{"id":46,"date":"2019-12-29T15:49:13","date_gmt":"2019-12-29T15:49:13","guid":{"rendered":"http:\/\/juergenhthiel.de\/?p=46"},"modified":"2023-01-08T12:40:53","modified_gmt":"2023-01-08T12:40:53","slug":"the-strategic-inflection-point","status":"publish","type":"post","link":"https:\/\/jhtconsulting.de\/en\/the-strategic-inflection-point\/","title":{"rendered":"The strategic inflection point"},"content":{"rendered":"\n

Between 1990 and 1998 during my employment at Intel Corporation I had the chance to work under Andy Grove as CEO. Andy was certainly not an easy character and very demanding too. But aren’t all successful company leaders, who have continuously moved their companies forward, like this? One of Andy\u2019s favorite topics, which I do not only remember, but which has also strongly influenced my professional career until today, is the “Strategic Inflection Point”. Andy writes about it in his book “Only the Paranoid Survive”. Of course, you can ask yourself now, how significant all this is today, because this book is almost 25 years old. Today, companies are managed differently, there are new insights and new theories. However, I would like to counter this with the fact that in my whole professional career since I left university up to the present day I have repeatedly encountered this strategic inflection point with all its effects, in both a positive and negative sense. <\/p>\n\n\n\n

\"Andy
Paperback<\/a> or eBook<\/a><\/figcaption><\/figure><\/div>\n\n\n\n

What is a strategic Inflection point?<\/h4>\n\n\n\n

There are countless definitions and articles about the strategic inflection point. Just search for “Strategic Inflection Point” in Google, and you will be busy with this topic for the next few months. But to save you a bit of time, here is a definition that Andy Grove himself used in a speech in August 1998<\/a>: <\/p>\n\n\n\n

\u201cLet’s start with Strategic Inflection\nPoints. They represent, in my description of it, what happens to a business\nwhen a major change takes place in its competitive environment. A major change\ndue to introduction of new technologies. A major change due to the introduction\nof a different regulatory environment. The major change can be simply a change\nin the customers’ values, a change in what customers prefer. (\u2026) But what is\ncommon to all of them and what is key is that they require a fundamental change\nin business strategy, and that’s almost a definition of a Strategic Inflection\nPoint. A Strategic Inflection Point is that which causes you to make a\nfundamental change in business strategy. Nothing less is sufficient.\u201d<\/em><\/p>\n\n\n\n

Important here is the term “fundamental\nchange”. Because if the company does nothing, this usually has far-reaching\nconsequences, up to the disappearance of the company from the market\n(“Catastrophic Decline”). However, if the company does everything\nright, it will ideally see a solid growth curve again, just like before the strategic\ninflection point.<\/p>\n\n\n\n

\"The<\/figure><\/div>\n\n\n\n

The principle of the S-curves <\/h4>\n\n\n\n

The\nprinciple of the so-called S-curves has been used in innovation management for\nmany years and is the basis of many theories in the field of corporate\nstrategy. Theory is one side, the real world very often is the other one. But\nin this case, in my view, theory and reality are pretty much in line. There are\nopinions that a company can survive in the long term without significant growth\nand without changes or adjustments to its business strategy. I don’t believe in\nthis, because while working for various companies and even as a self-employed\nperson I have experienced all phases of this curve, with all its positive and\nunfortunately also negative effects. And at none of those companies I worked\nfor the curve was just horizontal for a significant time frame. To be fair,\nhowever, I have to say that I am referring primarily to the IT industry. There\nare certainly several companies in other, less innovation-driven industries\nthat can survive well in the longer term without significant growth and without\nmajor strategy changes. But if I think about it a bit longer, maybe in other\nindustries simply the cycles are longer. A good example here is the German\nautomotive industry these days, who is probably at a strategic inflection point\nafter a long time of continuous growth.<\/p>\n\n\n\n

