By: Andy Grove

  LISTEN

  READ

Andy Grove led Intel during some of its most exciting and tumultuous times.

He was able to lead the company successfully in what was one of the most competitive industries on the planet at the time, and during a period when he was forced to deal with the fact that his competitors were out manoeuvring him.

His experience navigating that crazy period led him to create a series of concepts and tools that will help you "stay paranoid" in all the right ways.

No matter what industry you are in, someone, some company, or some event is going to come along and upend your market. You just don't know when.

It's your job as a leader to spot those times coming before they arrive, so you can respond before it's too late.

Strategic Inflection Points

A strategic inflection point is a time where there are fundamental changes in the way a business or market operates.

It's either a company defining opportunity or disaster, and how you handle it ultimately defines your destiny.

However, nobody is hitting you over the head with the warning signs of an impending inflection point, and giving you a road map on how to deal with it.

As Grove points out, the more successful you are, the more people want a piece of your market, and then another piece, until one day there is nothing left.

The prime responsibility of a manager, he says, is to constantly guard against these attacks.

In 1994, Intel had revenues of over $10 billion, based largely on the success of two products: first it was memory chips, and later it was microprocessors.

When it first released a version of their chip they called Pentium, there was a problem which would cause it to make a rounding error once in every 9 billion calculations. This would result in the average person running into a problem once every 27,000 years. Not a big issue, they determined.

But customers didn't agree, and rather than call the company they actually bought their computer from, they started calling Intel, forcing them to eventually replace the faulty chips to the tune of $425 million.

When they reflected on this, the executives at Intel had realised that something big had changed - the idea that they would be forced to foot a bill for almost half a billion dollars in rework never crossed their mind.

From that day forward they vowed to take charge of their future by understanding the market forces they operated in at a much deeper level.

What does a market disruption look like? Groves gives the example of the computer industry in the 1980s vs the 1990s.

In the '80s, the computer industry was vertically integrated. The big players in the space like IBM and Wang did everything on their own: they created the computers, software, and chips, and owned the entire sales process.

However, in the 90s, all of that changed. The microprocessor and the mainstream acceptance of the PC turned the industry into a horizontally integrated one. Retailers started handling sales and distribution, other companies started specialising in software and operating systems (Microsoft), and others started handling chip production.

The market was completely upended, and almost none of the old guard was prepared.

A more recent example would be the Blockbuster vs. Netflix story that I'm sure you've heard many times before.

The Six Forces and 10X Changes

How do you know when you are at a strategic inflection point? It's when there's been a very large change in one of the six major market forces.

The Six Forces

Michael Porter from Harvard created his now famous "five forces" in 1979, which helps analyse the factors that can impact the business environment your company operates in.

1. Competition. This is the most obvious force, and has you focus on your competitors. How many are there? What are their strengths and weaknesses? The stronger the competition, the more change they are likely to force in the marketplace.
2. Suppliers. How many are there? Are they specialised or commoditised? Are they readily available, better, or cheaper alternatives? The more power your suppliers have over the market, the more control they have over your future.
3. Customers. How many are there in the market? How much money are they spending? Are your customers strong enough to dictate pricing and terms? In general, the more customers you have, the more power you have.
4. Potential competitors. Your competitors tomorrow will be different than your competitors today. What if a very large, well funded company decided tomorrow that they wanted to compete in your market? What could you do to survive?
5. Substitution. How easy would it be to find alternatives to what you offer? Grove finds that this is the most deadly force of all. If new technology upsets the old order, they can very quickly disrupt an entire market.

To those five forces, Groves adds a sixth:

1. Complementers. These are companies that work together with your products or services. For instance, computers need software, and software needs computers. If one day one of your complementers decides to start offering the same thing as you, and is successful at it, disruption in coming.

10 X Changes

Not all changes qualify as a strategic inflection point. Groves points out the difference between waves and a tsunami, and understanding the difference is important.

If the market forces become very large in any of the six areas, Groves calls that a 10X change, because the force got many times larger than it was just a short period ago.

Distinguishing Between Signal and Noise

It's important to make the distinction between what might be an actual inflection point with something that just looks like one.

That's because the action required to respond once you find a real strategic inflection point will require the focus and determination of your entire organisation.

Helpful Questions

Here are some questions you can ask to figure this out.

Is your key competitor about to change?

