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New Mantra for Managers: Back to the Core
The Boston Globe 02/05/01
by Beth Healy

It's backlash time.

The brainy and high-powered consultants at Bain & Co. are bringing a retro concept to managers everywhere: Forget all that hogwash about the Internet changing the world. Get back to your core business.

Bain veteran Chris Zook's new book, "Profit from the Core," details the new mantra, based on 200 corporate case studies and research into Bain Capital buyout deals. It puts forward an answer to dot-com mania and urges chief executives to stop chasing dreams and whims when they could profit more by doing what they're best at.

Call it the antithesis of the "New New Thing," Michael Lewis's book on the golden era of Silicon Valley entrepreneurs and Internet riches. The new thing's not all it's cracked up to be, Zook says. "Some people are saying, 'I'm not sure I want to lead a revolution in my company. Where does that head?'" he said.

The book probes Amazon.com's possibly flawed move beyond books into electronics, power tools, and cosmetics "before really strengthening their core," Zook says. It looks at Bausch & Lomb's zigzag from the top spot in the contact lens business into hearing aids, dental devices, and other distractions. New management has since dumped the noncore units, Zook writes. "But precious ground, time, and capital have been lost."

Zook says the last 10 years of economic expansion, and the more recent obsession with Internet speed, led many companies to make bad decisions about growing their businesses. He blames, in part, the "siren song" of overly simple advice from consultants and pundits who pressed companies to leap for the future.

Interestingly, Zook's co-author on the book, soon to be released by the Harvard Business School Press, is James Allen. He's CEO of eVolution Global Partners, an Internet consultancy Bain launched last spring with Kleiner Perkins Caufield & Byers, the famous West Coast venture capitalists. The operation's goal was to help big companies, particularly in Europe, address the Internet. Zook says the partners may be looking at broadening that mission. They're out raising $500 million now to do deals with.

Zook, whose father was a longtime newspaper man at the Worcester Telegram & Gazette, says he's wanted to write a book for years but never had anything to say - until now. He wrote this book, he says, to try to have an impact on the way managers oversee their companies in the wake of the fast-paced 1990s.

People get excited about jumping into new businesses, he says. In fact, he observes, "The less you know about an area, the easier it is to be enthusiastic." Add to that the bloated stock market and "people make mistakes faster because capital moves faster," he says.

But in the long run, Bain research has found that companies rarely make money on non-core businesses.

At the crux of the book's argument is a hard-numbers approach, not a lot of platitudes. The key for any company is to achieve long-term profitable growth, Zook writes. That means growing revenues and profits. Revenues alone - the popular dot-com model - doesn't cut it, Zook says.

"We found that companies that grew revenues but not profits did not creat economic value in the long term," Zook writes. Shareholder value under those circumstances comes only from short-term stock market gains.

By the same token, profits can't grow forever without revenue growth. And third, over the long term, Zook and Allen argue, shareholders must reap strong returns.

These fundamental principles will apply to companies old and new, Zook says. Whether you're Amazon or General Motors, you have to understand your core business and stick to it.

That's no simple task, Zook concedes. "It's hard enough to ask oneself, 'Do I really know what I'm good at?'" At the corporate level, "it's even tougher."
   
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