FOR IMMEDIATE RELEASE

Contact: Cheryl Krauss
Bain & Company
Telephone: +1 646-562-7863
cheryl.krauss@bain.com

MARKET FOLLOWERS WITH WEAK CORE BUSINESSES LOST TWICE AS MUCH VALUE DURING RECESSION AS LEADERS; SAW PROFIT MARGIN SWINGS 2-TO-5 TIMES GREATER THAN INDUSTRY FRONTRUNNERS; ACCORDING TO NEW BAIN & COMPANY STUDY

New York, NY-March 15, 2010-According to a new Bain & Company 10-year study of more than 2,000 companies in 12 developed and emerging economies, nearly all businesses (95%) that consistently create value above and beyond their cost-of-capital are market leaders in their core businesses, yet only one-in-ten companies (242 in total) studied distinguished themselves as Sustained Value Creators (SVCs*). The study further shows that market leaders drive virtuous cycles of growth, resulting in:

• Returns on capital nearly twice that of market followers, on average
• Growth adjacency success rates 2.5-3 times that of followers, on average (adjacencies are defined as entries into new businesses, new markets, new customer segments, etc.)

Bain finds that with employment not expected to return to pre-recession levels until the back half of the coming decade and as two-thirds of global industries now in fundamental flux, finding profitable growth will challenge even the best companies in the unstable recovery ahead. The findings from the Bain SVC study are presented in the newly-updated and published Profit from the Core: A Return to Growth in Turbulent Times (Harvard Business Publishing, February 2010). Originally published in 2001, the re-release features new research and insights drawn from the past decade. Authors Chris Zook and James Allen, Bain senior partners and co-heads of the firm's Global Strategy Practice, find that SVCs follow a three-step 'Focus-Expand-Redefine' growth cycle:

1. Focus and reach full potential in their core business
2. Expand into logical adjacent businesses surrounding that core
3. Advance by pre-emptively redefining the core business in response to market turbulence

"The cold truth about chasing hot markets is that they rarely deliver on the promise," said Mr. Zook. "Our research shows that market leaders are instead those companies that cut a clear path to sustainable value creation and maintain their pre-eminence by obsessively following repeatable formulas for successful growth."

Zook and Allen define the core of a business as the heart of what makes the company stand apart, the real root cause of its competitive advantage. They stress that the core is not narrowly defined as the primary product or service that a company sells or the primary market in which it operates. It is much broader than that, but can usually be defined by four-to-seven assets and capabilities, including intangible assets such as brand, intellectual property and talent, or capabilities such as differentiated production systems and technology, a customer-driven innovation system, best supply chain management, or world class marketing.

Bain's study finds that 60 % of SVCs competed on cost position, a list including Wal-Mart, Danaher and IKEA. Another 30% competed on a differentiated product or service offering, including LVMH and Apple. The remaining 10% of SVCs compete on industry influence, including Microsoft, Google and DeBeers.

The authors warn market leaders to avoid a 'leadership paradox.' According to Bain's study, companies often invest most in their weakest businesses, while neglecting the strategically strong businesses, taking their higher profits for granted. However, it's more often true that the stronger
businesses have the most potential for profitable growth. Therein lies the paradox: the stronger your business, the more likely it is operating below its full potential.

"When Profit from the Core was first published in 2001, the message of focusing and investing on a well-defined core business to maximize its full potential seemed like a quaint and even dated idea to many," said Mr. Allen. "But as businesses today continue to deal with a fragile and uncertain economy, the principles of focus and repeatability have never been more timely."

Studying the most successful companies, Zook and Allen cite five key design principles which they tend to have in common. These principles help companies create a 'repeatable formula' to stay focused on what really makes them profitable:

• Principle #1-having a well-defined core to your business, and understanding how you have made it work for you
• Principle #2-having up to 10 non-negotiable principles or beliefs about the business
• Principle #3-having a strong bias to distributed leadership, which means having fewer layers of management and a larger percentage of decisions being taken on the front line
• Principle #4-having a powerful, closed feedback loop system of information coming in from customers. This keeps the company attuned to the outside world
• Principle #5-having a small number of key operating measures - known and believed at all levels-keeps the organization on track

The authors suggest that companies must look within to discover their true core business. "Most strategic errors come from inadequate self-awareness of the core," added Mr. Zook. "Many management teams do not agree on the core and some have never even talked about it." CEOs should rally their company around a common vision of their core business to propel the organization through the slow growth waters that lie ahead by:

• Leading detailed, frank discussions throughout the organization to pin down the top assets and capabilities that really define the core
• With consensus in hand, go on the hunt for where you are not reaching full potential in that core-be it in customer segments, cost position or competitive advantage
• Be ruthless about telling the organization what not to do. It's just as important to decide what to stop doing as it is what to start doing

"Turbulent times call for creative strategies," concluded Mr. Allen. "But thinking about who you can become starts with a deep self-awareness of who you are now."

*SVCs are defined as those companies that generated more than 5.5% in both revenues and profits, compounded annually, and earned back their cost of capital.

Editor's note: To learn more about Bain's Sustained Value Creators study, or to schedule an interview with Chris Zook or James Allen, please contact Cheryl Krauss at email: cheryl.krauss@bain.com or +1-646-562-7863 or Frank Pinto at frank.pinto@bain.com or +1-917-309-1065.

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About Bain's Sustained Value Creators (SVC) Study Methodology

For the Sustained Value Creator analysis Bain & Company analyzed the performance of over 2,000 publicly listed companies for which reliable company data were available and which had at least $500M revenues in 1998. Sectors with non-standard accounting methods (such as banking), or performance highly dependent on commodity prices (such as oil and gas) were excluded. The study was performed on companies that were based in 12 developed and emerging markets.

Twelve-percent of the analyzed companies, or about 1-in-10, met the Sustained Value Creator criteria over the period 1998-2008. These criteria were:
Not acquired or bankrupt
At least 5.5% revenue growth in real terms (i.e. adjusted for inflation)
At least 5.5% profit growth in real terms
At least returning the cost of capital to shareholders

About Bain & Company, Inc.

Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients' financial results. Bain clients have outperformed the stock market 4 to 1. With 42 offices in 27 countries, Bain has worked with over 4,150 major multinational, private equity and other corporations across every economic sector. For more information visit: www.bain.com.