“Fair, flabby, and 50.” In the spring of 2000, that is how a competitor derisively described the target market for Harley-Davidson Corp.’s motorcycles (www.harleydavidson.com). Since then, however, Harley-Davidson’s “hogs” have done a marketing wheelie that has stunned the industry.

In July 2001, Harley-Davidson introduced its “V-Rod” bike, which has captivated younger and European markets and has shown that companies can do splendidly despite the stock market’s decline over the past year and a half and despite the severe economic downturn that has set in. The bike helps explain why Harley-Davidson winds up at the top of our list of “100 Biggest Gainers,” those companies that most strongly improved their competitive standing despite difficult times.

We compiled our list of big gainers based on the methodology developed at the Center for Market Leadership, which uses a database of more than 5,000 companies, compiled over the past seven years, to track changes in leadership rankings and to explore how companies can become leaders. The center was founded by DiamondCluster International Inc., the consulting firm that publishes this magazine (www.diamondcluster.com), and by Fred Wiersema, author of The New Market Leaders: Who’s Winning and How in the Battle for Customers. The center calculates leadership based on two factors. First is revenue growth compared with the revenue growth of a company’s 20 closest competitors. Second is a comparison of a company and the 20 competitors based on stock market value per dollar of revenue. That ratio is a way of calculating how much investors value companies’ customer franchises and their future prospects.

The companies on the list of gainers have turned in truly impressive performances. As a group, they increased their revenue by 27% between May 2000 and October 2001, when we did our rankings, while their industries shrank by 3%. The big gainers’ shareholders gained 31% over that period, based on increased stock prices and dividends, while their competitors’ shareholders saw their investments fall 4%. Our big gainers zigged when others zagged.

While each company on the list has a different story [See the related pieces on BMW, Masco, and Anadarko Petroleum below], they all have thrived by staying focused. Focused on their brands. Focused on setting priorities so they maintain their core assets while still cutting costs.

Many of the big gainers used technology to their advantage. Harley-Davidson, for instance, attracted new riders by designing a quiet, liquid-cooled engine to replace its rumbling, air-cooled power plants that date back to The Wild One. Other companies used information technology to get a better sense of their customers and their needs, or to collaborate more efficiently with suppliers, partners, and distributors.

We also developed a list of the “100 New Market Leaders,” the companies that, as of October, were in the strongest competitive position over the prior five years. The list includes some surprises—for instance, that European telecommunications companies Telefónica, Telecom Italia, and Orange have vaulted into dominant positions even though the press about their industry has been relentlessly negative.

The performance of all the 100 new market leaders shows that, even in tough times, companies known for quality and performance will prosper, often at the expense of less focused, more tentative competitors. In other words, there is real value to being the leader of the pack.

ANADARKO PETROLEUM: OF BYTES AND DRILL BITS
Anadarko Petroleum Corp. (www.anadarko.com) became a New Market Leader by using proprietary computing technology to help it drill for oil and gas in places that were too difficult for others to explore. In other words, Anadarko has, quite literally, succeeded by being on the cutting edge.

Anadarko determines the potential of drilling sites by building three-dimensional maps of their geological structure, using a system that looks like the graphical simulation system that Steven Spielberg used to create dinosaurs in Jurassic Park. The company developed the system by drawing on such unlikely sources as medical imaging equipment. Using it, Anadarko is, for instance, drilling through a 50-cubic-mile slab of salt beneath the sea about 60 miles off the coast of Louisiana, where the company detected a huge, potentially oil-holding cave that no one had been able to see before.

In addition, Anadarko is the industry leader in horizontal drilling know-how.

Anadarko also takes an unusually sophisticated approach to figuring out when to drill and when to abandon a well. The approach is based on real option theory, which takes the arcane calculations used for valuing financial options and applies them to other business decisions. The system entails accumulating a host of sites over many years (Anadarko is the largest private owner of acreage in Alaska) and then constantly reassessing their potential at each stage of exploration. The approach is “much like a portfolio manager with mutual funds,” Chairman and Chief Executive Robert Allison says.

As Anadarko prepares to drill in the ocean stretches near the Faroe Islands (between Iceland and the British Isles), Allison says the company’s future rests on three factors: people, technology, and risk management. He says: “You’ve got to have good people, using absolutely the best technology, and you’ve got to have the discipline of a system that knows how to manage the risk.”

