How do top performers shape their businesses in crisis—and beyond?

By Ayon Banerjee, Amit Kumar, and Bhagyashree

“Never let a good crisis go to waste.” These words, attributed to Winston Churchill as a call to action during World War II to form the United Nations, have since been echoed by countless government officials. For business leaders facing the many unknowns of the COVID-19 pandemic and the seeming impossibility of planning in such a fluid environment, it’s good advice. Crises cause major shifts, and the COVID-19 crisis is no different. Most of us understand that there will be no return to the pre-COVID status quo, yet for many, the rapid change and vast uncertainty can be overwhelming. Inaction is not the answer.

Throughout history, we’ve seen that crisis can spark transformation and renewal. The success stories of crises past show that it not only makes sense to challenge norms and push the traditional bounds of what is possible—it’s a business imperative.

Companies that recognize opportunity in adversity and act on it without delay generate new ideas and innovations, while others struggle.

In the aftermath of the global financial crisis, a minority of companies worldwide did just that, across diverse industries, and went on to enjoy sustained superior performance. India’s 25 top performing companies since the 2008 global financial crisis demonstrate this possibility, and their industry diversity defies the notion that sector is destiny.

From Crisis Springs Opportunity—and Innovation

Crisis triggers shocks and permanent shifts in the socio-economic environment, but also fuels invention and innovation. The examples of invention and innovation that sprang from crisis is impressive and includes companies that have since become industry icons. (See Exhibit 1.)

Moreover, history shows that even within industries under stress, companies can beat the odds; in other words, sector does not define destiny. Analysis by BCG’s Henderson Institute of four recent downturns reveals that 14% of companies from across the industry spectrum managed to grow their top and bottom lines. (See Exhibit 2)

By the end of the previous year, 9 months into the COVID-19 crisis—the impact on total shareholder return (TSR) across all sectors had already started becoming marginally positive (+1%) versus the impact during the global financial crisis 9 months after it struck (-27%). And unlike the financial crisis, the COVID crisis has already fueled winners—in biopharma, medical technology, hospitals and healthcare providers, tech, telecom and fast-moving consumer goods. 

Certainly, despite its global and highly disruptive nature, the COVID-19 crisis is a health crisis, largely human-caused. While lockdowns, public policy, and new behaviors have decimated some industries, the crisis itself is not fundamentally economic—and thus hasn’t severely impeded consumer or business spending power to the same extent as the 2008 global financial crisis. Certainly, if the pandemic and public response drags on, it could begin to create deeper fissures in the economy, but for now it appears that the recovery timeline for the crisis should be more compressed. Businesses should therefore be able to emerge from the crisis faster, and with less of an uphill climb. 

Corporate Lessons from the Past Crisis

India’s top 25 performing companies clearly demonstrate the power of transformation and the possibility of thriving during and following crisis. To identify these top companies, we combed the S&P Global 1200 for companies founded before 2008 whose current market cap exceeds $1 billion. We evaluated their financial performance from January 2008 through December 31, 2019, looking at EBITDA and total shareholder return (TSR) with equal weight. (See Exhibit 3.) In that period, the average TSR of these companies increased by 2900 percentage points, versus the 200 percentage-point increase of the S&P India BMI Index. 

Notably, the top 25 performers come from a broad range of industries—including industrial goods, chemicals, consumer products, pharmaceuticals, and packaged foods—thus showing that in the longer term, a company’s individual transformation efforts supersede the sector performance. It is not enough to be in the right place at the right time.

During the crisis, the leaders of these companies faced the same challenges their competitors did. In fact, by the year 2008, the annual drop in the combined share price of all 25 was roughly 40%. However, due to their decisive response, they rebounded more quickly and robustly. 

Five Key Practices

Given COVID’s less profound impact on TSR thus far, along with the adaptations companies have already made in response, the worst may well be over. Growth and development should only increase from this point forward. But to capture growth and development, every individual company needs to act.

What can we learn from the 25 companies that surmounted the challenges of the past crisis to successful rebuild their business strategies and transform their businesses? Our analysis uncovered five key practices.

Move proactively. During the 2008 financial crisis, 80% of the S&P Global 1200 companies tended to be reactive rather than proactive, waiting until they were directly affected by the downturn before taking mitigating action. In contrast, the top performers beyond implementing immediate cost-saving initiatives, proactively invested in strategic acquisitions, applying the preemptive philosophy of “fix it before it breaks.” Deal-making and acquisitions are a key strategy of companies that seek opportunity in adversity, not the least because prices can be attractive and there are fewer buyers to compete with.