First, figure out who your key competitor is by using the "silver bullet test," which asks you (hypothetically, of course) which competitor you'd like to put out of business if you only had one bullet.

The first time you ask this question, it's likely everybody on your senior leadership team would agree. When some people on your team start using their proverbial bullets on other competitors, it's time to start paying attention.

Is your key complementer about to change?

Similarly, do complementers that mattered most to you in the past seem less important today? If it looks like other companies are about to take them over in the market, it's a sign of shifting market dynamics. Pay attention.

Do people around you seem to be "losing it?"

If the people you're surrounded with seem to no longer be connected to what really matters, it's time to start paying attention. That's because you've chosen your leadership team based on their skill at dealing with a particular industry at a particular time.

Also, keep in mind that it's entirely possible that you are the one who isn't "getting it."

Regardless of whether it's you or your team, if confusion starts to set in, you probably need to pay close attention to what's changing around you.

Listen to Your People

No matter how talented you are at seeing change coming, it's always harder to see it coming from the corner office.

That's why it's critical to listen to the people around you, especially two kinds of people.

Helpful Cassandras

Cassandra was the priestess who predicted the fall of Troy. Some people have a knack for seeing change coming, and will cry out a warning when they do.

Sometimes these types of people are brushed off as negative influences, but you should nurture them in your organization because they will often see the changes coming a long time before anybody else does.

Front Line Workers

The people who are closest to your customers - usually customer service or sales reps - will see the changes coming before you do. Make sure to listen to their feedback and encourage them to bring you news - good or bad.

Dealing With Chaos

Once you determine that you are approaching a strategic inflection point, it's time to start dealing with it.

These inflection points feel a lot like chaos, and you need to be prepared to deal with it.

What works best looks a lot like a dance between letting chaos reign, and reigning the chaos in.

Letting Chaos Reign

Success creates inertia. This was certainly true at Intel during the 1980s, as it is in any large company that has gotten fat on years of market dominance and profits.

Your senior leadership will be happy to continue with the playbook that has worked, and will resist any changes to what they believe will always work.

That's why you should encourage your company to start experimenting wth new directions while your revenues and profits are strong.

To those running the current playbooks, this will feel like chaos. However, it's more like your insurance policy against an impending inflection point.

You should start this process as soon as you are convinced an inflection point is coming.

Reigning Chaos In

For most of the people in the company, it will look like you are staring into the valley of death. The old way isn't working, people are running in a million directions, and there's no clear path to making it across to the other side.

Once you are clear on which experiments have been working and which ones haven't, it's time to make a decision on a direction forward.

Your first task is to get clear on what your company should look like on the other side. It needs to be clear enough to visualise, and crisp enough to communicate it clearly to your tired and confused staff.

For Intel, the way forward was making the switch from memory into microprocessors, and aligning the entire organisation towards that end.

To that end, Groves and his team came up with the slogan "Intel, the microcomputer company."

Next, you need to actively redeploy your resources by taking strategic action. You have to time the shift so that you are not too early, or too late, to take advantage of the inflection point.

There are two sides to redeployment coin. On one side, you are pointing energy and resources into the new direction, which is exciting. However, that also means that you are shutting down resources in other areas, so you need to be disciplined and focused throughout the entire process.

It takes every ounce of energy in your organisation to pursue one strategic aim, especially in the face of aggressive competition.

Yes, if you are wrong, you will die. But as Grove points out, most companies don't die because they are wrong, they die because the don't commit themselves to a single direction.

The greatest danger in an inflection point is standing still.

Career Inflection Points

Just like companies find themselves at inflection points, you are almost certainly going to find yourself in the middle of them during your career.

As Grove points out, your career is your business. You own it as a sole proprietor, and you have one employee - yourself.

And just like a business, you have to be aware of the market around you, and be ready to take action when a 10X change comes knocking on your door.

Mimic the advice that Grove gives to businesses for yourself. For instance, enlist your family and friends as your own personal Cassandras, helping you see a shift coming where you might not be able to.

Prepare yourself to take decisive action when it becomes clear that you are staring at a strategic inflection point - almost nobody regrets making a change after the fact, but many people regret taking so long to make it.

And during the transition, you might need to pick up a second job to get experience in a new field, or go to night school to acquire the new skills you'll need in order to get hired.

The key, Grove says, is to always be experimenting so that when change comes, you are ready to act, leaving behind those who are not prepared, or who are not willing to take decisive action.