Finding yourself on the other side of inflection

Imagine this - you've been managing a firm that, in many respects, has been a leader in its industry - and still is. Your firm is customer-centered (as surveys indicate year after year), you are valued by business partners (as intermediaries point to you as being the most accessible and supportive), your employees score your firm the highest in their engagement surveys, and yet something tells you that the distance between you and the most lucrative opportunities is growing. You can't readily put your finger on it or point to evidence that is undisputed, you just dread the possibility of being surprised, and facing your team, when it does.

In numerous workshops with our clients, we come across this phenomenon - one we have come to call 'Finding yourself on the other side of inflection'. We first thought that it is just a reflection of the speed at which our world is changing. Perhaps a need to prune our list of priorities, so that we can double-down on our transformation efforts, knowing that directionally, we are on the right path. Or are signals in your environment pointing to a different and more complex dynamic that is at play? You may be winning many of today's competitive battles, but are you winning the climb towards the collaborative networks that would respond to many of your customers needs in future?

That led us to the most critical question of all - are your customers and their customers in turn moving towards or away from you?

This complex dynamic has taken some of the world's most capable organisations by surprise. Each of these organisations found itself beyond an inflection point, and its leaders needed to re-adjust, in fact re-invent their response. Take General Electric - the company that gave us electricity, that Thomas Edison shaped back in 1892. GE was America's response to that first wave of electrification. For over 100 years, GE has helped modernize everyday life, bringing convenience, even fun into kitchens and homes around the world. Its appliance business optimised the value chain for home appliances with focus and precision, from sourcing the right raw materials and appliance components, to applying manufacturing insights and supplier relationships, to reach improved cost efficiencies, across its operations. Jack Welch made this pursuit of cost optimisation an art.

Partnerships were tightly organised by GE to support operations, in many respects a closed ecosystem, where GE leads and others follow. Yet, the shift of power from producer to consumer has over recent decades affected more than simply prices. It was re-shaping business models in GE's traditional industries, into models where consumers and producers collaborate. The implications were (and remain) immense.

Perhaps where this has been witnessed at greater scale than any other market (as yet) is China. During the 2018 Observing China Forum in Beijing, Alibaba's CEO, Daniel Zhang, explained that China's e-commerce platform is evolving to establish a new retail infrastructure, that merges online, offline and logistics. He was describing a new world of retailing, where brands are being empowered with data, and Chinese challenger firms (many of them) were about to take their global competitors by surprise, in their response.

In a recent documentary, Haier: From small Chinese Fridge Maker to Global Industry Giant -Inside the Storm , Haier's former CEO Zhang Ruimin takes this new world of retailing further. He shares the philosophy behind what was a failing Chinese refrigerator company in the 1980th and early 90th, to acquiring GE's appliances business and becoming the world's largest appliance maker. In 1992, when GE were looking for contract manufacturing in China, they approached HAIER. They expected a quick yes in their negotiations. In their minds, producers, retailers and consumers were miles apart. To their surprise, they were declined by Zhang Ruimin and his team. Quoting US President Franklin Roosevelt, Zhang Ruimin calmly replied to their offer as follows: 'The only thing we [HAIER] have to fear is fear itself. Once we triumph over ourselves, we will not face the problem of external competition.'

Daring words, but in essence, Zhang Ruimin was pointing to HAIER's tireless work in overcoming the fear of commoditization and the excessive focus on cost reduction, something that GE were known for. Beyond that fear, he could see how brands in traditional industries would be infused with data, to help solve a host of customer as well as end-user needs and wants...their unmet desires. In an economy that is sluggish, where digital technologies offer a 'great equalizer', seeing beyond this inflection point is not only interesting. It can offer a strategic advantage.

To understand why, I must turn to an Challenger CEO article we posted a few months back, that describes the nature of S-curves - in other words, how industries grow and mature over long cycles. Essentially, we argue that an inflection point is not really a point in time, it denotes a transition zone, where the S-curve supporting today's industry structure is replaced by a new S-curve with its own distinct logic.

Here, multiple business models co-exist, often for years, before end users make their final pick, after experiencing various models. In a market economy, this happens primarily through competitive forces. In highly regulated spaces, it is often non-market role-players and political pressures that can extend the transition for a longer duration. In either case, a transition zone exists. This space is not the exclusive domain of producers but rather a highly interactive space where producers and consumers engage, experiment with competing solutions, and influence how, in our example, appliances and data could co-exist, and even enhance each other.

In 2016, HAIER made a daring move. Now a much larger organisation, one that is confident in challenging western appliance makers. It made a bit for GE's Appliance business. Theirs wasn't the highest bid. What ultimately turned the deal in HAIER's favour was the vision Zhang Ruimin presented to then GE Appliances CEO Jeff Immelt, that HAIER's management system (RenDanHeYi or RDHY for short), could help solve a major challenge faced by every large corporation, that of responding to market opportunities with greater speed and entrepreneurial agility. This was a narrative that resonated not only within GE. It offered an open vision, that invited others, their customers and ecosystem partners, to join in. In the years that followed, GE appliances, now a HAIER company, was meeting the inflection point of an old industry of 'un-smart' appliances and data in new ways and was doing so with the end users of its products and services, co-creating solutions with them.

Bill Fischer, Professor of Innovation Management at IMD Business School puts this phenomenon in this way - 'There is a legacy mindset [in many organisations] about variance reduction, getting the surprises out, making sure everything is done perfectly. But HAIER was looking for surprises - surprises in product, in organisation, in business model. There was an impatience as to when these surprises were coming...and HAIER could provoke these rather than be on the receiving end.'

Under GE veteran and newly appointed CEO Kevin Nolan, the company was connecting devices to consumers and to data networks in turn. The result was an explosion of innovation, in the company and with its ecosystem partners. One of the initiatives it helped launch was First Build, an online community that provides a space for co-creation space to develop and take-to-market innovative products. Consumers are welcome in co-creating such solutions, and so are GE Appliances' competitors. From an automated French Press for coffee on those early, rushed mornings to a smart lid for sourdough starter kits.

One could argue that GE Appliances has managed to get onto the right side of this inflection point. Data is now infused into many of its products, from refrigerators that order food items based on your preferences and availability, to ovens that connect you with a community of avid yet somewhat inexperienced 'home chefs'. It even made GE Appliances into a premium brand sold in exclusive Chinese shops. Other inflection points must be navigated though, but with less fear and more foresight.

Which inflection point do you sense that your organisation might be on the other side of? One that we have slipped past, perhaps while striving for consistent product quality or keeping restless clients at bay? Finding yourself on the other side may just be the crisis you need to move towards the opportunity spaces where customers and their end-users in turn can create value collaboratively with you.

Your thoughts?

Have a good week ahead.