Every so often in business there comes a change so fundamental that a company, even an industry, is wiped out in a spasm of creative destruction. The upheaval of the Industrial Revolution ended a world of small businesses in America. Decades later computers changed how we store and transmit information and enabled us to be more efficient and productive. Such change seems to be coming faster and faster these days.
I have never seen so many companies that once ruled the roost being knocked about, winding up as also-rans in their industries. Some icons of the Fortune 500 just a few years back are now case studies for business schools in what not to do when on top.
These thoughts came to me when I came across a book on my shelves recently. It's called Only the Paranoid Survive by Andrew Grove, chairman of Intel Corp., who writes about this phenomenon. His firm has survived in the incredibly competitive world of computer chip-making, and had to endure a radical change of its own in the mid-1980s, when Japanese memory producers undercut its business, forcing Intel into a new field of microprocessors, where it has thrived.
Grove has seen so many companies get hit by that kind of change and most are totally unprepared for it. He calls this phenomenon a "strategic inflection point" and says it is one of the many things that keep him up at night.
"The things I tend to be paranoid about vary," Grove writes. "I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off. And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better and cheaper, and displacing us with our customers. But these worries pale in comparison to how I feel about what I call strategic inflection points."
These events, he says, "are full-scale changes in the way business is being conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time even putting a finger on what has changed, yet you know something has."
Grove makes it very clear that unless a company or organization deals with a strategic inflection point right when it happens, it can turn into a deadly poison and destroy an organization. All of us have seen this happen virtually overnight.
For many companies, their management structure is such that they can't react in time to a strategic inflection point. They have too many bureaucrats more concerned with the status quo than with getting things done.
Other companies have their focus elsewhere so they don't see the new train coming. I have seen so many companies forget what business they are in, becoming enamored with the latest trend and ignoring their core business and their real constituency-their customers. Most of these companies fail at moving into whole new industries. Not all that long ago some hospitals tried investing in everything from the fast-food business to racetracks. They felt that because they could run hospitals well, they could run just about any other business they chose. They soon learned otherwise. In the end, it may have been a good thing because most hospital companies these days are trying to stay focused on their core businesses.
My field is not immune either. Many stellar magazines that dominated their markets in previous years have gone out of business because competitors have come in with new products and approaches that change the nature of the competition.
I've talked to a number of CEOs who have run businesses that didn't recognize the strategic inflection points in their markets. Most of them have been in healthcare and one or two in other businesses. Their take on why they missed the warning signs of strategic inflection points comes down to arrogance, stupidity and preoccupation. Too often when a company climbs to the top and dominates the market there is a proclivity to sit atop the mountain, enjoying the view and maybe even gloating. That's a blueprint for disaster.
It's up to the leaders of an organization to ensure that the company keeps exploring new products and services, new ways of making and selling them and new ways to keep ahead of the competition.
As Grove notes in his book, strategic inflection points are often a boon to established firms. "When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth."
Change is always stressful, but if you want to stay in the driver's seat of your industry or market, you must embrace it every day. And keep your eye out for new competition.
Never take anything for granted,