BCG Henderson Institute

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To thrive in today’s complex and dynamic business environment, preserving past positions and business models is not sufficient. Our previous research showed that large, established companies are increasingly vulnerable because of declining vitality—the capacity to explore new options, renew strategy, and grow sustainably.

Declining vitality is explained partly by the natural life cycle of companies: the growth rates that startups experience cannot be sustained forever. Still, among mature companies, there are significant differences in vitality and hence in their ability to grow. In the long run, the majority of returns for shareholders are necessarily driven by revenue growth. So the companies that maintain their vitality create more long-term value.

The Fortune Future: A Forward-Looking Index

Today, enterprise management is still largely informed by backward-looking financial indicators, with the implicit assumption that past success is predictive of future success. We might call this rearview management.

There is predictive power in historical data. But the high rates of change and uncertainty driven by evolving technology, business model innovation, and other factors make this assumption increasingly untenable. We need new metrics and approaches.

The Fortune Future index, the result of a two-year research effort to develop a way of measuring vitality, can help fill this gap. The index, which ranks US-listed companies by their ability to generate long-term revenue growth, is based on two pillars:

  1. Potential. This is measured as the implicit expectation of future growth from financial markets, through the present value of growth options (PVGO). It represents the proportion of market value that is not attributable to the earnings power of the existing assets and business model.
  2. Capacity to Deliver Potential. This comprises 14 factors, which were drawn from a larger group of variables tested and calibrated against historical data for their ability to predict long-term growth. These variables are grouped in four clusters: strategy, technology and investments, people, and structure.

The Index Leverages Novel Analytics

The capacity pillar extensively leverages nonfinancial data to create predictive insights that cannot be obtained from financial data alone. For instance, we developed a measure of technology advantage by analyzing investments in startups and comparing them to the activities of the best-performing VC funds.

Artificial intelligence techniques were also used to digest unstructured data and tease out predictive patterns: natural language processing (NLP) algorithms enabled us to assess whether the strategies expressed in annual reports reflect a vital approach with respect to clarity of intent, long-term orientation, and a new dimension, “biological thinking.” This last dimension represents management’s ability to embrace and leverage the uncertainty and complexity of business environments and address them with flexibility, adaptation, and mutualism.

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