What is a strategic inflection point in business?
A strategic inflection point refers to a significant change in a business’s competitive environment, which can result in a positive or negative outcome. A major change—be it a new technology, a piece of legislation, or a shift in demand—can affect an industry quickly, and the businesses in that industry that are able to adapt efficiently to this sort of change stand a better chance of surviving and retaining or increasing their market share than those that are unable to pivot.
How did strategic inflection point get its name?
Strategic inflection point is derived from the idea of an inflection point in finance but refers instead to a change in a business’s strategy in response to a shift in that business’s industry environment.
Andrew Grove, who served as chief executive of semiconductor maker Intel Corp. (Nasdaq: INTC) from 1987 to 1998, popularized the term as early as the 1990s. He referred to a strategic inflection point as a change in a business’s fundamentals that might lead to opportunities.
What are the characteristics of a strategic inflection point?
According to Grove, challenges to a business’s operations might be a result of different factors, such as the emergence of new technologies, changes in regulation, and shifting customer values and preferences.
A company that manufactures a particular product in high demand has the edge over another that doesn’t, and that may mean that the company that doesn’t make that product will need to adapt or phase out operations to remain competitive.
A company may also experience changing dynamics to its operations and business strategy, as a result of new technology. The introduction of automation in the manufacturing process, for example, would result in mass production and higher quality of goods, but at the same time could lead to a redundancy in the workforce and cheaper labor.
Real-world examples of strategic inflection points
Strategic inflection points typically refer to major changes in a business’s strategy, whether a company took action on new opportunities or failed to take initiative to seize on favorable situations by focusing on legacy products or services. There are many examples of strategic inflection points for companies, particularly significant changes in business models.
Apple
Apple (Nasdaq: AAPL) released the iPhone in 2007, amid doubts that the company would be able to establish a foothold in the mobile phone market that was dominated by Nokia. Apple’s success at reviving itself 10 years earlier came from a focus on digital media products and services such as the iPod, iTunes, and PowerBook line of personal computers, but it took a risk on developing a smartphone.
The overwhelming popularity of its iPhones eventually led Apple to overtake Nokia, which failed to catch up as its operating software was no match to Apple’s. In 2022, the iPhone had the biggest market share of smartphones in the U.S. and accounted for more than half of Apple’s revenue.
Fujitsu
Fujitsi was a global leader in photographic film in the 20th century. But as digital imaging technology started to develop further in the 2000s, the business model for making photographic equipment and materials was becoming obsolete. Like Eastman Kodak, the biggest maker of photographic film products at the time, Fujitsu faced a situation in which it needed to innovate or die.
Fujitsu started to expand its technological offerings, such as digital imaging for healthcare and LCD production, and move away from photographic print. While Fujitsu was able to foresee the shift in demand toward digital and was able to innovate in response, Kodak was slower to respond and maintained a focus on photographic print, which meant building a digital business that would lead customers to its photographic print business. For example, Kodak would sell digital cameras and build kiosks that would print digital images captured on those cameras.
Automotive and energy industries
Companies facing rapid transformation in their industries and changes to their existing business models are also at strategic inflection points. These include companies in the automotive industry, where Tesla’s rise in the 2010s upended a market that had been reliant on the internal combustion engine for more than a century and encouraged many consumers to switch to electric vehicles.
Energy companies historically focused on fossil fuels are seeking to diversify into alternative energy such as solar and wind, as regulation makes it tougher to explore for and build production facilities for crude oil and natural gas but easier for the establishment and development of solar farms.
