How businesses can see big changes coming ahead of time

Strategic inflection points—changes that alter the
taken-for-granted assumptions underlying a business model—can feel sudden. In
reality, however, they tend to build up slowly, gathering momentum until a transformative
shift becomes clear. Andy Grove, who coined the term, said it referred to
change that was 10 times more significant than a typical change encountered by
a business.

When these shifts occur, companies tend to fall into three
categories.

The first are those that have missed the inflection point
entirely. These firms often shrink or disappear. The Internet-fueled retail
apocalypse that is shuttering malls and bankrupting once-reliable stalwarts is
an example. Executives at many brick-and-mortar companies refused to believe how
many people would start buying online.

The second group comprises those that realize an inflection point is underway and place a huge, last-minute bet on catching the wave. This sometimes works; Adobe’s dramatic shift from selling shrink-wrapped software to software on a subscription-only basis is a stellar example. But this is the exception.

The BBC’s unfortunate effort to embrace the digital
revolution with a big-bang £98.4 million failed project called the Digital
Media Initiative is
more representative
. Though it was planned as if it was a business-as-usual
IT project, it was actually a major business model overhaul. It eventually collapsed,
a consequence of many unknowns coming out of the woodwork without an
appropriate governance structure to deal with them.

The third set of companies are ones that have placed a
number of small bets over time to position themselves to take advantage of shifts
when they happen. These investments are in effect options companies can
exercise once the new landscape is more clearly in view. For instance, Ecolab
has evolved over decades from a company that created a better way to clean
hotel carpets to one that is involved in multiple opportunities with clean
water management, taking advantage of the inflection point of increased demand
for environmental sustainability.

The difference between the second and third group is best
explained through an analogy. If you are driving along and you see an obstacle
way in advance, you can easily adjust your trajectory with a modest turn of the
steering wheel. But if you come upon an obstacle suddenly, it requires a huge,
sometimes risky, turn.

The challenge for senior leaders is: How do they prepare to
see an inflection point coming—so they don’t need to make a last-second turn?
And how do they bring the organization along into the post-inflection point
world?

Let’s start with the problem of seeing an inflection point
coming. Unless leaders have well-honed ways of challenging their assumptions,
it is very easy to fall prey to blind spots.

A useful way for leaders to gain perspective on their
assumptions is by using Clayton Christensen’s idea that companies are selling
“jobs” to be done. He argues that rather than thinking of customers buying
products and services, it is more helpful strategically to consider the
outcomes customers want; in effect, they are “hiring” products and services to
achieve those outcomes. What becomes clear when looking through this lens is
that outcomes can be achieved in many ways and do not always conform to
traditional industry boundaries.

Consider the milk business. Some jobs milk does include
quenching thirst as a beverage, softening the bitter taste of coffee, and accompanying
a bowl of cereal for breakfast. But each of those outcomes could be achieved in
some other way. In fact, dairy milk consumption in the U.S. is steadily dropping
(per the Economic Research Service) as people drink more bottled
water
, deploy plant-based alternatives such as coconut, almond, and oat
“milk” at the coffee shop, and opt for on-the-go and high-protein alternatives
to cereal. As a consequence, dairy producers are grappling with declining
demand while oat milk makers have struggled to keep their products in stock.

To anticipate these sorts of shifts, leaders need to spend
time at and learn from the edges of their organizations where changes are just
beginning to bubble up. A great example of this was when then-CEO Hubert Joly
gained inspiration for the turnaround of retailer Best Buy by spending two
weeks working in its stores. As he told me, the experience offered him insight
into employee frustrations, such as inventory systems that returned inaccurate
information about which items were in stock and low levels of training that
left them unable to adequately answer customer questions.

Having identified a coming shift, leaders can experiment with
ways to help their company take advantage of it. As they make these small bets
over time, they can increase their commitment and shift resources to those
areas in which new models are changing the status quo.For example, the
home advisor program Joly pioneered—to help customers figure out what
technology they might need and how it should be installed in their homes—started
out as a pilot program
in 2016 and was rolled out nationwide the following
year, according to the New York Times.

Joly also tried other things, including empowering employees
to offer in-store prices that matched those of e-commerce firms, restoring
popular employee discounts, and investing significantly in training for his
teams to understand entirely new categories of technology such as smart
security systems for homes and virtual reality headsets. These changes formed
the backbone of his Renew Blue plan that returned Best Buy to relevance.

In another example, Nike made a series of cumulatively
significant investments in its broader consumer offerings over time, eventually
making direct-to-consumer sales the centerpiece of its strategy.Nike’s
direct-to-consumer investments were designed to learn more about the changing
market, giving the company the ability to follow on with larger investments.

This model has experimental elements that can be traced back
for decades. In 1987, the company introduced the Nike Monitor, a
clunky device that runners would strap to their waists
that allowed them to
receive information about their distance, speed, and heart rate.  While the device had niche appeal, it failed
to catch on more broadly and was discontinued in 1989.

The release of Apple’s iPod in 2001 was a turning point for
Nike. By 2004, its engineers observed that most of the runners on the Nike
campus were wearing iPods as
they ran
, according to a 2009 article in Wired. This prompted a
collaboration between Apple and Nike that culminated in Nike+, a system that collected
workout information from runners as they exercised. This eventually evolved
into the NikePlus membership program, which as of 2018 had 140
million members
, according to CNN. 

This strategy allowed Nike to adjust to the
changing market. But it’s not enough to just see an inflection point coming.
You also need to be able to bring the organization with you. To accomplish
that, leaders can get the rest of the organization on board by connecting
organizational purpose to the changes necessary to work through an inflection
point. 

Consider Microsoft. CEO Satya Nadella in 2015 articulated
an updated purpose
: “To empower every person and every organization on
the planet to achieve more.” This symbolized a shift from a
product-centric strategy to a service-centric one, an environment where usage
and loyalty, not transactional purchases, were indicators of future success. Nadella
emphasized that going from a PC-based world to a cloud-based one was going to
require different capabilities. This would include the orchestration of
cross-platform approaches, formerly anathema to the company (former CEO Steve
Ballmer once
called Linux a “cancer,”
according to The Register). Focusing on
people allowed Nadella to initiate cultural change strategy for the company.

In a similar fashion, Arizona State University (ASU) president Michael Crow centered his
innovation strategy on shifting from a faculty-centric
to a student-centric culture
, in an effort to address the shortcomings of
higher education: exclusive admissions policies, poor student outcomes, and
skyrocketing costs. As he explained in an interview with Educause, while
one would think the faculty would fight such a change tooth and nail, Crow
essentially put them in charge of redesigning the stultifying legacy departmental
structures that characterize most universities. In his words, most of the
faculty found the new designs liberating, and ASU’s commitment to becoming a
more inclusive university inspiring.

While strategic inflection points are often regarded with a
sense of impending doom, they are problematic only if leaders ignore them. If leaders
make early, exploratory investments to understand inflection points as they
begin to gather force, their organizations can find rich opportunities for
growth.

Rita McGrath is a faculty member at Columbia Business School and author of Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen, which was published in 2019.

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