Andrew S. Grove, the President and CEO of Intel Corporation has written a book about how,specifically, Intel has survived the changes in the computer industry. The lessons that he imparts in this book can be applied, not only to the computer industry, but to any other industry that is subject to drastic change in its operating environment. And what industry today is not. The effects may just be more clearly and quickly seen in the computer industry. Here then are some of the key points that Grove has to offer.
6 Forces Affecting a Business
As paraphrased by Grove based on the work of Michael Porter of Harvard University.
So long as these things stay in balance, you will go along a steady course. When one of these forces changes, it changes the dynamics of the business. A large change, with a “10X” force, can cause you to loose control of your destiny.
Strategic Inflection Point
An inflection point, mathematically, is when the slope of a curve changes sign, for instance, from negative to positive.
Strategically, an inflection point occurs when the old strategic picture dissolves, and gives way to the new, allowing a business to soar to new heights. Unfortunately, from the inside, it is not evidenced as a pinpoint in time when everything changes, but rather a long period of extreme unrest. Corporate statements and operational actions are not aligned. Ideas about the right direction will split people on the same team. In a workplace that used to function collegially and constructively, holy wars will erupt. Chaos reigns.
Moving from a Vertical to a Horizontal Industry
The following example shows how the computer industry has changed from a vertical to a horizontal industry.
When a strategic inflection point sweeps through an industry, the more successful a participant,was in the old structure, the more threatened it is by change, and the more reluctant it is to adapt to it.
Whereas, the cost to enter a given industry in the face of well entrenched participants can be very high, when the structure breaks, the cost to enter may become trivially small.
The Rules of Horizontal Industry
1. Don’t differentiate without a difference. Don’t introduce improvements whose only purpose is to give you an advantage over your competitor, without giving your customer a substantial advantage.
2. The first mover advantage. Being first offers the only opportunity to gain time over competitors, and gain market share.
3. Price for what the market will bear. Price for volume. Work on your costs so that you can make money at that price. Cost based pricing will often lead you into a niche position, not very lucrative in a mass production based industry.
Why is there a general trend towards horizontal structure?
It’s harder to be the best of class in several fields than in just one. Horizontal industries tend to be more cost effective.
CEO’s And Strategic Inflection Points
People who have no emotional stake in a decision can see what needs to be done sooner.Perhaps this is why there is such a high turnover in the ranks of CEO’s today. The people coming in are no better managers or leaders than their predecessors, but the critical advantage is: that they are capable of applying an impersonal logic to the situation, they can see it objectively.
People in the Trenches are in Touch with Impending Change Early. Sales people understand shifting customer demands before management does. Financial analysts are the earliest to know when the fundamentals of a business change.
Strategic dissonance is the divergence between actions and statements. This is one of the surest indications that a company is struggling with a strategic inflection point. The process of adapting to change starts with employees, who, through their daily work, adjust to new outside forces. So, while front line staff and middle managers are implementing and executing strategic actions that say one thing, senior management is issuing high level pronouncements that say the exact opposite.Senior management are often hampered by the inertia of success. They got to where they are by being good at what they do. Over time, they have learned to lead with their strengths. So, not surprisingly, they continue to implement the same strategies and tactics that have worked for them during their careers, particularly during their “championship season”.
Traversing the Valley of Death
At some point, you, the leader, begin to sense a vague outline of the new direction. By this time,however, your company is dispirited, demoralized, or just plain tired. You now need to form an image of what the company should look like when it gets to the other side: the essence of the company and the focus of its business. What the company will be and what it will NOT be (or to use a more lofty term “vision”).Redeploy resources as required (physical or human resources) to support the new direction. Redeployment of your own time is also important, and has enormous symbolic value, communicating what is and is not important far more clearly than all the speeches you can give.
If the competition is chasing you (and they always are – this is why “only the paranoid survive”) you can only get out of the valley of death by outrunning the people who are after you. And you can only outrun them if you commit yourself to a particular direction and run as fast as you can.
Communicate and clarify the direction as often as possible to the employees. Middle management are critical to help project your message over a distance. Take extra time with them to ensure their wholehearted commitment.
The Other Side
The other side of the valley of death represents a new industry order that was hard to visualize before the transition. Getting through the strategic inflection point requires enduring a period of confusion, experimentation, and chaos, followed by a period of single minded determination to pursue a new direction towards an initially nebulous goal. It is one of the most daunting tasks an organization has to endure. But when “10X” forces are upon us, the choice is taking on these changes, or accepting an inevitable decline, which is no choice at all.