A term coined by Andrew Grove, former CEO of Intel to describe a dramatic change in competitive forces. At that time, the leaders must give up the past, see closely how the industry is evolving and find new ways of competing. This point of dramatic change in the industry is known as Strategic Inflection Point.
“a strategic inflection point is a time in the life of business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end” Andrew S. Grove, Only the Paranoid Survive.
For example, the arrival of containers marked a strategic inflection point in the shipping industry. The introduction of the IBM PC was a strategic inflection point in the computer industry. The emergence of large discount store chains like Walmart and Tesco may well turn out to be a strategic inflection point in the World retailing industry. The rise of virtual book stores like Amazon has also marked a point of severe discontinuity. The entry of low cost airlines like Southwest Airlines and Ryanair represents a strategic inflection point in the airline industry in US.
In his fascinating book, “Only the Paranoid Survive,” Grove calls a very large change in one of the competitive forces in an industry, a “10X” change, suggesting a sudden tenfold increase in the force. The business no longer responds to the company’s actions as it used to in the past. Put another way, a strategic inflection point marks a shift from the old ways of doing business to new ones.
Grove offers some useful insights to cope with the situation. When a technology break or other fundamental change comes their way, companies must grab it. Only the first mover has a true opportunity to gain time over its competitors. Companies must also show discipline by setting a price that the market will bear and then work hard to cut costs so that they can make money at that price. Cost plus pricing will not work in such cases.
“Strategic inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are full-scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time even putting a finger on what has changed, yet you know that something has. Let’s not mince words: A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.” Andrew S. Grove, Only the Paranoid Survive.
When is a change really a strategic inflection point? Most strategic inflection points, instead of coming in with a bang, appear slowly. They are often not clear until we can look at the events in retrospect. So how do we know whether a change signals a strategic inflection point? Grove suggests managers must ask a few basic questions. Are we no longer clear about who the key competitors are? Does the company that in past years mattered the most to us and our business seem less important today? Does it look like another company is about to eclipse them? Are people who for years have been very competent, suddenly becoming ineffective?
The best way of identifying a strategic inflection point is to engage in a broad and intensive debate, involving employees, people outside the company, customers and partners who not only have different areas of expertise but also have different interests. Such a debate can consume a lot of time and intellectual energy. It can also take courage to enter a debate the top management may lose, in which weaknesses may be exposed and the disapproval of people may be encountered.
External Links:
- Grove’s 1998 speech at the Acad emy of Man age ment meet ing in San Diego (Intel)
- Navigating Strategic Inflection Points (London Business School)