MARCH 2010

Back-to-basics is the theme running through the items in this month’s issue of Agility Update. First off, the updated business classic Profit from the Core reiterates its original finding: a renewed focus on the core is more critical than ever to sustainable success. Complementary articles underline the link between easy credit and asset bubbles (Watch those China Loans) and sweeping changes with inadequate attention to details can and do backfire. The final item considers if avatars – a computer user's representation of himself/herself or alter ego –
could be the answer to the quest to combine practical solutions at work with a sense of fun.

Profit from the Core Updated
Did you know only 12% of companies worldwide managed to grow profits and revenues more than 5.5% over the 10 years ending in 2008 and earn back their cost of capital? Did you also know that margin swings for weaker businesses in economic downturns are three to five times greater than that of the sector leader? These findings and more are in the 2010 update of a 2001 Harvard Business Review classic Profit the Core: A Return to Growth in Turbulent Times by Chris Zook and James G Allen.  The updated analysis and case examples has underlined the importance of the original findings which is 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.

Among the revelations which Zook said he personally found most surprising are the low and declining odds of sustained and profitable growth; and the lack of self awareness in management teams to understand the essence of their ‘core’ or even agree on what it is. For more detail and to listen to a short interview with Chris Zook, please go to:
  http://www.bain.com/bainweb/Consulting_Expertise/hot_topics/detail.asp?id=58 You can also register to download a free excerpt at:
http://reg.accelacomm.com

Watch those China Loans
The word from China watchers is to keep an eye on the trend of defaulting loans in China. At a February Asia-Pacific Loan Market Association conference in Hong Kong, speakers warned of “literally trillions and trillions of renminbi …defaulting loans that no one is doing anything about”. Chinese banks issued a record 9.6 trillion yuan (US$1.4 trillion) of new loans last year as part of a 4 trillion yuan stimulus package aimed at bolstering growth through the global financial crisis. A significant portion of this was channelled into stock and property speculation adding to the risk that the world’s fastest-growing major economy may overheat as it rebounds from the financial crisis. Last month, the Shanghai office of the China Banking Regulatory Commission warned that a 10% fall in property values would treble the number of delinquent loans in the city. It was the first time the CBRC announced estimates for how much a property-market slump in Shanghai would hurt banks, underscoring the government’s concern that real-estate speculation may spur bad debts. Details at:
 http://www.bloomberg.com/apps/news?pid=20601080&sid=aJhBD4AeX8WA

Savings in Back-Office Efficiency Drives Don’t Last
Corporate back office functions like finance, HR, IT operations, and other support functions can represent 15% to 20% of a global company’s personnel expenses. In tough times, these functions become prime targets for retrenchment. However, McKinsey has found that savings in such sweeping, top-down cuts are often fleeting. Barely four in ten companies meet their targets one year into a cost-cutting program, and by year four fully 90% of back-office costs are right back where they started. Instead of hands-off approach, McKinsey’s advice is that companies pay closer attention to both the efficiency and the effectiveness of support activities. For example, within the finance function, paying more attention to the creditworthiness of customers and setting shorter payment cycles (effectiveness gains) help reduce the need for write-offs and make posting to accounts more straightforward (greater efficiency). An average performer raising its back-office efficiency and effectiveness to top-quartile levels would improve its net margin by two percentage points. Read more (free, registration required) at:
 https://www.mckinseyquarterly.com/Operations/Performance/Why_dont_back-office_efficiency_drives_stick_2515

Avatars in the Workplace
Since its opening in December, James Cameron’s Avatar has raked in more than US$2 billion in ticket sales and made millions of moviegoers wonder if they could send their own avatar to the office. It is possible, and thousands of employees at companies like IBM, Cisco, SAP and Boeing are already using avatars to interact with colleagues and customers around the world. Stanford's Professor of Communication Byron Reeves believes the trend will grow. Firstly, because sending an avatar is practical as work is increasingly distributed among teams across the physical world and secondly, because they make work fun. Reeves expands on avatars in the workplace, training, control and ethical considerations in an interview at:
 http://news.stanford.edu/news/2010/january11/reeves-avatars-work-011510.html
To visit some virtual worlds, go to:

• The IBM Business Centre http://www.ibm.com/3dworlds/businesscenter/us/en/
• Dell Island http://www.dell.com/html/global/topics/sl/