Book review, Education and Science, EU – Baltic States

All these issues, and much more, are explored in detail by the Insead professor, J.C. Larreche. As to the authors’ proficiency, he is one of the world’s management gurus, published extensively on strategic marketing and sustainable growth.

Besides, Insead with headquarters in France and Asia (e.g. Singapore), is the fifth in the global MBA ranking for 2010 prepared by the Financial Times (www.ft.com/mba-ranking).

The book was published on the eve of the present economic and financial crisis. In 2008 it was by amazone.com ranked 4^th in best books for business and investment leaders. However, in no way it can be regarded as outdated. On the contrary, the author’s analytical skills have made it even more valuable as finding the right way for numerous entrepreneurs: both combating for survival and figuring out how to start business anew.

Some definitions

The author derived the word “momentum” in the title from the physics of classical mechanics (truly cross-sectoral approach, right!), where it defined the object’s ability to keep moving. The notion was conveyed to other sectors of science: e.g., in finances, where “momentum trading” refers to stocks’ trade exploring stock market dynamics; or in business, where the notion is associated with innovation, high technology and leadership. “The momentum effect  -the author underlines- is a phenomenon by which, under specific conditions, exceptional organic growth is created that feeds on itself” (p.248). It is the exceptional growth that the author calls “momentum growth”, and which is associated with momentum’s process and strategy.

Main “momentum issues”

The book consists of four parts, which cover four main “momentum” issues: discovering, designing and executing “momentum” and finalizing with so-called “total momentum” (including internal momentum and leadership). In less than 300 pages, the author manages to “unite” all four by the concept of “power offer”, which is the offer that is so carefully crafted that customers find them irresistible. Therefore, the momentum strategy aims to link two essential processes: designing a power offer and executing it (author’s “power” has a double meaning, i.e. power with customers and power to generate growth).

Initially, firms’ operations were centered on three “product” issues: developing a product, making the product and selling it. This is how most companies are organised even presently, with the corresponding separate departments; and consumer’s considerations are generally on the peripheral.

In late 1980s came another approach with a focus on customers: recognizing that customers buy the “value the product carries” rather than the product’s “user value”. Thus, the “momentum” appeared, as a new business model with the constant interaction and improvements between design and execution (pp. 129-130).   

Representative analysis

The present book dates back to five annual reports on “competitive fitness of global firms”, that the professor’s team analysed and  published during 1999-2003. Out of the “fitness analysis” came the idea of summarizing the main strategies and principles of exceptional growth, which ended finally in the present book’s “momentum growth”.

The author selected initially about one thousand non-US and US companies quoted on the NYSE (based on companies’ revenues in 2004). In order to avoid analyzing “bubble-success”, mostly the companies of longstanding business records were selected. About half of these companies did not exist in 1985 and were excluded from the analysis; some were out of analysis due to their peculiar competitive situation (oil, utilities, etc.) or lack of sufficient information.

After all, the pool of 367 companies formed the background of analysis for the “momentum effect”. Then, these companies were controlled against the marketing potentials: from a narrow approach based on advertising, to broader marketing definitions including field forces and support functions.  

After this selection, “the core group” of 119 companies –the biggest and the best - was chosen where the marketing represented the important component of growth and advertising-to-sales ratio.

Three groups

The author splits the core group of about hundred analysed companies into pushers (25 firms), plodders (50 firms) and pioneers (25 firms), according to the “extremes of marketing behavior”.

For example, the pushers were companies “that pushed their business hard in the traditional way, seeking to drive sales through aggressive increase in relative marketing spend” (p.5). This group, on average, increased its marketing-to-sales ration by 3 per cent over 20-year period.

The plodders –about half in the core group- did not take drastic measures: their marketing-to-sales ratio remained constant over the timeframe.

The pioneers headed in the opposite direction from pushers, and decreased their relative marketing spend; they cut spending by 7 points compared to that of their competitors.

As to the strategic behavior, the pioneers’ revenues over the 20-year period were 93 per cent better than that of pushers, and profitability growth, i.e. earnings by 58 per cent. (p.7). These figures exemplify that pushing hard with marketing investments can definitely deliver growth (the pushers). However, there are more creative and smarter alternatives that can deliver even better results (the pioneers). 

Four “momentum” ingredients

The author sums-up “the momentum journey” in the following way: the path to profitable growth requires control and logic of managerial analysis with exploration and discovery in order to convince others of the strategy’s compelling benefits.

Successful change toward momentum consists of four simple ingredients:

• Diligence and taking time to explore more efficient and rewarding alternatives: therefore, the first ingredient is called patience;
• The second ingredient is timing, which should be carefully chosen to suit internal and external shareholders: leaders wait until they have created the conditions for exceptional growth;
• Sense of urgency is the third ingredient: managers have to explain the staff why momentum journey is essential and why it should start without delay; this is the point, argue the author, where the transformation toward momentum begins (p.243);
• Essential tools for energizing the staff are embodied in the powerful images: in this regard, all positive and successful corporate stories can be used to mobilise staff towards the desired aims. 

These components of “momentum strategy” are described in the book as a systematic process to achieve exceptional organic growth in a company. Based on a deeper understanding of customers, which could be regarded as the fifth ingredient- “the momentum” turns into a significant superiority over competitors, both existing and potential.

The book draws on a rigorous empirical analysis of the world’s largest companies that enjoyed periods of exceptional growth over the last half a century. The author’s assumption is that the “art of marketing or smart marketing”, among other tools, can deliver exceptional growth for companies. The marketing excellence, i.e. improving the efficiency of marketing investments is a key part of the “sustainable and momentum” mix. Important to remember -and this is the main outcome of the book - that only “smart approach” to unfulfilled customer needs and untapped opportunities can create momentum-powered companies.

Larreche J.C. The Momentum Effect. How to ignite exceptional growth. – Wharton School Publ., University of Pennsylvania, 2008. xii, – 289 pp.