A potentially game-changing inflection point shows up when the key metrics underlying your business have the potential to change on a 10X scale. Here’s where to look to see if that is happening.
As I describe in Seeing Around Corners, inflection points in business have a 10X impact – making things 10X cheaper, 10X smarter, 10X faster, and so on – than was possible before the inflection point took place. Incumbents, however, are so used to looking at the world through the taken for granted lenses of the original business that they don’t see the change coming – until it’s too late. This is particularly true with the digital revolution, which is causing companies who “get” digital to leapfrog those that don’t.
A place to start – finding your key metrics
The place I would start is to look at what analysts are using to assess your stock price. Anyone in the analyst community will have a set of key metrics that they use to evaluate whether a company is doing well or not. We teach this at the business school! These metrics are deeply embedded in what is possible and what is not at a given historical moment. Because they were leading indicators of future performance at one point, they get woven into how companies are assessed. But here’s the problem: in dynamic markets, many of the measures used are actually lagging indicators – they don’t tell you what is coming.
Let’s say you were in the soft-drinks business. Your analysts would be looking for a whole set of key metrics around things like market penetration, market share, brand equity, inventory turnover and positioning versus other firms. So go find those key metrics – many companies create research reports that will inform you of what they are. Then ask yourself,” how do we get rewarded for delivering those things?” What is likely to happen is your corporate reward systems are geared toward delivering whatever created success in the past, and that is how people perceive their incentives. Most of the information analysts have about your company will be lagging. That means that it isn’t telling you much about what is happening in the future.
Here’s an example from Coca Cola which features senior executives talking about measures such as the proportion of their business are consumed at home versus away from home. Measures like these turn into your KPIs, which in turn become metrics for how people are rewarded. The trouble is that over time, you can develop a mismatch between what people are rewarded for and what customers want.
Living in the Future
Back to the drinks business. One of the big turning points has been the move of customer preference away from carbonated beverages towards other kinds of drinks. But your company may have a whole set of procedures and rewards around continuing to sell carbonated beverages, even if that’s not what the market wants. That’s where you start to see these mismatches develop which can give you the early warning of trouble down the road.
What I would do is ask the question, “Wait a minute. Is there a way that someone could invent something that would make some part of our system 10x faster, 10x cheaper or 10x better, by incorporating digital technology?. In other words, is there something going on in the world that could cause that piece of our business model to radically change? This is particularly important if something about your business is irritating or annoying current customers and the innovation promises to eliminate the annoyance.
The firm now called Wise got its start in 2011 because its co-founders (of Skype fame) got sick of the bureaucratic and expensive processes used by traditional banks and payment processors to transfer funds. In external reviews, the startup gets high marks relative to previous solutions such as bank transfers with banks or the venerable Western Union service.
A great example of how not to be trapped by this is offered by Jeff Bezos of Amazon. In a recent Fast Company article, he observes:
“All of our senior executives operate the same way I do. They work in the future. They live in the future. None of the people who report to me should really be focused on the current quarter. When I have a good quarterly conference call with Wall Street, people will stop me and say, “Congratulations on your quarter,” and I say, “Thank you,” but what I’m really thinking is that quarter was baked three years ago. Right now I’m working on a quarter that’s going to reveal itself in 2023 sometime, and that’s what you need to be doing.
The great leaders of our times have mechanisms to keep their people focused on leading indicators. Leading indicators give you some idea of what may be coming. Not a guarantee, of course, and one can never tell about timing, but they create the basis for testing key hypotheses about where an inflection point might be emerging.
Assuming you know what’s going on, when you don’t
There’s a great story from the “before times” that illustrates how looking at the world through one set of key metrics can confuse you when the context changes. I was teaching a class at Columbia Executive Education for a group of leaders from AB InBev, the big beer company. The participants were all from Brazil. My colleague Trish Gorman and I had organized an experiential exercise for them, in which we
put them in little groups and each group had a different assignment for that evening. They had to go out to bars and restaurants and observe customers in the wild. One group was assigned to find a party. Another group was designed to find a family celebration. Another group was assigned to find an after-work context – you get the idea. This all happened on a Monday evening in New York City.
Well, they were really not happy about this. They were like, “it’s a Monday, we aren’t going to be able to find good examples on a Monday!” They had brought with them their context from Brazil. Monday in Brazil isn’t a big night for partying. What they didn’t appreciate, till we basically forced them out into the night was that in New York we have a thing called Monday Night Football. The bars are full of people watching sports, having celebrations, and hanging out.
Trish and I had them report back the next day on what they had learned. To their credit, the participants said “we had no idea how much there was going on, on a Monday.” To their even greater credit some of the ideas that came out of that workshop became innovative products, and the company has now established zx-ventures to keep their pipeline of innovations full.