Inflection Point

This was my first post in my company to attract people to my blog. It worked then…hopefully it will work again! 🙂

Mathematics defines inflection point as a point on a curve at which the curvature changes sign. I am an engineer and I did study mathematics, but must have bunked the classes where the teacher explained this point.But, it did not affect my results in any way :-). So, why am I talking about this now? How is it related to “MBA classes” blog category? Read on…

One of the first business books I read was “Only the paranoid survive” by Andy Grove. Andy Grove was the 4th employee to join intel corp and became its CEO in 1987.I highly recommend this book to everyone.

In one of the chapters, Andy explains the concept of inflection point. According to him it is a point in time in a company’s life where a critical decision has to be made. If the right decision is made at this point, then the company will move on to a higher plane of profits. If the wrong decision is made, the company’s profits and growth slows down and turn negative.

InflectionPoint

It is very critical for the management to first recognise that it is at an inflection point. Most comapnies fail to recognise this. Andy Grove explains some of the inflection points faced by intel and secrets of intel that allowed them to make the right decision. I will explain just one point here –

Memory Chips to Processors

Till mid 1980s, intel was known as a memory chip maker. Their products were extremely popular and most of the electronic devices during that time like digital watches contained intel memory chips. During mid-1980s, cheaper Japanese made memory chips started flooding the market. Andy says this was an inflection point for intel as they could have either decided to fight the Japanese by lowering their own prices or decide to get out of the market. Before the Japanese invasion, the advantage intel possessed was mainly because intel was the first company to bring out bigger capacity memory chips. i.e they had the advanatage of being the first to introduce a superior product to the market. Its competitors were usually one or two years behind intel. But, the Japanes were able to copy the intel product within months, hence removing the one advantage intel had.Intel started burning through their cash and made heavy losses in 985,86 & 87.At this point, intel had a small lab and a fabrication unit which was designing processors for calculators and other stuff. This was a very small operation, but highly profitable. Intel management took the correct decision at this point to close down the memory chip making business and turn to processor for its survival. Till this point intel was known for memory chips, now it is known for processors.

What helped the management make the right decision?

In 1985, the intel management had choices –

• Invest heavily in R&D for memory chips so that their products are way superior than Japanese competition.
•  Get out of memory chips to conserve cash. Put the conserved cash in new technologies like microprocessors.

Andy says the management team had a discussion which went something like this -“if we got kicked out and the board brought in a new CEO, what do you think he would do?” “He would get us out of memories” was Moore’s response. And from that day, Moore and Grove began the long and difficult journey of persuading Intel to cast aside its accumulated identity and shift its attention solely to microprocessors.

So, the secret is to think like an outsider.

Do you think your company is facing an inflection point? If not, do you forsee any development that could develop into an inflection point ?