HOW COMPANIES CAN COMPETE IN THE 2020S - FORSCHUNGSREIHE 2/20 - GFM
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Forschungsreihe 2/20 How companies can compete in the 2020s
Photo by MIO ITO on Unsplash
1 In the 2020s, the importance of
defying the average will be greater
than ever and more important than
As a new decade begins, all companies –
regardless of their starting positions – will
need to reinvent themselves for sustained
the choice of sector in which you success in the new competitive environ-
operate. ment of the 2020s.
2 To compete, businesses must build
the capacity for continual reinven-
tion which is necessary for a faster
The secrets of the world‘s most competitive
economies
changing environment.
3 To achieve this, leaders will have
to build hybrid human-machine le-
arning organizations, master the
science of organizational change
and harness human diversity.
A simple, popular framework for business
strategy is to focus on where to play (which
industry or market to serve) and how to win
(what it takes to outperform in that area).
However, the “how” is now much more im-
portant than “where”: the reward for being
a top performer is increasing across all in-
dustries. Unfortunately, these rewards are
offset by an increasingly rapid regression
to the mean.
2
How to play is much more important than where to play
5-year annualized TSR by sector (2013–2018), % Average
100 Min
Max
50
0
-50
-100
Healthcare Information Utilities Financials Consumer Industrials Consumer Telecommunication Materials Energy
Technology Staples Discretionary Services
Note: All US listed public companies with > 550M in annual sales. Sectors based on GKS definitions. Source: S&P Compustat and Capital IQ, BCG Henderson Institute
Exceptional performance becomes more important than the industry chosen
DEFYING THE AVERAGE IS Entering the 2020s, the importance of
defying the average is greater than ever.
MORE IMPORTANT THAN For one thing, the value of being excepti-
EVER onal has increased, for example, the dif-
ference in operating margin between the
Over time, markets become commoditi- top and bottom quartile companies within
zed: new competitors appear, products each industry has nearly doubled in the
become more standardized, and consu- past three decades. This is attributable in
mers become better educated to choose part to the rise of winner-take-all, plat-
between alternatives, forcing down prices form-based business models, which have
to marginal cost and returns on the cost of come to dominate the list of the world’s
capital. Strategy has always been about most valuable companies.
defying the powerful forces of commodi- It’s also a bad time to be merely average.
tization by being exceptional relative to In the long run, growth drives returns, but
other players in some respect, such as sca- growth rates have been trending down-
le, differentiation, speed, or capabilities. ward. Demographic trends will further slow
future growth in most major economies.
Some industries are more attractive than Even in acutely adverse circumstances,
others on average, but the spread of some companies compete and outper-
performance within industries is an order form. Our study of 5,000 US companies
of magnitude greater than that across across the last four economic downturns
industries. In other words, how to play showed that on average companies saw
(and being exceptional relative to your both revenue growth and profitability
peers) matters much more than where to decline. However, 14% improved their per-
play – and there is no such thing as a bad formance in both dimensions, gaining a
industry. clear advantage over their peers across all
industries.
3
Photo by Chris Liverani on Unsplash
MAINTAINING
OUTPERFORMANCE
REQUIRES CONTINUOUS
REINVENTION
Even if your company is beating the avera- In other words, what it takes to succeed to-
ge today, you can’t rely on momentum alo- morrow will be different from what it ta-
ne to guarantee future success. Business kes to succeed today; advantage needs
has become increasingly dynamic, driven to be constantly renewed. The traditional
by rapid technological and social change. metrics used to manage a business, such
As a result, past performance has become as sales, profitability and return on as-
a weaker indicator of future success and sets are backwards-looking and therefore
the ability to compete. less and less useful for indicating whether
a company is set up for future success.
According to our analysis, top companies
are falling faster: only 44% of industry lea- Regardless of their starting position, lea-
ders by operating income remain there ders need to manage their organizations’
five years later, down from 77% in the mid- vitality – the capacity to reinvent themsel-
20th century. Over the same time span, ves for the future – alongside running the
the rate at which companies drop out of business today.
the Fortune 100 has increased by 60%. In
periods longer than one year, there is now
no correlation between past and future
total shareholder returns.
