How businesses can see big changes coming ahead of time

January 18, 2020, 12:00 PM UTC
Cartons of vegan dairy-free oat milk are seen in a branch of the Planet Organic healthfood store on January 03, 2020 in London, England.
LONDON, ENGLAND - JANUARY 03: Cartons of vegan dairy-free oat milk are seen in a branch of the Planet Organic healthfood store on January 03, 2020 in London, England. Veganuary, a campaign launched in the UK in 2014, encourages people to "try vegan for January and beyond." The campaign organizers said that more than 250,000 people pledged to go Vegan last year, up from 160,000 the year before. Veganism and vegetarianism are on the rise in the UK, with consumers citing a variety of reasons, from personal health to environmental concerns. (Photo by Leon Neal/Getty Images)
Leon Neal—Getty Images

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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