Spotting an inflection point

Is your entire business model under threat in a disruptive market? It’s time to consider the unthinkable…

Spotting an inflection point

Natalie Carrick, executive coach at leadership experts Black Isle Group, explains why CEOs need to spot their inflection point

Fast-moving developments in technology, political disruption and shifting sociological trends are combining to have a profound impact on how businesses work – and there has never been a more important time for CEOs to consider the unthinkable.

What is the unthinkable? Well, that is going to be different for every company, but it might include the possibility of a nose-dive in sales, even the loss of a strong market position; a requirement to totally change tack to meet new market needs, or a need to bring the enemy into the boardroom to explore new ways of operating. It might even include a key decision which determines whether the business adapts or dies.

What we are describing here is the ‘inflection point’ in the life of a business, the moment when the curve changes, a moment in time which marks the start of significant change which is necessary to avoid deterioration.

Far too often, this inflection point is only discussed retrospectively, when the business has already floundered or adapted, and is undertaking a review. But increasingly it is something leaders need to consider and predict far earlier.

Look at the current drivers for change in the business environment right now. The rise of populist and protectionist leaders in politics, the shadow of Brexit, the rise of new technology and a new Generation Z with a very different outlook.  Then add in global interest in environmental issues and climate change, plus a shift in the balance between east and west.

It is not a time to have your eyes closed or to be confident that a business model which has been successful for decades will not be disrupted.

It’s an era which requires a new style of leadership open to constant change, evolution and even revolution.

People who fail to see their inflection point in this VUCA world (Volatile, Uncertain, Complex and Ambiguous) are often inward-looking, not open to external views and unaware the world is changing. They don’t recognise the pace of change going on around them – and it can be costly. We’ve seen business almost disappear overnight because of it.

If you look back to phone manufacturer Nokia, they were the leaders in their field in the 1990s in a seemingly unassailable position in the handset market. But the company’s decline following the arrival of the iPhone was dramatic.

A study by INSEAD designed to understand the reasons for Nokia’s downfall pointed to cultural issues as the root cause. A culture of fear presided – fear of external competitors by senior leaders, whilst more junior managers felt unable to speak the truth to leaders. An unwillingness to accept that Nokia’s operating system could be inferior to Apple’s meant that short-term product development came at the expense of long-term innovation.

Look at Kodak, too, which had the photographic and film market wrapped up in its heyday before digital cameras disrupted the film market.

The irony, here, is that it was a Kodak engineer who invented the digital camera – as early as 1975. But the board decided to keep it quiet, seeing it as a threat to their camera film business rather than as a disruptive technology, which could completely transform the photographic environment.

By contrast, modern businesses such as Tesla are designed to disrupt and have shown an acute awareness of both market and cultural changes in the car industry. The company’s determination to focus on electric vehicles is not just changing the motor car but the entire transport industry – and allied to a greater public focus on fighting pollution and climate change is becoming a powerful proposition.

Not changing quickly enough, however, can be problematic. Deutsche Bank has changed its business model on numerous occasions in recent years in a bid to keep pace with the market, according to Forbes. [1] But failing to move quickly enough after the financial crisis – a moment which should have been its inflection point – meant it has always been playing catch-up.

Following a series of scandals which cost the bank almost 15 billion Euros, it announced its fourth reorganisation plan in three years in 2018, including a sharp reduction in the bank’s US securities trading operations and cutbacks in its investment banking activity to focus on more stable revenues instead.

It remains to be seen if Deutsche Bank has acted quickly enough, but there are plenty of examples of other businesses which failed to adapt and struggled as a result.

Think about IBM, for instance, a business which once commanded over 70% market share but which stopped making computers in the 1990s after being crushed by incumbents Microsoft and Apple.

Similarly, video rental giant Blockbuster, which famously passed up the chance to buy Netflix for $50 million in back in 2000 and has lived to regret it ever since.

These are the kind of examples which business leaders need to learn from because there is no doubt that the rapid rate of change in global markets means there will be similar stories to tell in future; and not even the biggest brands are safe.

So, what strategies can business leaders put in place to help them spot their inflection point early and keep pace with a disruptive market?

Here are ten tips for leaders to consider:

  1. Take steps to understand the current mindset of the business. Ask: What is the current culture and predominant way of thinking and behaving? This is something Nokia failed to do.
  2. Seek feedback from the market and always seek to balance introspection by looking outwards.
  3. Ask yourself ‘What is the direction of travel in the world and in market? What will the next generation do and how do they want to live?’
  4. Undertake regular market intelligence – curiosity is the key to business awareness.
  5. Remember if you are not open to change then you aren’t open to the truth, either.
  6. Be prepared to think differently and act differently if it’s needed.
  7. Seek opinion from those who are different. This might be a younger generation, a rival business, someone with the opposite point of view to you.
  8. Don’t be afraid to invite the enemy into the boardroom or consider alternative innovation practices if need be. The concept of open innovation for example used in the pharmaceutical industry has evolved in response to the need to accelerate the costly R&D process in the face of reduced profits as blockbuster drugs come off patent.
  9. Be aware of potential change in the market. Always ask the question ‘What if?’ Disrupt your own culture from time to time to prevent it becoming stagnant.
  10. Always be willing to listen to feedback from inside and outside your organisation.

 Business leaders who put this strategy in place will be more flexible, more open to change, more aware of disruption in the market and quicker to act when it really matters. Spotting an organisation’s inflection point before it arrives is not easy and may not always be possible. But preparing for constant evolution – and not ruling out the unthinkable – could still be the key to long-term survival.

Natalie Carrick
Natalie Carrick

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