Tomorrow’s Growth Champions

Every successful business starts with an act of imagination. But the most innovative companies are those that continually reimagine their potential—even if it means embracing radical shifts in strategy. And that relentless focus on the future typically pays off handsomely for investors. Three years ago, fortune teamed up with management consulting firm bcg to create the future 50, a system that analyzes dozens of factors to identify companies with the most robust long-term growth potential. The picks from each of the first three years have easily outpaced the market. Read on for this year’s ranking.

Finding Advantage in Adversity

BUSINESSES WITH THE MOST “VITALITY” THRIVE IN TIMES OF CRISIS AND BEYOND. AND IN THE FOURTH EDITION OF THE FUTURE 50 INDEX, WE USED OUR PROVEN FORMULA TO IDENTIFY GLOBAL COMPANIES BEST POSITIONED FOR GROWTH IN THE YEARS TO COME.

IN STABLE TIMES, sticking with a proven formu-la makes sense. For successful companies, it’s a good bet that the products and models that are working well today will continue to work in the future. But in volatile and uncertain times—when the need for resilience rises to the forefront—adapting to new circumstances and reinventing businesses become central challenges.

The events of 2020 have reminded us how quickly the pattern of challenge can change. When the COVID-19 pandemic first swept across the world, companies focused primarily on the immediate problems of how to maintain opera-tions and survive. But as time has passed, busi-ness leaders have shifted their attention back to longer time scales, such as what it will take to suc-ceed in the postcrisis future and how to rebuild their businesses accordingly.

Even before the pandemic, however, change and uncertainty were on the rise. That’s why BCG and Fortune created the Future 50 index together more than three years ago. We wanted to identify companies with the greatest capacity to contin-ually reinvent their businesses and sustain long-term growth—what we call corporate “vitality.” The past year has shown that vital companies don’t just survive adversity. They use it to create a competitive advantage.

A PROVEN FORMULA

This is the fourth annual edition of our Future 50 index, which assesses the long-term growth prospects of large public companies and iden-tifies who comes out on top. It is intended as a forward-looking companion to traditional busi-ness metrics, which generally show only what has happened in the past.

The index is based on two pillars: a “top-down” market-based assessment of a company’s poten-tial, and a “bottom-up” analysis of its capacity to deliver growth. For the bottom-up view, we have quantified and tested numerous theories about what drives long-term success across four dimen-sions (strategy, technology and investment, peo-ple, and structure), and we use machine learning to select and weight factors based on their empir-ical contribution to long-term growth.

Our analysis incorporates a wide range of fi-nancial and nonfinancial data sources. For ex-ample, we assess the growth and quality of each company’s patent portfolio as an indicator of technology advantage. And we define metrics for strategic orientation, such as long-term fo-cus and tendency to serve a broader purpose be-yond financial returns, based on natural language processing analysis of each company’s annual reports.

As we have done previously, we screen out companies that have sustained negative oper-ating cash flow, indicating businesses that are highly vulnerable to unfavorable disruptions. We have also stratified our ranking to account for companies that have elevated uncertainties, such as reputational risk or a discontinuity in the direction of the business.

Vitality operates over long time periods, so it will not always be reflected in immediate perfor-mance. In particular, one might have reasonably expected highly vital companies to struggle to deal with the COVID-19 crisis, given the short-term na-ture of the challenges involved. Yet our index has greatly outperformed the market amid the turbu-lence of 2020—the 50 companies we identified last year have produced a cumulative shareholder re-turn of 71% since publication, compared with 18% for the MSCI World stock index. This demonstrates that vitality is a critical part of sustaining success in bad times as well as good times.

A WINDOW TO THE FUTURE

Aggregate patterns in our ranking reveal clues about where vital companies are most likely to be found—and where trends have shifted.

The technology sector is well represented—more than 50% of Future 50 companies are in the IT, communications, or e-commerce indus-tries—but diverging patterns within the indus-try are visible. On one hand, the acceleration of trends such as digital transformation and online shopping are evident: Seven of our top 10 compa-nies are now B2B software businesses (including No. 1 ServiceNow), and several e-commerce com-panies across different regions joined this year’s list. On the other hand, many companies that digitally facilitate congregation in the physical world (such as travel or live events platforms) fell out of the ranking.

There has also been a clear shift toward health care, which increased from 12% of last year’s list to 22% this year. Some of these are companies that may directly see demand increase as a result of COVID-19 in areas such as ICU equipment or drug development. Others were hurt in the short term by the postponement of nonessential pro-cedures but still have strong long-term potential, especially in a world where consumers may be more health conscious.

Our ranking points to a bipolar global econo-my: More than 80% are based in North America or Greater China, in line with recent corporate growth patterns. Compared with last year’s ranking, North America has increased its share slightly (from 56% to 58%), while China’s share has fallen somewhat (from 32% to 24%). However, a deeper look shows that this divergence is like-ly driven by the dynamics of select companies and industries (such as real estate and premium liquor); when expanding our list to the top 200 companies, we find that the relative share of Chi-nese and U.S. companies is roughly unchanged from the prior year.

Our index once again demonstrates that di-versity is a key ingredient for long-term success. Diversity data is difficult to find publicly, but one consistently reported aspect is gender diversity. While still far from achieving true gender equal-ity, highly vital companies have more diverse executive teams than their peers—women rep-resent at least one-quarter of leaders at 50% of Future 50 companies, compared with 24% of others—and our analysis also shows that gen-der diversity among the entire employee base is a predictor of growth.

Finally, even though some segments are better positioned than others, highly vital companies can be found in all sectors and geographies: Our list spans five continents and includes not just tech giants but education, restaurants, and con-struction-materials companies. In other words, vitality can be achieved everywhere—and even amid a crisis, opportunity awaits companies that are willing and able to look to the future.

Martin Reeves is a senior partner at manage-ment consulting firm BCG and chairman of the BCG Henderson Institute. Kevin Whitaker is head of strategic analytics at the BCG Henderson Institute.