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Strategy has always been about defying averages — doing something exceptional that earns a company correspondingly exceptional rewards in the market. Today, that is still true, but the relentless churn and volatility in the business environment mean that simply outperforming the average is not enough. Rather, the true test of leadership is continuing to outperform over time.
We recently studied the performance trajectories of 22,000 companies over the last four decades. The results show that across a wide range of metrics, strong performance has become far less sustainable than in the past. Companies that manage to beat the average for their industry must now struggle much harder to maintain their leading position.
Of the companies that significantly outperformed their sector average, our analysis found that just 17% were also able to maintain that performance advantage over the following five years. These companies — including organizations like Apple and Alphabet — continually find new sources of competitive advantage by reinventing their businesses and adapting to evolving market conditions. Their example offers lessons for leadership teams trying to fight the relentless pull to the mean.
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Beating the Average Is Hard. Staying There Is Harder.
In the past, companies could often get along by being average and riding along with overall economic expansion. But that has long since ceased to be the case.1 Long-run economic growth has already declined in many countries, and demographic trends point to a further deceleration to come. In addition, the pace of globalization is slowing, and policy makers are reaching the limits of conventional economic stimulus measures, further threatening corporate growth and financial returns.2
As companies find it harder than ever to beat the average for their sector, they face the second, even more daunting challenge of maintaining their lead. Consider that the rate at which companies fall out of the Fortune 100 has increased by 60% in the last half-century. Many company leaders already sense the increased churn and volatility. We took a hard look at the numbers to quantify this intuition.
Measuring the Persistence of Performance
We recently studied the relative performance of 22,000 companies, looking specifically at how they compete within their sector and how long top performers can remain at the top. In other words, our goal was to measure the persistence of performance.
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1. H-P. Bürkner, M. Reeves, H. Lotan, et al., “A Bad Time to Be Average,” Boston Consulting Group, July 22, 2019, www.bcg.com.
2. P. Carlsson-Szlezak and P. Swartz, “An Economic History of Now,” Bernstein U.S. Economics (a subscriber-only publication), November 2018.
3. Our analysis included all U.S.-listed companies with at least $50 million in inflation-adjusted revenue in any given year; top-quintile performers were identified based on average performance over the prior five years compared to the sector median.
4. M. Reeves, C. Love, and P. Tillmanns, “Your Strategy Needs a Strategy,” Boston Consulting Group, Oct. 16, 2012, www.bcg.com.
5. R. Kimura, M. Reeves, and K. Whitaker, “The New Logic of Competition,” Boston Consulting Group, March 22, 2019, www.bcg.com.
6. M. Reeves, G. Hansell, K. Whitaker, et al., “The Global Landscape of Corporate Vitality,” Boston Consulting Group, Oct. 18, 2018, www.bcg.com.
7. M. Reeves, L. Faeste, F. Hassan, et al., “Preemptive Transformation: Fix It Before It Breaks,” Boston Consulting Group, Aug. 17, 2018, www.bcg.com.
8. E. Kim, “Jeff Bezos to Employees: ‘One day, Amazon Will Fail,’ but Our Job Is to Delay It as Long as Possible,” CNBC.com, Nov. 15, 2018, www.cnbc.com.
9. M. Reeves, G. Hansell, K. Whitaker, et al., “Achieving Vitality in Turbulent Times,” Boston Consulting Group, Oct. 21, 2019, www.bcg.com.
10. M. Reeves and K. Whitaker, “Competing on the Rate of Learning,” Boston Consulting Group, Aug. 24, 2018, www.bcg.com.