The world of strategy is changing. Inflection points can either create new opportunities or they can lead to devastating consequences.
Read our interview with Columbia Business School Professor, Rita McGrath and Christian Rangen, to find out what inflection points are, what are the consequences, and what is the best way to cope with these changes.
Rita’s book, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen has just been pre-launched in Norway!

CHRISTIAN RANGEN

We are here with Rita McGrath. Rita, you have a new book coming out on the 3rd of September. Do you want to give us a high-level introduction?

RITA MCGRATH

Sure. My new book is called “Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen”.  The book consists of three main parts: how to see an inflection point coming, how to decide what to do about it, and how to bring the organization with you.
What we’ve seen with inflection points is you can easily make the mistake of not seeing them at all. You can decide to do your own thing, or you can have an organization that’s so resistant to embedding the change that an inflection point requires, that even though you’ve seen it, you can’t really get yourself to do anything about it.
The book is really aimed at trying to attack those three problems.

CHRISTIAN RANGEN

For executives that don’t have any experience with inflection points as a term, how would you describe this to them.

RITA MCGRATH

A strategic inflection point is a change, typically in the environment, that could be caused by technology, social norms or many other different things. The key insight is that an inflection point causes the -taken for granted- assumptions on which your business is based on, to no longer be true.
What I mean by that is as you run a business, you have a set of assumptions about what’s possible, what the limitations are, what the key metrics are, how you’re going to drive things – all those things that are rooted in historical context. When an inflection point occurs suddenly, those constraints are relaxed or changed, and that historical context no longer has relevance to where you are right now.
An inflection point basically makes what you believe no longer true.

CHRISTIAN RANGEN

And this inflection points, Rita, how much are they within management control and how much are they outside of management control?

RITA MCGRATH

I think the core causes for an inflection point are outside management control. There’s something in the environment that’s shifting. What my research suggests is that there are two possible responses. You can see it and take the right action, which causes your business to rise to new heights, or you can miss it, or be too late. That can drag your business down. Sometimes, in the best of cases, you actually cause an inflection point to happen. This means you put others at a disadvantage because you’ve seen it first or you’ve made it happen.

CHRISTIAN RANGEN

Fascinating. What are some great examples and some not so great examples of how companies are understanding and responding to these inflection points?

RITA MCGRATH

An interesting case to me is the case of Adobe. They went through the shift from box software that people owned, to software that was based in the cloud. Some years back, they made what I thought was a very courageous decision at that time. They decided to continue to sell box software, but realised they were missing out; they were going to be left behind if everything moved to the cloud. It was a very difficult transition, mostly because their customers were accustomed to buying software and owning it, as opposed to being, in a way, forced to rent it.
Nevertheless, Adobe made a -burn the bridges- decision to switch completely, and their CEO, among other things, realised the software that’s on the cloud can’t simply be as good as their standalone software, it must be better. They were going to use cloud capabilities to add new functionality and new usability to software that would be otherwise impossible, just sitting on your own desktop.

CHRISTIAN RANGEN

In your research, consulting and teaching with different companies and countries around the world, how good are companies that you meet at understanding, seeing and then reacting to these inflection points.

RITA MCGRATH

I think companies really vary in their desire to take on an inflection point. As you know, I run a monthly newsletter. In that newsletter I cover different sectors of the economy. It’s fascinating how some sectors have really been slow, like the traditional big food companies such as Campbells or Kraft Heinz. They see that the world is moving towards fresher, more natural, less processed food – and yet changing their centre of gravity has proven to be incredibly difficult.
I’ve also written about construction. Construction is fascinating to me. If you wanted to buy a car right now, you wouldn’t hire one person to design it, another person to assemble it, a third person to deal with the architecture and have it delivered, 35% more expensive, six months late. And yet, that’s the norm in construction – it’s fascinating. You have these entire sectors which are pretty slow, I would say.
And then, of course, you get tech and some of the more nimble players out there, that are that are moving very quickly. I think there’s a huge variation in how well sectors and companies within them are adapting to these new post inflection point moments.

CHRISTIAN RANGEN

How about big companies versus smaller companies. Start-ups or scale-ups are rapidly growing companies – for example the Ubers and the WeWorks etc. Do you see any difference between the bigger companies and the smaller ones?

RITA MCGRATH

You can be as stuck in the mud and as set in your ways as a 50-person company as you can with 100.000-person company, unfortunately. I think that really comes down to leadership, ambition and willingness. Many companies have people in them who see an inflection point and try to get the senior leaders informed about what that is. And yet, the senior people either don’t want to hear it or don’t have the appetite for it, or they’re looking at their own careers and they’re saying well, you know, I could listen to this and try to go through all the bother and work of transforming, or I could just see up the next three years, take my gold watch, retire and leave it to the next generation to figure it out.
I don’t think there’s a big/small company distinction. I would say one of my grave concerns with the Ubers and the WeWorks of the world are that they’re being supported by incredible amounts of investor capitalism. They have yet to really face the market and become profitable on their own tests. They haven’t done that yet, so I really think the jury’s out. We don’t know. We don’t know how effectively they’re going to deal with it.
I do have my reservations about Uber’s business model, because there’s no real barrier to competition. If I decided tomorrow that I wanted to be the Uber of Princeton, New Jersey, you know, they’ve already got drivers. I could just go to the drivers, pay 50 cents more an hour, they can stick my sticker on their window instead, and Boom! I’m in business. It’s really no barrier to entry, and when you’re that size and scale, I think that makes things very vulnerable.

