The more successful you are, the more people want a chunk of your business, then another, etc., until there is nothing left. Grove believes that the prime responsibility of a manager is to guard constantly against other people's attacks and massage change - situations Grove calls 'Strategic Inflection Points' (SIPs). SIPs can be caused by technological change and/or competitors. In the mid-eighties, Japanese memory producers brought Intel to an inflection point that forced it out of memory chips in 1994, despite being profitable and growing about 30%/year, and into microprocessors. The microprocessor business then brought very difficult times to the classical mainframe industry and many others. That same year also brought an unexpected reaction to a very minor problem to its new Pentium chip - a division rounding error that occurred once every nine billion times. Intel mostly ignored the issue, replacing the chip only in situations in which it was likely the user would encounter the flaw. Then IBM (started using Intel in 1981) stopped shipments of all its Pentium-based computers. Ultimately, Intel replaced all Pentium chips and took a $475 million write-down, the equivalent of fiver years' of advertising for the Pentium or one-half years' R&D expenditures. Intel had failed to realize that its customer based had shifted from the computer manufacturers to the computer users. Intel also realized the old ways (work problems out between Intel and manufacturers' engineers) would no longer suffice - especially given its' 'Intel Inside' promotions.
Michael Porter's "Six Forces" are comprised of the power, vigor, and competence of existing competitors, complementors, customers, potential competitors, suppliers, and the possibility that what your business is doing can be done a different way). When a change in how some element of one's business is conducted becomes an order of magnitude (eg. 10X) larger than customary, you can lose control of your destiny. Some businesses will be stronger - those that respond quickly and appropriately, others will be weaker. However, nobody will ring a bell to call attention to the fact you are entering a transition. Most of the time, recognition takes place in stages - and could take a year or longer. How do you know the right moment to take appropriate action - you can't wait until you know with certainty.
The computer industry used to be vertically aligned. When a company developed its own chips, its own hardware, and its own software, all the parts would be made to work together seamlessly. However, once you bought into this proprietary arrangement, you were stuck with it. Customers tended to stay for a long time with the solution they chose in the first place, and competition for the first sale was ferocious. Then the microprocessor appeared - a 10X force came about because technology now permitted putting many chips onto a single chip and the same microprocessor could be used to produce all kinds of personal computers. The economics of mass production kicked in and PCs became an enormously attractive tool. In this new model, no one company had its own complete vertical package. Exactly when the inflection point occurred is hard to say. Compaq took advantage and became the fastest Fortune 500 company to reach $1 billion in revenue. IBM at first tried its old approach - selling its own computer chip (PS2) and operating system (OS2) in 1987. Failed - others did not want to support IBM the competitor.
Few of the top ten participants in the new horizontal computer industry rose from the ranks of the old vertical computer industry (IBM, DEC, Sperry Univac, Wang, NEC). Two lessons: The more successful a participants was in the old industry structure, the more threatened it is by change and the more reluctant to adopt to it. Second, whereas the cost to enter a given industry in the fact of well-entrenched participants can be very high, when the structure breaks, the cost to enter may become trivially small.
Grove thinks there's a general trend toward horizontally-based structures in many parts of industry and commerce. As an industry becomes more competitive, companies are forced to retreat to their strongholds and specialize to become world class in whatever segment they end up occupying. By virtue of the functional specialization that prevails, horizontal industries tend to be more cost-effective. It's harder to be best of class in several fields than in just one.
When a Wal-Mart moves into a small town, the environment changes for every retailer in that town - a "10X" factor has arrived. When the technology for sound in movies became popular, every silent actor/actress personally experienced the "10X" factor of technological change.' When container shipping revolutionized sea transportation, a "10X" factor reordered major ports around the world.
What would work against a Wal-Mart? Specialization has a good chance, so might redefining your business to provide an environment, rather than a product, that people value - eg. an independent bookstore that became a coffeehouse /with books.
When Steve Jobs cofounded Apple, he created an immensely successful, fully vertical personal computer company - they even attempted to develop their own applications. Upon leaving Apple in 1985, he set out to recreate the same success story - just better by combining its' own great-looking hardware and basic software into Next Computer. However, while working on this, Microsoft Windows arrived - not as good as the Mac or the Next interface, but cheap and able to work on inexpensive PCs available from hundreds of manufacturers. Jobs and his company had worked hard competing for years against what they thought was the competition - but the competition changed, they found themselves in the midst of a strategic inflection point, and Next went nowhere. Competitors offered what Jobs saw as 'a mess', but it was also a better value.
The breakup of AT&T is another 10X inflection point, as was deregulation of airlines and trucking firms and the introduction of charter schools.
Every day, it seems, leaders who have been with the company for most of their working lives announce their departure, usually as the company is struggling through a period that has the looks of a strategic inflection point. More often than not, these CEOs are replaced by someone from the outside. The people coming in have a crucial advantage - unlike the person who devoted his entire life to the company, the new managers come unencumbered by such emotional involvement and therefore are capable of applying an impersonal logic to the situation.
Actually, the word 'point' in SIP is a misnomer - it's more a long, torturous struggle. For Intel, exiting memories and /refocusing on microprocessors took three years.
A manager in a business that's undergoing a SIP is likely to experience a variation of the well-known stages of what individuals go through when dealing with a serous loss. Early SIP stages are fraught with loss of your company's preeminence in the industry, of a sense of control, of job security, and the loss of being affiliated with a winner. Denial is prevalent in the early stages of almost every SIP. Escape/diversion refers to the personal actions of the senior manager - they seem to plunge into what seem to be totally unrelated acquisitions and mergers, seemingly motivated by the need of senior management to occupy themselves with something they can justify spending their time on instead of figuring out how to cope with an impending strategically destructive force. Others involve themselves in feverish charitable fundraising, a lot of outside board activities. Most management will do too little too late - 'We shouldn't tinker with the golden goose.' Grove admits that, looking back, he never made a tough change that he didn't wish making a year or so earlier. Compaq was slow to act forcefully as the PC business turned into a lower-margin, commodity-like business.
Managers/leaders of transitioning companies need to redeploy assets and learn new ways. It takes all the energy in your organization to do a good job pursuing one strategic aim, especially in the face of aggressive and competent competition. Your employees and managers are probably demoralized, and may be against each other. You can only outrun those after you if you commit to a particular direction and go as fast as you can. No hedging. Clarity of direction, which describes what you are going after as well as describing what you will not be going after, is exceedingly important at the late stage of a strategic transformation. And, you must be a role model of the new strategy.
Give lots of speeches to employees and explain over and over what you're trying to achieve. CCTV won't work - interactivity is essential.
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Ya Kil
Strategic inflection point
Reviewed in the United Kingdom 🇬🇧 on March 13, 2022
Anonymous
One of the better business books
Reviewed in the United Kingdom 🇬🇧 on September 10, 2018
