The global financial crisis and the rough road to recovery have brought the power of a company's core business back into sharp focus. Like a collective commercial death wish, global market values rose in 2007 by a staggering 20 percent (denominated in dollars), reaching $61 trillion by year end. In just five years, $38 trillion had apparently been created in the stock markets-more value in terms of market capitalization than the global stock markets had recorded in their entire history.

But where did it really come from? In some cases, as we have found, not the right places. Crises of the core have appeared everywhere, from AIG to Citibank to General Motors. In fact, we have seen this picture-or something resembling it-before. In 1999, fueled by investor hyperbole, the value of stocks on all global exchanges blew away the previous world record for expansion.

It was in these heady days, at the height of the Internet bubble, that Profit from the Core was first published in 2001. "Focus on your core" became a watchword of the day in an era of "anything goes." Profit from the Core chronicles a litany of examples in which companies lost sight of what they were really good at, moved away from their strengths and let their real competitive advantage erode in the process.

Our analysis and case examples show that most companies with truly sustainable performance share four characteristics: an extraordinary focus on the core, leadership economics to reinvest in the core, a uniquely loyal core customer base and a well-defined repeatable model to extend the core. These insights are as relevant today as they were in the last period of turbulence.

Over the last few years, we began to encounter more and more companies asking the same questions-and occasionally disagreeing-about whether their core had shifted as a result of turbulence in their industries. That shared concern accelerated dramatically as management teams recognized the need for a more focused platform to use as a foundation for growth coming out of the financial crisis. Consider the following:

• The odds of achieving sustained, profitable growth remain challenging: Only about one in 10 companies worldwide managed to grow profits and revenues more than 5.5 percent over the 10 years ending in 2008, and earn back their cost of capital, based on Bain's updated global database of Sustained Value Creators.
• During downturns and recoveries weaker businesses tend to be the shock absorbers of their industries, revealing margin swings that are often three to five times that of the leader-a hidden liability of nurturing too many weak cores. Companies with strong, focused cores have opportunities to make acquisitions or gain ground on their competitors.
• Since the financial crisis started, we estimate that followers in a market have seen their values decline by nearly twice as much as leaders-presenting leaders with acquisition opportunities.
• Roughly two-thirds of the global profit pool is in turbulent industries like media, telecommunications, autos, airlines and financial services, all of which are undergoing fundamental changes in their core business models above and beyond normal business investment. In a world of much lower profits, especially for weak core businesses, the future belongs to the smart leaders investing in their cores.

Against this background of once-in-a-generation challenges and opportunities, Harvard Business Press will publish an updated edition of Profit from the Core in February. The principles and findings of the book provide insights into how and why companies succeed in the search for sustained, profitable growth:

• Most sustained, profitable growth companies have leadership positions in their cores that form the epicenters of their strategies.
• The No. 1 rule of strategy is to discourage your competitors from investing in your core.
  The greatest source of strategic error, we find, stems from an inaccurate understanding of the core and its full potential.
• Strong cores often contain hidden assets that prove to be the seeds of the next wave of growth.
• The key to sustained and profitable growth is to find a repeatable formula that utilizes the most powerful and differentiated strengths in your core and applies them to a series of new "adjacent" markets.

Turbulent conditions create confusion, blurred boundaries, less time to react, less tolerance for error and often fewer resources. Yet they also create unique opportunities to strengthen and expand strong cores, and even to invest to reshape the structure of your industry ahead of competitors. As many companies have come to learn, focusing on the core delivers results.

Chris Zook and James Allen are partners at Bain & Company and co-leaders of Bain's Global Strategy practice. Learn more at www.profitfromthecore.com.

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Additional articles appearing in this edition of the Results Brief newsletter:

Tighter regulation blocks old paths to profit
by Andrew Schwedel and Antonio Rodrigues
American Banker, December 18, 2009

Banks are wrestling with huge credit and liquidity challenges, but much more work remains to be done. Despite some recent improvement, banks' profit pools have shifted and are unlikely to return soon to pre-crisis levels. Bain calculates that the financial sector will earn at least $200 billion less than its cost of capital during the next five years. To adapt, banks need to accomplish three major goals: Regain and strengthen customer loyalty, rein in complexity to cut costs and factor risk back in to capital management.

The coming wave of debt defaults
by Sam Rovit and David Sweig
Forbes.com, December 8, 2009

As 2010 began, corporate default rates in the US were cresting at a 28-year high. Because defaults historically lag changes in GDP by 12 to 18 months, look for above-average default rates to last through 2011 even if the economic recovery starts to take hold. Companies cannot hope to paper over problems of a weak balance sheet or try to fix things that are better closed or sold. Instead, they need an effective cash strategy that roots out non-strategic activities that drain cash and capital.