4Photo by Arturo Castaneyra on Unsplash
HOW TO REINVENT YOUR
COMPANY FOR THE NEW
DECADE
Even if business leaders recognize the • Climate and other externalities will
need to continually reinvent their orga- bring the social contribution of busi-
nizations to compete, they still face the ness under further scrutiny;
question of what specifically it will take to
win in the next decade. Though we have • The combination of these forces will
no all-seeing crystal ball, many of the key produce uncertainty in many dimensi-
forces that will reshape business in the 20s ons.
are already in plain sight:
• Artificial intelligence will be increa-
singly adopted at scale;
• Technology will redefine the relations-
hips between companies, customers
and workers;
• Demographic headwinds will depress
long-term growth;
• The changing geopolitical power map
will continue to undermine existing in-
stitutions;
5Trends and challenges What it wil take to
of the `20s win the `20s
Compete
1
on Learning
Increased
Al adoption
Build a
2
New nature hybrid company
of work
Demographic Apply the
headwinds 3
Science of Change
Geopolitical
instability
4 Harness Diversity
Environmental
externalities
Protracted 5 Create Societal and Shareholder Value
uncertainty
Trends and challenges for companies in the 2020s, Image: Boston Consulting Group
These trends point to several competitive
imperatives that will apply broadly across
geographies and sectors and help compa-
nies defy the gravity of averageness in the
next decade:
• Compete on the rate of learning • Harness human diversity to increase
by integrating AI, data systems and the range of ideas, approaches and
other technologies; shaping and tap- capabilities within the organization,
ping into larger networks of collabora- thus creating advantages in both inno-
tors and pursuing dynamic advantage vation and resilience;
rather than static capabilities;
• Pursue social as well as economic
• Build a hybrid learning organization value by following a clear social purpo-
that combines the speed and pat- se and integrate social and ecological
tern-matching capabilities of algo- considerations into strategy to main-
rithms, the higher-order reasoning tain trust with all stakeholders and to
6 and imagination of humans, and new thrive in the long run.
management models that remove
the bottlenecks of hierarchical decisi- Regardless of where they play or their
on-making; track record, all businesses face the chal-
lenge of defying the average in the 2020s.
• Apply the science of change to build Leaders cannot rely on what has worked
capacity for continual reinvention, in the past; they must reinvent their strate-
which will be necessary in a faster-ch- gies, organizations, people and mindsets
anging environment; in order to be exceptional tomorrow.
6Quelle: Kyle Simmons on Unsplash
AUTHOR
Martin Reeves from Cambridge University and an MBA
Managing Director & Senior Partner from Cranfield School of Management.
Boston Consulting Group He also studied Japanese at Osaka Uni-
Chairman BCG Henderson Institute versity of Foreign Studies and biophysics at
the University of Tokyo.
Martin Reeves is a Managing Director &
Senior Partner in the San Francisco office
of BCG and Chairman of the BCG Hender-
son Institute, BCG’s think tank on business
strategy.
Mr Reeves is currently leading research on Source
winning the ‚20s, advantage in adversity, Originally published to World Economic
competing on imagination, corporate vita- Forum Agenda
lity, strategies for ecosystems, strategy and
artificial intelligence, diversity and perfor-
mance, innovation strategy and the huma- Contact:
nity of corporations. Götz Gerecke,
Managing Director & Senior Partner
Mr Reeves is also author of Your Strategy Boston Consulting Group AG
Needs a Strategy (HBR Press), which de- (Switzerland)
als with choosing and executing the right Bleicherweg 62, 8002 Zürich
approach in today’s complex and dynamic Email: gerecke.goetz@bcg.com
business environment. He holds a triple www.bcg.ch
first class MA degree in natural sciences
7gfm Löwenstrasse 55, 8001 Zürich Telefon +44 202 34 25 info@gfm.ch | www.gfm.ch
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