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The Intel Corporation in California, US, became the world’s largest computer-chip maker under Andy Grove’s leadership. He encouraged employees to bring him bad news.
such a moment a “strategic inflection point.” This is not necessarily a single point in time, but it is usually accompanied by a noticeable period of unrest within the organization. It may be initiated by changes in the external environment, or by new competition, and senior managers are often among the last to notice what is happening.
Intel’s first strategic inflection point came when Japanese companies began to produce better- quality, lower-cost memory chips than US companies in the 1980s. It took Grove three years and huge losses to realize that only through rethinking and repositioning could Intel again become a market leader. 10X change
In the 1970s, US professor Michael Porter summarized five competitive forces that face companies:
competition, substitute products, new entrants, suppliers, and buyers. Grove added a sixth force:
complementary products. This is the impact of other businesses that sell a product or service that
complement a company’s own product or service by adding value to mutual customers; for example, software products complement those produced by computer hardware manufacturers.
Grove describes all these forces as “a steady wind,” but if one force becomes ten times stronger it acts more like a typhoon. Leaders have
to be alert to such major change—a “10X” change—because it requires a fundamental change in strategy. Depending on the actions leaders take at this point, the change can either take the organization to new heights or send it spiraling down into oblivion. The important thing for leaders is to discern between expected change and profound change, when the balance of forces shifts from old to new.
In his book, Grove uses the example of the growth of the Internet. The Internet was a “10X” change for every company, but some failed to recognize its force or were complacent and did not take action to exploit it. Many companies in the book industry were guilty of these failures—even those who had been extremely ❯❯
See also: Reinventing and adapting 52–57 ■ Changing the game 92–99 ■ Hubris and nemesis 100–03 ■ Learning from failure 164–65 ■ Porter’s five forces 212–15 ■ Coping with chaos 220–21 ■ Forecasting 278–79 ■ Feedback and innovation 312–13
WORKING WITH A VISION
A strategic inflection point is the point at which a major change (such as the arrival of the Internet) takes place in the competitive environment. If the company recognizes it and adjusts, the company may soar; if it
ignores the change, the company will decline. Business goes on to new heights
Business declines The arrival of new
technology, new industry regulations, or a change in customer values or preferences
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proactive. In 1974, US company Barnes & Noble was the first bookseller to advertise on television, in 1975 it was the first to discount books, and in 1989 it opened a “book superstore.” Its innovations helped it to hold a large share of the retail market. By 1995 it had 358 book superstores—but by 1996, the Internet had changed everything. Amazon—a master at Internet selling—suddenly outstripped it in sales and market valuation. Staying alert
Points of sizable change are hard to spot, so executives must constantly scan the horizon, like a ship’s watchmen looking for an iceberg that could sink the business. Companies today use many different approaches to monitor the competition and market. Typically, a large organization employs a team of people to scrutinize the company’s sales, compare them to
the competition, and analyze market
trends. They may also have a team responsible for risk management, which covers far more than operational risks (such as safety). In recent times, such teams tend to monitor far-reaching global concerns, including weather extremes resulting from climate change, political change, and human-rights issues.
Successful negotiation of change relies not just on scanning the environment, but also making sense of the incoming information. Senior executives need to be particularly wary of understanding events and making decisions based solely on data or past events. In The Black
Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb
explains how individuals,
businesses, and governments place too much weight on the odds that past events will be repeated. Forecasting the future from the past ignores the fact that the future holds different possibilities, as yet unseen. For example, if you have only ever seen white swans, you might assume that all swans are
AVOIDING COMPLACENCY
white; unless you traveled to Australia and chanced upon a black swan. Taleb used the metaphor of the black swan to discuss major scientific discoveries and historical events. These “black swan events” combine low predictability and high impact. Examples include the 9/11 terrorist attacks in the US and the stock market crash of 1987. Taleb states that companies can never predict black swan events, but they do need to build robustness against potential negative eventualities, and be ready to exploit positive ones. Listening to the front line Grove claimed that business data (like white swans) is relevant only to the company’s past, and cannot be used to predict the future. He suggests that when searching for clues about how to deal with the future, executives should look elsewhere, such as scrutinizing any misalignment between the company’s strategy statements and its strategy actions. What is the difference between what the company says it is planning to do,
Black swans are rare but they do exist, which comes as something of a surprise to people who have only seen white ones. This demonstrates the error of basing predictions on past experiences.