 2-to-1. CIOs should keep close track of the reinvestment rates of competitors, especially in areas that improve productivity, speed and velocity.

How do you define your core? When do you need to redefine it?

You define the core (or cores) by asking, “What is my area of greatest strength and greatest uniqueness?” You then map the market out from your core and look at every single section in terms of how it reinforces your core. For Pete Sampras, his core is his serve. For Dell, it’s the channel, not PCs. Your core is also the generator of your greatest profitability. If you begin to see your profit growth or your customer loyalty erode in your core, then redefine it.

We looked at whether sustained companies had changed their businesses. Only about 4 percent had done so in 15 years. In general, when a new technology or model appears, the right answer is not to transform the core, but to set up a separate unit to compete. If Sears had pursued the Home Depot model, setting up low-cost warehouse stores, they could have been successful in that market.

Give me an example of a company that lost sight of its core and the consequences.

Bausch & Lomb, which dominated the optical business, went into hearing aids and dental products. That took financial and management resources from its core business, which was bought by Johnson & Johnson. Bausch & Lomb is now trying desperately to go back to their core, but it might be too late. Mattel, moving into software with The Learning Company purchase, also over-reached.

Karen Southwick, a veteran technology journalist, is the executive editor of Forbes ASAP magazine.

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