As we move past the one-year mark since the COVID-19 crisis first spread to businesses and markets around the globe, it’s clear that the competitive landscape has been significantly reshaped. New winners and new losers emerged in many industries, with the difference often explained by their responses to the pandemic and the new needs it created. What have we learned about what it takes to succeed in crises?
Some clues can be found in our Fortune Future 50 index, an annual research partnership between Fortune and the BCG Henderson Institute. The index identifies which large, public companies have the greatest vitality—the capacity to sustain long-run growth through continual innovation and reinvention. One might not have expected this capacity to be relevant amid the short-term challenges faced in a crisis. Yet amid the shocks of 2020, the Future 50 companies we identified in fall 2019, before COVID-19 had come to the fore, substantially outperformed.
A closer look at how they did it helps reveal what it takes to thrive amid shocks. When a crisis hits, companies can gain (or lose) advantage across three different stages: They can be less severely affected by the initial impact of the crisis; they can have a faster recovery; or they can even seize the crisis to improve on their pre-crisis position. In the first stage, when leaders were focused on minimizing the immediate impact, vital companies only slightly outperformed their peers. As the crisis continued, however, the focus shifted to the second and third stages, in which Future 50 companies significantly outperformed.
In the recovery stage, a key challenge was the need to react and adapt to stresses inflicted by the pandemic and restore functionality. Several traits demonstrated to correlate with long-term vitality, such as compositional diversity and structural agility, are also critical for learning and responding to changes. Perhaps because of those capabilities, Future 50 companies returned to pre-shock levels in 15 weeks, while the MSCI World stock index took more than six months.
For example, digital payments provider Square (No. 9 on the 2020 Future 50, published in December) suffered a dramatic decline in payments volume when the pandemic first hit. Foot traffic at small and medium-size in-store retailers, the core of Square’s merchant base, disappeared overnight, and the company lost more than half of its market value over three weeks. By mid-March, however, Square had launched a curbside pickup and delivery service and accelerated its online store offering to the extent that new weekly sign-ups began outpacing their point-of-service offering.
Highly vital companies were again significantly advantaged in the third stage of the crisis as tomorrow’s leaders began to solidify long-run competitive advantage by reimagining their businesses to capture the growth opportunities of a new post-crisis reality. One full year past the initial shock, the companies on the Future 50 list from 2019—published a few months before the pandemic put the global economy under pressure—have grown sales by an average of 13% while sales in the S&P 500 fell by nearly 5%. And though still early, the recently published 2020 Future 50 has experienced 9% year-over-year sales growth (or 42% on an annualized basis) in the quarter since publication, while the S&P 500 suffered a 0.5% decline in growth (–2% annualized) over the same period.
History has shown that wars, pandemics, and recessions are not just deviation from a trend but rather lead to fresh growth opportunities amid permanent shifts in society and business. For example, the SARS outbreak of 2003 is credited with accelerating the rise of e-commerce in mainland China. The COVID-19 crisis will also undoubtedly leave a lasting impact by permanently accelerating some long-term trends or causing new ones to emerge. To thrive sustainably, leaders must innovate and reinvent their businesses—in other words, they must demonstrate vitality—to identify the growth opportunities of tomorrow.
Consider online payments giant PayPal (No. 34 on the Future 50). Beyond meeting surging online transaction volumes brought on by lockdowns, PayPal has begun to reimagine its offerings for the growth opportunities of a post-crisis future. In response to the emerging consumer need for contactless in-store payments, the company announced a deal with CVS Pharmacy to add PayPal and Venmo QR codes to in-store checkouts across 8,200 stores—laying the groundwork for further diversification of its revenue stream in the future.
The COVID-19 crisis will not be the last disruption businesses face. Adaptation and reinvention will remain at the core of creating long-term competitive advantage. As F. Scott Fitzgerald noted, “Vitality shows in not only the ability to persist but the ability to start over.”
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