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This chapter is from the book

Momentum-Powered Firms

The results of this research might seem counterintuitive at first sight, but they are perfectly logical. Too often, companies invest more in marketing to compensate for something: an inferior product, a poor pipeline of new products, deterioration of growth prospects, or a general lack of creativity.

Firms with such a limited vision compensate for their less-than-spectacular offers by pushing them on an unconvinced market using heavy-handed marketing resources. Even more compensation is required when, to fund this expensive marketing, they are forced to cut costs on the very activities that could improve the attractiveness of their offer: operations and R&D. This kind of behavior eats up resources and destroys firms from the inside out. These businesses will never build momentum. They are momentum-deficient firms.9

The Pioneers show there is an alternative. These momentum-powered firms don't have to push so hard because they have built up a momentum that improves their efficiency. Rather than just better-than-average growth, they deliver exceptional growth. Their growth is exceptional on two counts: It is both higher and more efficient.

Many of them manage to maintain their momentum for decades. Table 1.1 lists several, along with an estimate of the length of time during which they felt the momentum effect.10

Table 1.1. Momentum-powered firms

Firm

Years

Apple

10

BMW

30

Dell

30

Enterprise Rent-A-Car

30

FedEx

30

First Direct

15

IBM

50 plus 10

IKEA

20

Johnson & Johnson

30

Microsoft

20

Nike

10

Rentokil

20

Sony

10

Starbucks

10

SWA

10

Swatch

10

Tetra Pak

20

Toyota

10

Virgin Atlantic

20

Wal-Mart

30

Of course, momentum can never be taken for granted. Even those firms that have managed to build their own wave and ride it to unimagined success can come crashing down through a moment's careless inattention. Fortunately, it can be regained, as the case of IBM shows—that is why we have noted that it enjoyed two separate periods of momentum: a prolonged spell in its early years under Tom Watson Sr. and Tom Watson Jr., and then the famous and oft-quoted recovery under Lou Gerstner.

We look at most of these firms throughout the book. Many of them are well known internationally. Others, such as Rentokil and First Direct, might not be. But all have enjoyed the power of the momentum effect. Indeed, we hope to convince you that momentum offers a more rounded explanation for their success—and, in some cases, subsequent fall from grace—than the usual explanations that you might have already encountered. If you think you've heard all there is to hear about oft-cited companies such as Microsoft, Apple, IBM Swatch, Wal-Mart, and Toyota, for example, read on—you might be surprised. And you might also discover some new momentum-powered firms from whom important lessons can be learned.

Over the next two chapters, we examine the source of momentum and how to exploit it through a momentum strategy and the momentum process, but for now, let's just see what it looks like in action.

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