Change doesn’t happen all at once—it just feels that way. Strategic inflection points are usually the culmination of a long, slow process of gestation. This means that it is possible for organizations to take advantage, if you’re able to spot them early enough. That means paying closer attention to the edges of your organization, and the places where the future has already arrived. From there, it’s possible to use a methodology like discovery-driven planning to respond learn from and respond to signals incrementally, without over-committing to change too early. Doing so creates significant advantages for those organizations who are able to overcome internal siloed and bureaucratic barriers to adapt to the changing future rather than react to it.
A strategic inflection point disrupts the underlying assumptions of a business or industry
A strategic inflection point is the moment when a business’s fundamentals shift, calling into question the basic assumptions that structure its relationship to its environment. Strategic inflection points feel as though they happen all at once, but usually gestate over longer periods of time. If you are able to spot the signs of a coming inflection point, it may be a gift. It can create new opportunities and open up new possibilities for those who are able to capitalize on it. Companies that respond well to inflection points aren’t forced to rapidly restructure themselves.
Those companies that spot inflection points too late stall, and are forced to rapidly reorganize themselves. If their response doesn’t work out, they can fail altogether.
Strategic inflection points develop across four stages: hype, dismissal, emergence, and maturity. In the hype state, the change is loudly proclaimed, creating a bubble driven by “true believers.” Then the bubble bursts when those first actors underestimate the collective consequences of their actions. This provokes widespread dismissal of the trend. However, a handful of entrants survive and build the foundation of the future. This is where the greatest opportunity lies.
Subsequently, in the emergent phase, stable players recognize how the world is changing due to the inflection point. The shift reaches maturity and is absorbed into the everyday assumptions of the organization. Those organizations who were able to adjust at the right time thrive at the expense of those who were not.
Spot inflection points first at the periphery
Because strategic inflection points transform the fundamental assumptions under which a business operates, it can be difficult for organizations to fathom the new possibilities that they create. The signs of an inflection point begin on the fringes; only those who are directly in contact with the signs will be able to identify them. It’s important to have an apparatus for identifying them early.
Organizations and their leaders can easily become prisoners of their own frames of reference. To spot inflection points early, they need to embrace diverse points of view and modes of thinking. Organizations need to find ways to speak with the future(s). They must identify the places and people who represent the strategic shift and learn from their perspectives. Direct exposure to actual customers is the best way to help organizations identify the early signs of strategic inflection points. Nevertheless, organizations need to enable the flow of information from those on the periphery back to the center.
This can be uncomfortable. In many cases, business incentives make people reluctant to share uncomfortable lessons; this creates blind spots and allows problems to fester. Organizations should protect their bearers of bad news.
Warning signs of strategic inflection points—once identified—should become a topic of discussion at management review meetings.
Identify weak links in the value chain
The early stages of inflection points are rife with uncertainty. The contain multitudes of possibilities. It takes time for them to coalesce into a coherent ecosystem. But, many organizations live too long in denial about change. The earlier an inflection point is spotted, the more easily a strategy can be created to tackle it.
Organizations should begin by considering the pool of resources they most heavily rely on and asking who else may make a play for them, even (or especially) if they don’t look like direct competitors.
Some organizations rely on “tolerable” attributes—basic features that customers put up with, but view negatively. Customers will put up with these, but only until a viable alternative presents itself. Then, what was once tolerable may become a dissatisfier, or worse. Often, customers aren’t even able to articulate these points; they simply put up with them or unconsciously rely on workarounds. These friction points are the places most vulnerable to inflection points. Understanding them are key to survival.
Ask: who else is fulfilling the same or similar jobs to be done? From there, evaluate the consumption chain that consumers must go through to complete their job. Where does it break down? What are the positives and negatives about doing business with you along this chain? Finally, consider how these configurations are likely to change given possible inflection points.
Organizations should strive to identify points at which, if constraints were to change, a competitor would be able to address their customers in a new or better way.
Build strategy around leading, not lagging, indicators
Many organizations rely too heavily on lagging indicators for their strategic decision-making—measurements that inform us about what has happened in the past rather than indicating what may happen in the future. Relying on lagging indicators for strategic decisions means you will react too late.
Leading indicators look very different from lagging indicators. They’re more qualitative, and often come to us in stories, not charts. These data are less concrete, but no less important: these narratives show us where the future is.
There is a roughly inverse relationship between strategic degrees of freedom and signal strength. In other words, the longer you wait to act on a signal, the fewer options you will have available to you. Early on, signals are weak, and it would be foolish to make a big move at that level of uncertainty. But, If you wait too long, the inflection point will be obvious, and you will be too late to take advantage. In the centre, where signal strength and degrees of freedom cross, is the period of optimum warning. It is vital to stay on top of signals to identify the right moment to act.
De-risk and make smaller bets
Uncertainty will always remain high when thinking about future inflection points. Remain open to possibilities so that, when the moment comes, the organization is ready to act.
A “time zero event” is a specific outcome that represents the strategic inflection point. Once this has been identified, work backwards and consider what would need to be true six, twelve, or eighteen months ahead for that future to unfold. Then, assign someone to be accountable for monitoring that emerging event, and ensure that everyone who has access to information that is relevant to it can find that accountable individual.
Organizations should stake a balance between type 1 decisions, which are big, significant and risky; and type 2 decisions, which are low-risk, reversible, and offer new insights. At Amazon, for example, small teams are empowered to make decisions and act on type 2 decisions without heavy bureaucratic control; this helps ensure Amazon has a steady stream of new insights.
Many organizations make significant, type-1 decisions based on large assumptions that may or may not hold true. But as information comes back and some of these assumptions are called into question, they succumb to the sunk cost fallacy: they’re unwilling to concede the considerable capital they’ve expended on their idea and so double-down on their efforts until it is far too late to save the project. A better approach is to de-risk by making smaller, type-2 bets on an ongoing basis and learning from the results.
Work back from the future with discovery-based planning
Discovery-driven planning is a technique whereby you define the parameters of a future state and then work backward to understand what would have to be true for that future to come about. Before making a big commitment, you can then make “little bets” that are designed to yield new intelligence, breaking the big inflection point down into smaller, more manageable pieces. Identify checkpoints: points at which you can learn something and determine whether you should continue to move forward or pivot away from the plan.
In discovery-driven planning, strategists start by defining success. The point isn’t to predict what will occur, but to build alignment around the value of an initiative. From there, benchmarks or key outcomes can be defined to evaluate on an ongoing basis whether the vision is becoming reality. At key checkpoints, fundamental assumptions can be pressure tested through the search for disconfirming evidence.
Organizations rarely struggle to come up with ideas. But, large organizations often do struggle when it comes to taking the steps they need to experiment and learn about those ideas. Instead of putting up bureaucratic red tape, organizations should look to enable “little bets” to help de-risk their assumptions.