The idea of corporate vitality was developed by Reeves, Whitaker, Hansell, and Deegan of the Boston Consulting Group’s BCG Henderson Institute in partnership with Fortune magazine. The purpose was to develop an index for understanding and quantifying the predictive factors of the future growth of publicly traded companies. The study’s premise was that, with the aging of the population, sustainable corporate growth is becoming more challenging. This index was called “Future 50.”
But what is corporate vitality after all?
We can explain corporate vitality as being a company’s ability to identify and explore new business alternatives, renew its strategy, and grow in a sustainable manner.
When thinking about corporate vitality, traditional metrics such as growth in revenue, market share, and profitability should be left aside. These indicators tell us a lot about the company’s past performance, but very little about its future performance. What is needed to achieve future performance is different from what was needed to achieve performance in the past.
The index used to measure corporate vitality is based on machine learning methods to select and calibrate predictive factors based on their empirical relationship to long-term growth. Using comprehensive data sources, the metrics are organized, according to the authors, into five building blocks: market potential, strategy, technology and investment, people, and structure (see Figure 1).
The methodology made it possible to identify and measure oft-neglected factors. For example, through a natural language processing analysis of SEC annual files and reports, the authors observed an increase in vitality among companies that adopt a long-term strategic orientation, serve a broad purpose in society, and adopt an approach that encompasses business uncertainty and complexity. They also examined diversity at all levels of the organization and found that diverse workforces are more vital, confirming previous findings. Analyzing various performance dimensions, they found that attending to social issues is important for generating sustainable, long-term value. A diverse workforce has the greatest potential to innovate and reinvent.
The authors conclude by stating that in order to increase vitality it is important to compete on the basis of imagination, which requires continuously developing opportunities for future growth.
According to Reeves, Whitaker, Hansell, and Deegan, a revitalization effort can start with simple measures like avoiding top-down strategies and focusing on a firm’s purpose performance in ecosystems, rather than only financial maximization. One good idea may be to incorporate into the KPI portfolio indicators for the percentage of sales from new products, services, and ideas.
Change and uncertainty will outlive the current crisis. By developing the capacity for innovation and reinvention, companies can enjoy the sustainable benefits of corporate vitality.