Good and bad examples<\/h4>\n\n\n\n

Especially\nin the IT industry, there are countless examples which confirm the theory of\nthe strategic inflection point in a sometimes even frightening way. One of the\nbest-known examples is probably Nokia. When the Nokia management was still\ncelebrating the record year of 2007, still being the market leader for mobile\nphones, in the same year Apple already had started the success story of the\nsmartphone with the introduction of its first iPhone. This in turn was the\nbeginning of the end for Nokia as the top dog in the mobile phone market. Like\nmany others, I used one Nokia model after the other and it was unimaginable\nthat already after a relatively short time nobody would remember Nokia or its\nbrand. The younger generation doesn’t anyway. Here it was a new revolutionary\ntechnology that completely changed the market environment and customer\nbehavior. Apple generally in its history has (almost) always been very good at\nanticipating the strategic inflection point, often creating completely new\nmarkets in this process. Instead of fighting the competition in a “red ocean”,\nnew “blue oceans” have been discovered. iPod, iPhone and iPad are very\ngood examples for this. The father of success has always been Steve Jobs,\nanother charismatic leader like Andy Grove. When Apple pushed him out, things\ndidn’t really move forward any longer and later even went downhill. When he\ncame back, he made Apple what it is today. His quote “There is one more\nthing…” for me still stands as the symbol of a new strategic inflection point\nfor Apple and very often for the whole industry. I personally think that Apple\nis again on the verge of a strategic inflection point. Unfortunately, Steve\nJobs cannot be brought back into the company this time and it will be\ninteresting to see how things continue there.<\/p>\n\n\n\n

Leading the organizational change <\/h4>\n\n\n\n

However,\na new idea, a new product or the development of a new market alone is not\nenough. Almost always, a change in business strategy is accompanied by profound\nchanges in the organization of the company. This is no longer such a drastic\nevent for companies like Intel or Apple, as they have already gone through such\ncycles several times. But even in those companies that have been on the market\nfor a longer period of time, changes in strategy usually result in changes in\nthe organization that no longer suit one or the other employee and ultimately\ncause him or her to leave. Unfortunately, this is very often seen then exclusively\nas a negative trend. I see it quite differently. Every era of a company has its\nprotagonists, just like a football team. When a new era comes, it needs a few\nnew players. Joachim L\u00f6w, the coach of the German national soccer team, was\ncriticized a lot for excluding a few of the \u201cold\u201d players. But also here a big change\nis happening. After all, many of the 2014 world champions were also those who,\njust four years later, failed so miserably already in the preliminary round.\nL\u00f6w had finally recognized this strategic inflection point. Perhaps a little\nlate, but not too late. I know that this comparison could be a bit misleading,\nbut in my view it describes quite well what the problem is in companies that\nalso have to reposition themselves. In these situations, companies first of all\nneed experienced managers to accompany and lead the change. The goal must\nalways be to take most of the organization with you, but perhaps not everybody.\nAnd you must also be open to bringing in new expertise and new talent from the outside.<\/p>\n\n\n\n

There is always a first time<\/h4>\n\n\n\n

Such processes are always most painful for start-up companies that have developed and grown rapidly, and which never have seen anything else than this rapid growth. They have launched a product, accidentally or even planned, that hits the market like a bomb. Growth rates of 50% and more per year let the management focus almost exclusively on managing this growth. That means you are actually always running behind in meeting the rising demand. This usually leaves little or no time to think about the future. Why should you? Everything is going just fantastic. Until you suddenly notice that all growth flattens out at some point and eventually comes to an end. The earlier you recognize this trend, the more time you have to tackle and plan the necessary changes. The longer you wait, the more painful it will be or, in the worst case, even impossible. Suddenly you realize that your own success has also brought your competitors to the scene, who want a piece of the pie and may be just about to bypass you, as they can already offer a better solution to the problem you have originally identified. Further developments were put on the back burner, as you were more than busy serving the customers with the product that was selling so well. It is also easy to forget that a market is not infinitely large. Initially there is the low hanging fruit, which can be picked without much effort. But then you have to stretch yourself more and more to harvest the other fruit further up the tree. That means the effort needs to be much bigger for the same result. Or the other way around, with the same effort you get much less and sooner or later nothing at all. But then you might be already on the “Catastrophic Decline”. <\/p>\n\n\n\n

Avoid the catastrophic decline<\/h4>\n\n\n\n

In order not to let it get to that point, you must adjust your strategy early enough. Short term you can do the following:<\/p>\n\n\n\n