Tech giant Oracle, awash in cash before the global financial crisis, scooped up key investments at a discount following the financial crisis—a move that enabled the company to expand its portfolio and services. In 2010, it acquired Sun Microsystems, which was then struggling with low margins on its hardware products. This acquisition strategy enabled Oracle to round out its product suite, as well as to grow revenues year over year, from $18 billion in 2007 to just under $27 billion by 2010.

In 2008, Eicher Motors Limited (EML), a pioneer in India’s commercial vehicle and 2-wheeler industry (also parent to the legendary Royal Enfield brand of motorcycles), followed this same principle, albeit on a smaller scale. The company pursued a deal with Volvo Trucks — a venture that helped it raise capital and strengthen its position in India’s commercial vehicle market.

Streamline the organization. Top performers prepare their organizations for tough times by streamlining core operations, redesigning processes to capitalize on digital, and generating efficiencies so that they’re as lean as possible before crisis strikes. This forward-looking approach contrasts with the reactive approach many organizations take—cutting budgets and reducing headcount—moves that often leave them weaker and less able to withstand the ongoing pressures of adversity.

Versalis, the Italian chemical company, faced slack demand and rising competition from low-cost, government-owned Middle Eastern plants. These challenges were exacerbated by internal issues, such as a lack of product differentiation and lack of integration among facilities. Alongside deciding to sell off some plants and close others to raise capital, the company also reconfigured some plants for greater efficiency. Together these moves helped Versalis diversify its products and leverage its proprietary technologies—enabling it to return to profitability a year ahead of schedule.

Increase vitality. Given the volatility of business these days, no winning strategy lasts long. Despite already having a successful business model in place, the top performers in 2008 resisted the temptation to simply ride out the crisis. Instead, they increased their vitality: they enhanced their ability to explore new ideas, innovate, and renew their strategy in order to achieve sustainable long-term growth.

Amazon is a prime example of a company that has weathered the most severe downturns only to continue its remarkable growth trajectory. Following the 2008 financial crisis, Amazon transformed itself from bookseller to seller of almost anything that could be sold online. The next few years brought the most inspired innovations to date: Kindle, Amazon Echo (and Alexa), and Prime Video, which opened the door for Amazon to create its own video entertainment content.

Similarly, Whirlpool of India weathered the financial crisis with a phased strategy. Initially, the company focused on controlling costs, but then quickly pivoted towards generating new product lines and strengthen its leadership position in the refrigerator segment through continuous innovation.

Set a clear vision. Even as they seek new sources of growth, the top performers have had a clear, overarching vision based on a handful of enduring themes. For example, most companies invested heavily in expanding into new countries and digitizing their processes and customer interactions. The individual projects weren’t always successful, but the objectives remained steady, giving each organization clear points of focus.

The new generation of promoters at Ajanta Pharma pushed the company to abandon its legacy OTC drug business—a highly competitive marketplace dominated by big companies—and instead focus on the specialty generic drug market. With this vision, Ajanta forged a new business model aimed at creating specialty brands in four therapeutic areas. This focus gave the company a global orientation, while helping it cultivate the specialty pharma market in India. Ajanta eventually shifted around 70% of its portfolio to specialty drugs, most of which were launched (in a new formulation) for the first time in India.

Build Resilience. The top performers know it’s impossible to avoid future disruption. So, they cultivate organizational resilience, not simply to withstand such shocks, but also to anticipate them. Most of these companies have a well-developed scenario-planning function, and they hire talent with a wide range of backgrounds, giving them access to diverse skills and ideas to diversify businesses and products.

Consider Salesforce.com: the company survived the dotcom crash, even as many software companies succumbed, and then sailed through 2008 financial crisis with strong revenue growth. Two factors explain the company’s resilience. Salesforce has consistently won clients over, largely through its high-quality product releases. In addition, innovation is in the company’s DNA, a trait reflected in its reign among the Forbes’ list of ‘Most Innovative Companies’ continuously for several years over the past decade.

Get Ahead of the Pack: Refocus on Growth 

Like the companies that emerged as winners in the wake of the 2008 financial crisis, today’s top performers employed a phased strategy to achieve their goals: from managing through economic turbulence to stabilization, and then on to growth and ultimately accelerated growth. Moreover, while navigating each phase, they were thinking ahead to the next phases, devising strategies and action plans that helped them anticipate opportunities—and stay resilient.

Judging by the response—and as new vaccines begin to be rolled out—it is probably cautiously optimistic to say that the worst of the COVID-19 crisis is over, at least in economic terms. Economies will stabilize, and companies can once again focus on growth.

Those that have followed the five key practices described here have a starting advantage and are poised to emerge stronger. Instead of playing catch up, they are already innovating new products, processes, and ways of working—as they plow the savings gleaned from efficiencies into their future growth.

Will your company be among them?