BOLD BMW
Bayerische Motoren Werke AG (www.bmw.com), maker of “ultimate driving machines,” never does anything by half measures. Thus, while other car makers try to make incremental progress with troubled lines, BMW got rid of its troubled Rover operations altogether, selling the mass-market maker of sport-utility vehicles to an investment group and the Land Rover brand to Ford Motor Co. (www.ford.com) in 1999.

Explaining the initially unpopular move, BMW’s new chairman, Joachim Milberg, said the company wants “profitable growth, with ‘profitable’ coming first and ‘growth’ following second.”

That seems about right. Getting rid of Rover let BMW’s management focus on new, more promising opportunities. The sale also unclogged the pipeline, letting the company introduce products under the BMW brand that had been held up because they would have competed with Rover. BMW improved operating results 44% since the sale.

With boldness its byword, BMW designs both its vehicles and its business for breakneck speed. For instance, it has begun guaranteeing customers that they can order a custom-made “Beemer” and have it delivered within 12 days. This is no trivial proposition. The auto maker offers 26 wheel designs and 123 console options for its Z3 roadster alone, making customization a complex proposition.

Record speed also is the goal in product launches, both to cut costs and to help the company keep up with customers’ changing tastes. The X5 series was developed in just 35 months. Until recently, a development project might take five years.

Making such commitments has spurred BMW to develop roaming “attack teams” that obliterate manufacturing bottlenecks in plants around the world.

BMW even has set up its design operations as a profit center, doing design for such companies as aerospace concern Boeing Co., apparel maker Adidas, and U.S. truck maker Peterbilt Motors Co. The work broadens BMW’s designers’ perspectives and provides a reality check on their work.

Henry Fisker, president of BMW’s Designworks/U.S., says: “If design isn’t profitable, then it’s art.”

MASCO BULKS UP
“No pain, no gain” might be the rationale behind Masco Corp.’s (www.masco.com) recent moves to become a major supplier of Home Depot Inc. (www.homedepot.com). Like a personal trainer who pushes people to get into great shape, Masco’s relationship with the huge and demanding home-improvement chain was designed to make Masco so lean and mean that it could muscle aside companies that compete with it in supplying the home-construction industry.

If you want to be glib, you might say that, while personal trainers produce killer abs, Masco was in search of killer apps. Or to use the language from Fred Wiersema’s The New Market Leaders: Who’s Winning and How in the Battle for Customers, you can think of Home Depot as a “stretch customer.”

Even before targeting Home Depot, Masco made major investments in its information-technology systems so that it would be exceptionally good at tracking inventory and interactions with customers. Masco then purchased five home-improvement product suppliers, some of which had exclusive agreements with Home Depot. As a result, Masco boosted its Home Depot business from $500 million annually to $1.5 billion and now stocks the company’s cavernous warehouses with a wide variety of handyman items, such as faucets, cabinets, plumbing products, locks, staplers, paints, and hardware.

Masco, the largest maker of bathroom fixtures, kitchen cabinets, and other building materials in the U.S., has clearly become more competitive in Home Depot’s eyes. As Home Depot has moved to reduce its inventory and make shelves less dauntingly crowded, it has excluded some plumbing products, such as those from Black & Decker, while featuring Masco’s Delta and Moen faucets, as well as Home Depot’s own private-label merchandise.

Masco has also strengthened its position with the top 100 builders in the $10 billion-a-year U.S. home-construction industry. Cross-selling contractors everything from windows to sinks, Masco installs insulation in six out of every 10 homes built in America, as well as 60% of kitchen cabinets purchased each year.

The company’s sales in the first nine months of 2001 were $6.24 billion, up 13% from a year earlier despite the recession that has put so much pressure on competitors’ revenue. And it sounds like Masco will get even more massive.

Wiersema and Sviokla are co-directors of the Center for Market Leadership which studies how companies become dominant players in their industries. The center’s work encompasses a decade of research on more than 5,000 global firms.

Sviokla is vice chairman of DiamondCluster International Inc. Formerly an associate professor at Harvard Business School, he has been advising corporate clients for more than a decade. He can be reached at john.sviokla@diamondcluster.com. Wiersema is a business strategist and best-selling author. His latest book is The New Market Leaders: Who’s Winning and How in the Battle for Customers. He also is the co-author of The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market. He can be reached at fdw@wiersema.com. Research assistance was provided by Andrew Carlson, Jason Ruger, and David Wachs.