CHRISTIAN RANGEN

That’s a really good point. Your book is coming out now on September 3rd. I believe pre-orders are available already?

RITA MCGRATH

Yes. We’re actively promoting the pre-order campaign. For those people that pre-order, we’ve got a whole exclusive toolkit that will be made available for you to download. It’s the opportunity portfolio, which is a tool that you’re pretty familiar with, Christian. What you get as the pre-order is a video explainer, workbook, a couple of tools that you can download yourself and ways to analyse either your own portfolio or group of projects in the portfolio, as well as instructions for a workshop. So it’s pretty interesting stuff.

CHRISTIAN RANGEN

If you’re going to give some basic advice coming off of your research and off of your book to senior management and board of directors, what are some of the key things that they should be focusing on, or maybe even doing, that most companies probably don’t do well?

RITA MCGRATH

I think one of the biggest AHAs from the book is that inflection points don’t happen instantly. They take a long time. The original working title for the book was drawn from Ernest Hemingway’s novel “The Sun Also Rises”. One of the characters asks another: “Well, how did you go bankrupt?” And the response was: “Oh well, gradually and then suddenly.” And that’s how inflection points feel. When they are upon you, they feel as though they’ve emerged from nowhere and they’re just disruptive and difficult. But if you really look at the roots of them, they’ve been coming on for a really long time.
A great example of this is Nike. We all know Nike and how they’re champions through conventional retail channels, but the story that doesn’t get told nearly so much about Nike is that they’ve been very quietly pursuing the direct to consumer channel for well over a decade now. They’ve been really looking at this whole direct to consumer route where you’ve got companies like the Dollar Shave Club and Harry’s disrupting incumbent competitors by going direct to consumer – they’re developing a whole new model around this. Nike would be a perfect example of a company that would be likely to be disrupted if they hadn’t, for the past 10, 15 years, been very quietly pursuing this direct to consumer route. You may remember the Nike pods, where they partnered with Apple to be one of the very first fitness trackers. That also allowed them access directly to runners habits, to what athletes were doing, what people were thinking about, what they were asking for. And it’s really given them a big edge now against the competition which is still selling through conventional retailers. I’m told that just under about a third of Nike sales today come through their direct consumer channel.
Let’s come back to this question of what you tell boards, what you tell senior leaders. I think the first important thing is how well are you getting information from what I call the edges of your organization. There’s a chapter in the book called snow melts from the edges. And what I mean by that is these things don’t present themselves at the conference table in corporate headquarters. They’re out there where small changes are happening, little shifts in behaviour, where new things are becoming possible.
I think the first overarching piece of advice is how to personally get out to the edges of your organization and make sure that you’re getting exposed to where these changes are starting to happen. And if you’re not doing that, then you’re at risk of a blind spot.

CHRISTIAN RANGEN

And how easy or difficult is it for senior management, corporate headquarters, even board of directors to be following that advice.

RITA MCGRATH

It’s hard. It’s hard because it takes time. And the thing about inflection points is that, especially in the early stages, they’re not screaming at you. They’re not saying “Hey, look at me!”. It’s not like that.  They’re very quiet. They’re very subtle.
Take Dollar Shave Club just as an example. I like it a lot. Mike Dubin, their founder, gets fed up with the whole shaving experience – the expense of it, the fact that you have to go to a store where the razors are locked up and you’ve to go find someone to unlock them, and so on. He’s got a whole series of things that he just thinks are broken about the shaving experience. And today you don’t have to do very much to get into the shaving business. He subcontracted a bunch of razors from Korea. He used Amazon Web Services to set up his tech infrastructure. He invests a few thousand dollars in making a high class video that probably goes viral through Facebook and YouTube. And, you know, he’s the sort of prototypical “two guys in a garage” who takes on Gillette with nothing. No resources. I think the people at Gillette were definitely taken by surprise. They lost about 60% market share. It’s a huge impact on their business. And yet, it didn’t require a whole lot of resource to do that.
What we’re seeing is this whole class of new competitors. Another example is a furniture company called Joybird. Again, two guys in a garage. They subcontract manufacturer furniture. They just got bought by La-Z-Boy for some phenomenal amount. You scratch your head and you say – where did these things come from? Well, where they came from was this inflection point that makes it really easy and inexpensive to set up a direct to consumer business.

DID YOU KNOW

Rita’s new book is already featured in Transform! The Strategy & Transformation Simulator.

CHRISTIAN RANGEN

We’ve seen some interesting trends and industry shifts in the automotive space. We have traditional car manufacturers that may have been somewhat slow when it comes to electric vehicles. We also have this whole notion of autonomous vehicles and autonomous capabilities, of self-driving cars or even flying cars with the Uber Air project. How do you see the automotive space reacting to and understanding these inflection points.

