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Q. How do you define the core?

A. It's tough to decide what to become if you don't know who you are. Understanding your core is the first building block of growth strategy. It comes from thought and analysis about the areas you beat the competition, have unusually loyal customers, and earn above average profits relative to your competitors. Key assets in the core that create advantage could include a unique business model like Dell in computers, a strong brand like American Express in credit cards, or a low cost position like Tesco in grocery, or a technology like Intel with its microprocessor architecture.

Q. Is there a magic number of core businesses a company can have?

A. Only 13% of companies worldwide achieved even a modest level of sustained and profitable growth over the past 10 years. Our analysis shows that the most successful companies were those companies with one or two strong cores where they had leadership and build growth programs around those cores with the patterns looking almost like the growth rings of a tree. Conglomerates fared much worse than focused companies with a strong core with a few exceptions like GE. Yet, a closer look at GE reveals that Jack Welch cut back the number of core businesses when he took over and that each of those, like GEMS, has been run with the principles of strategic focus described in Profit from the Core.

Q. What is after understanding the core?

A. Next it is essential to decide whether you have attained full potential in the core or whether it is time to begin to push the boundaries of the core out into new areas. A majority of CEOs believe their core business is not within 50% of its full potential, so that must be the first priority. Many companies like Bausch & Lomb in contact lenses got in a lot of trouble by prematurely abandoning their core business in search of new hot areas like hearing aids and dental products. Today their contact lens core is in fourth place and they have divested those other businesses. Our work at Bain and in my books has identified over a hundred cases where this has happened in large companies.

Q. What if there is no room to grow the core?

A. All companies aspire to grow much faster than their market growth rate. In fact the average company plans to double it. When it is not possible to do that within your strongest core markets, the next step is to look at pushing the boundaries of the core business out into new areas, into the unknown. We call these adjacency moves and find that only 25% are successful on average. Yet, some companies, the most successful growers, find ways to be successful 75% of the time. That is what my book Beyond the Core is about.

A great example is Vodafone that is now looking for new growth by moving into new services that can be sold over the phone connected to the Internet. Another example is P&G's expansion of its Crest toothpaste business into Crest White Strips and Crest Spinbrush, new product adjacencies that each hit over $200MM in sales in their first year. The secret for the most successful companies comes in how they have built a repeatable formula for growth rather than hunting for a new source or formula every year. Nike has done this in how they enter new sporting goods segments like golf.

Q. What is the third option?

A. There is no good third option. If you have no further growth potential in your core business and have no viable options related to your current business one, two or three steps away, then you have a bankrupt core that will not support any growth. I have virtually never seen a business that, with creativity and analysis, could not find ways to evolve their business around its areas of strengths. If a business has no areas of strengths around which it can grow, then it has no core and should combine with a competitor or liquidate itself.

Q. What should I do to prepare as a new employee?

A. There are three contributions you might make. First, identify some ways to shed light on whether the core business is close to full potential. Competitor comparisons, customer loyalty measures, and flat cost performance is one clue there. Second, map out the most logical adjacency opportunities around the core and organize them by type and distance from the core. Third, talk to a range of senior managers and see whether people have a clear definition of their core strength and whether they agree. If the management team does not agree on that, there is trouble.

Excerpted from an interview with Berlitz International, Inc.

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