Adaptability in turbulent times creates real performance gap between firms

Friday, 21 September 2012 00:01 - - {{hitsCtrl.values.hits}}

BOSTON: In the first list of its kind, The Boston Consulting Group (BCG) has analysed the financial results of more than 2,500 US public companies in a wide range of industries to determine the 27 most adaptive companies during periods of high turbulence in the business environment.

The ranking uses the proprietary BCG Adaptive Advantage Index to measure how well a company adapts its business model to turbulence. Using BCG’s interactive and print rankings, executives can find out which players lead in Adaptability in their industry. And by exploring what makes some companies more adaptive than others, companies can learn how to enhance their own adaptive capabilities in five critical areas of signal, experimentation, organisation, systems, and eco-social advantage.

The report, The Most Adaptive Companies 2012: Winning in an Age of Turbulence, found:

Turbulence strikes more frequently, more intensely, and for long durations than in the past. More than half of the most turbulent quarters over the past 30 years have occurred during the past decade. Volatility in revenue growth, in revenue ranking, and in operating margins all have more than doubled since the 1950s. The average duration of periods of high turbulence has quadrupled over the past three decades.

Adaptability creates both short-term and long-term value. From 2006 to 2011, companies in the top decile of the index grew their market capitalisation by 31 percentage points more per year, on average, than the bottom-decile companies. By contrast, over the period from 1982 to 2011, the top-decile companies in the index grew their market cap by 18 percentage points more per year, on average, than the bottom-decile ones.

Adaptability creates a performance gap between the top performers and the rest of the pack. In stable quarters, both adaptive and unadaptive companies grew; interestingly, however, unadaptive companies tended to grow slightly faster. But during turbulent quarters, the most highly adaptive companies grew while the least adaptive companies generally declined significantly.

Adaptability predicts future performance. Companies with high scores on BCG’s index were more likely to experience higher future growth in value, on average, than companies ranked low on the index.

The value of Adaptability is increasing. Adaptability is of more importance today than a decade ago. The relationship between a higher score on the BCG Adaptive Advantage Index and a company’s higher overall growth has become twice as strong over the past 30 years.

Companies that deliberately build capabilities in each of the five areas of adaptive advantage can improve their Adaptability to turbulence. And that can translate into significant financial rewards.

“Chronic turbulence is altering business models and undermining incumbent positions with unprecedented speed,” said Martin Reeves, a BCG senior partner, coauthor of the report, and director of BCG’s Strategy Institute. “Executives must now master the art of adaptive advantage.”