January 7, 2009
News & Opinion: The Core Trilogy
I am a big fan of Chris Zook's work. He is a partner at Bain & Company and he has spent alot of time researching what companies should do from a strategic point of view to be successful. Zook offers sobering statistics for the success of new ventures and equally inspiring numbers for the power that market leaders have in their industries. If you are not the market leader, you are hobbled by smaller margins and return on capital. His answer is simple: Focus. *** As I mentioned yesterday, this is one of the sadder stories for me. Zook wrote three books - Profit From The Core, Beyond The Core and Unstoppable and I decided early on in the writing of the book to tackle all three and write an ode to the trilogy. I spent probably two weeks researching and writing it. And when I turned it into Sally, our editor here at 800-CEO-READ, I got the "This is great, but it is way too long." The ode exceeded 2000 words and all the other reviews we had written to that point had fallen somewhere between 500-650 words. We tried to do some editing, but the piece lost its punch. I couldn't justify three spots on The 100 Best for the trilogy. So, we shelved the review and decided to return to it later. Later turned out to be several months later and four weeks before our manuscript due date. It was getting down to crunch time. We needed to get all of the reviews nailed down and this Zook review was still an open question. We decided to focus on one book, Beyond The Core, and the best fit for the book at that point was in our Takeaways chapter. The books in that section delivered immediate impact to the reader and Beyond The Core was perfect as the representative for our earlier Strategy chapter. The trouble was these were even shorter reviews, each book got one page with information about the author, the book, and a short quote from the book itself. My 2000 word stately ode became a 200 word pop riff. I hope you'll click through to the 1637 word extended entry to read what will be my forever, unpublished masterpiece/love letter to the works of Chris Zook.
The Core Trilogy by Chris Zook(Profit From the Core, Beyond The Core, and Unstoppable) Reviewed by Todd You are a witness to strategy playing out all around you. When the local newspaper runs its yearly story about which restaurants have closed, it is really reporting on failed strategies. Every one of those restaurants felt they could draw a sufficient number of customers to sustain a business…and they were all wrong. Our publisher, Portfolio, in deciding to publish this book, made a strategic decision, one based on the belief that this book could compete with others on the retail shelves. Strategy is not some arcane methodology limited to discussions around a boardroom table. Strategy is about competition and determining a course of action based on the realities of the market. There are a nearly infinite number of choices when it comes to determining strategy for a company, department or even PTA. The bad news is that once a leader decides on a course of action, there is only a one-in-four chance that action will be successful. That is a sobering statistic and explains just why so many restaurants close within the first year of business. So, what if you could get a hint about which action might be more apt to succeed? What if there was some trustworthy information that could improve your odds? Chris Zook, head of Bain's Global Strategy practice, has been looking at where growth comes from for over seven years and he has written three books that detail his work. The first, Profit from the Core, summarizes ten year's worth of research and proves that successful growth comes from focusing, not diversifying. Beyond the Core takes the next step, and in it, Zook argues for companies to make adjacent strategic moves leveraging their core for growth. Unstoppable explains how the need to redefine a company's core strategy may be the only option and how to make the transition successfully. These three books can be read together or individually. A specific problem may lead you to read a specific title. The key insights appear in all of the books, but receive varying degrees of emphasis. Let's start by getting you excited about what Zook has to say. The Reality of Growth (Say No to the Status Quo) Companies have to grow: Competitors are in a constant battle to steal customers and their precious dollars; Inflation eats away at steady profits; Investors expect better-than-bond returns. Growth metrics indicate the health of a business and its strategy. In Profit from the Core, Zook and his team defined reasonable growth levels (at least 5.5 percent growth rate in both sales and earnings) and analyzed market data to determine how many companies meet the criteria. Only one in eight companies met the growth criteria over a ten-year period. It gets worse: a study of strategic planning processes showed 90% of companies believed they would. To explain the disconnection between strategic hopes and market realities, Zook examined over 160 reports on the topic of growth and found these sober statistics:
- The success rate for new products is about 30%.
- The success rate for startups is below 10%.
- The success rate for joint ventures is about 20%.
- The success rate for related acquisitions is about 30%.
- In a typical multi-firm industry, the top player captures 70 percent of the profits.
- Market leaders earned a return on capital twice that of parity players and three times that of followers.
- Market leaders' market-to-book values are double that of followers.