RITA MCGRATH

The thing about a big inflection point like autonomous or electric is they go through what the Gartner Group calls the Hype Cycle. It’s what everybody is talking about, the sky is falling and we’ve got to get into this immediately. It’s urgent, urgent, urgent. And we’ve seen this over and over again. In the dot com era for example, everybody had to have a website. And then it all came crashing down, because a lot of the ecosystem wasn’t there yet.
When I think about where the automotive players are now, we’re really looking at a dramatically incomplete ecosystem which is the first problem. Everybody says autonomous vehicles would be great. And yet, I can’t pinpoint one place where it’s going to make enough of a difference that people will invest billions in buying these things, because it is a systemic change. Systemic changes tend to start where there is actually a demonstrated need where somebody really has to have this offer because it solves a problem which cannot be solved in any other way.
My favorite example of this at the moment is the military, which have to run supply trucks to their front lines. Right now, it’s 2 people per truck to drive the truck. Let’s say you need seven trucks, we’ve got 14 people now at risk. They’re not doing other,  more useful things, they’re just sitting there driving a truck. What Northrop Grumman is innovating is a system where you have two people in the front truck, and then the other six just daisy-chain along behind. Autonomous technology is good enough to do that. It can replace the driver in those trucks. There’s a case where you’ve got a real need, there’s a real problem it’s solving. They’ve got a real budget to put against it. The savings are considerable. In other words, there’s a strong business case.
There’s no business case for autonomy to work the way people are talking about it working. I would have to maybe subscribe to an autonomous driving service, but some other provider is going to have to own and maintain the vehicles and manage the programming. We still don’t know who’s going to deal with the risk. We don’t know what the insurance implications are. The ecosystem just isn’t clearly there yet.
If I were a car maker, what I’d be doing is I’d certainly be taking on options. I’d be making small investments, I’d be paying very close attention, but until you have that complete ecosystem where the economic roles and who the money is going to go to sorted out, it’s not going to become the norm.

CHRISTIAN RANGEN

These are very good points, Rita. One last question. I’m really looking forward to getting my hands on the book. If you could pinpoint one thing that you would hope to achieve in terms of impact or conversations -what would you like people to do or take away after having read your book in the years to come?

RITA MCGRATH

I’d really like people to get better at this notion of being adaptive in the transient advantage world. This book, Seeing Around Corners, really builds on my last book which was called The End of Competitive Advantage. In that book I essentially explored the thesis that strategy today is really stuck. We’re stuck in these old paradigms. We are using models from the 1960s that just don’t apply anymore to the way the world works. And here’s the thing. When management messes up and they don’t keep their organizations up to date, worst that can happen to them is they get fired and they go play golf. What I’m much more concerned about are the communities, the people that have given their heart’s blood and their lives to these companies, that through no fault of their own, get into trouble.
I grew up in Rochester which was where Kodak was from. You know that’s sort of everybody’s exhibit A for how this can happen. And it’s not their fault. My hope is that we have organizations that are more humane, more adaptive and longer lived, even as the environment aRound them changes more quickly.

CHRISTIAN RANGEN

Well said Rita. Your book is coming out September 3rd. You will be traveling and doing a lot of speaking and workshops, I presume.

RITA MCGRATH

I will. And there’s a calendar on my website, ritamcgrath.com. If people want to subscribe to the monthly newsletter, those come out monthly. And it’s free. It is a curated reading list and it covers a different sector each month. There’s also archives with all the old ones going back into the past on my website as well. There’s a lot of content there.

CHRISTIAN RANGEN

There is indeed. We can definitely recommend readers previous books including The End of Competitive Advantage. And we’re really excited for the launch and the release of your new book.
Rita, thank you for sharing and thank you for spending this time finalising the book and getting your insights and your research out there. I think this will be a big contribution to the conversation around strategic inflection points and strategic agility.

RITA MCGRATH

I think so too, Christian, and I think it also offers an opening for some of your tools. In some of the things that I’ve been working on, trying to get people to be more competitive and to see the environment around them more intensely, I think I think there’s a great overlap there.

CHRISTIAN RANGEN

I think I should loop that back into a very interesting event. I see a lot of conversations happening around this. You will be at the Drucker Forum later this year, sharing your work.

RITA MCGRATH

I will be indeed. I’ll be at Thinkers50, which is in London in November, and then head off to Vienna for the Drucker Forum.

CHRISTIAN RANGEN

Wonderful. Thank you for your time and all the best on your upcoming travels and tour.

RITA MCGRATH

Thank you so much, Christian. It’s been a pleasure.

ABOUT RITA MCGRATH

Rita Gunther McGrath, a Professor at Columbia Business School, is regarded as one of the world’s top experts on strategy and innovation with particular emphasis on developing sound strategy in uncertain and volatile environments. Her ideas are widely used by leading organizations throughout the world, who describe her thinking as sometimes provocative, but unfailingly stimulating. She fosters a fresh approach to strategy amongst those with whom she works.

www.ritamcgrath.com