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What is an inflection point?

Oftentimes, certain events happen and their damning effects may radically change the course of a given entity. Such events may be referred to as inflection points, and the affected entity may be a firm, industry, economic sector, country or even group of countries. Keep reading to learn more about inflection points and how to identify them.

Inflection Point Explained 

Firms, industries, sectors of the economy and even entire economies are constantly changing. However, the magnitude of the change usually varies.  As such, when massive changes disrupt the foundations of a business model, they're regarded as strategic inflection points.

According to Intel co-founder, Andy Grove, who coined the term, strategic inflection points are occurrences that alter how we think and act because they are ten times more impactful than the normal change businesses or industries encounter. The gist of inflection points is that their effects on a company are usually far-reaching.

From the perspective of economics mathematics, an inflection point is a change in the curve direction as a result of an occurrence. To qualify as an inflection point, the resultant shift must have a specific cause, be critical and perceptible.

After identifying inflection points, the implicated entity (be it a firm or an economy) must implement specific drastic changes to remain operational and thrive. 

Causes of an Inflection Point

An organisation’s activities as well as that of another entity (suppliers, substitutes, buyers, complementors, potential entrants) which directly impact the organisation could bring about critical inflection points. Likewise, deliberate actions as well as unexpected occurrences may cause inflection points.

Unexpected occurrences such as a natural disaster (or other acts of God) or a global financial crisis can significantly upset a specific industry or economy. Therefore, it is sometimes impossible to identify an inflection point until the aftermath of the causal occurrence and a resultant directional change.

This contrasts with causal events such as regulatory changes, innovative technological breakthroughs or even political events, all of which also qualify as causes of inflection points.

Categorized after Companies after Inflection Points 

Inflection points typically lead to drastic shifts in a company and these companies can be categorised into three, based on how they react to these shifts.

  • The completely unaware: This category comprises companies that completely missed the inflection point. Such companies contract or eventually fold up. A good example here is the case of physical stores that are currently bewildered at how fast shopping has moved online with the advent of COVID-19.

  • The last-minute hopefuls: Companies in this category recognise an existing inflection point but a little too late. So, they make a massive last-minute lunge at joining the train. Some companies are lucky to get on, while most miss out spectacularly.

  • The prepared champions: This category of firms makes several steady investments to prepare themselves to maximise massive disruptions when they occur. Essentially, the early, meticulous investments allow companies in this category to quickly adapt to the new playing field once it becomes the common reality.

How to Find Inflection Points

Ultimately, the way leaders and decision-makers can go about finding inflection points and maximising them is by reimagining their fundamental business model assumptions. This is key to avoiding poor judgment due to ignorance or bias.

Leaders must dedicate their time to those aspects of their business where changes are emerging by looking beyond the products customers need into the outcomes they desire. In the end, strategic efforts made towards this will pay off when an inflection point ensues.

The ultimate method is to evaluate the basic business model assumptions from the perspective of an outsider in what is known as first-principle thinking. This allows leaders to reimagine the status quo and conceive new assumptions (usually adopted from another industry) while coordinating the inflection point themselves.

Think Netflix―Reed Hastings applied the subscription-idea from gyms to movies in what became an inflection point for the video-rental industry.

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