156  Growth Drivers of Revenue Growth When executives plan for growth, a good starting point is for them to disag- gregate revenue growth into its three main components:2 1. Portfolio momentum. This is the organic revenue growth a company en- joys because of overall expansion in the market segments represented in its portfolio. 2. Market share performance. This is the organic revenue growth (or reduction) a company earns by gaining or losing share in any particular market. 3. Mergers and acquisitions (M&A). This represents the inorganic growth a company achieves when it buys or sells revenues through acquisitions or divestments. Baghai, Smit, and Viguerie showed that for large companies, the most im- portant source of growth by far was portfolio momentum.3 In other words, being in fast-growing markets was the largest driver of growth. Least impor- tant was market share growth. Yet managers tend to focus most of their atten- tion on gaining share in their existing product markets. While it’s necessary to maintain and sometimes increase market share, changing a company’s ex- posure to growing and shrinking market segments should be a major focus. To see the effect of portfolio momentum, consider how the median growth from 2008 to 2017 differs by industry (Exhibit 9.1). Not surprisingly, the fastest-growing sector over this period was biotechnology, which in 2008 was still a small industry that fueled impressive growth from a wave of innova- tive, blockbuster drugs. Makers of traditional pharmaceuticals delivered the second-highest growth, but mostly driven by consolidation rather than inno- vation, as many of the highest-selling drugs from the 1990s came off patent. For the same reason, airlines stand high on the list, with some of largest U.S. players having merged in the past decade. Compared with the prior decade, oil and gas companies dropped to a spot near the bottom of the list, primar- ily because of significant oil price decreases since 2014. These underlined the industry’s cyclicality in terms of growth as well as ROIC, as discussed in the prior chapter. Note how a sector with high volume growth, such as technol- ogy hardware, nonetheless fails to beat many other sectors in terms of revenue growth (in contrast to other technology sectors, such as information services and software). Despite tremendous increases in volume, lower prices have kept total revenue growth relatively modest. 2 This section draws on P. Viguerie, S. Smit, and M. Baghai, The Granularity of Growth (Hoboken, NJ: John Wiley & Sons, 2008). 3 M. Baghai, S. Smit, and P. Viguerie, “The Granularity of Growth,” McKinsey on Finance, no. 24 (Sum- mer 2007): 25–30. Drivers of revenue Growth 157 Exhibit 9.1 also shows widely varied growth within industries. For some sectors, such as pharmaceuticals and airlines, part of the variation can be ex- plained by growth from mergers and acquisitions. In this instance, some play- ers benefi ted, but not all. But for many other sectors, M&A cannot explain the wide variation in growth. If a company’s growth depends mainly on the dynamics of the sector markets in which it operates, why should there be such big differences in growth among different companies operating in the same sector? The most important reason is that the median growth rate of companies competing in any sector masks big differences in growth across the sector’s market segments and subsegments. Exhibit 9.1 Variation in Revenue Growth by Industry Annual revenue growth rate, adjusted for inflation, % 2008–2017 Average –10 –5 0 5 10 15 20 25 Industry Biotechnology Pharmaceuticals Airlines Information services and software Health-care equipment and supplies Telecommunication services    Distribution and trading Aerospace and defense Branded consumer goods Technology hardware, storage, and peripherals Construction Industrial conglomerates Media Retailing Transportation and logistics Luxury goods and apparel Chemicals Commercial and professional services Hotels, restaurants, and leisure Oil, gas, and consumable fuels Automobiles and parts Materials and components Metals and mining Machinery and equipment Household durables Utilities and power producers 3rd quartile Median 1st quartile Source: Compustat; Corporate Performance Analytics by McKinsey.