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The Keys to Managing Business Inflection Points

In an excerpt from her new book, Columbia University Business School professor Rita McGrath shares key, actionable insights on how executives can successfully navigate disruption and change.

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This is an edited excerpt from Rita McGrath’s 2019 book, “Seeing Around Corners: How to Spot Inflections Point In Business Before They Happen.”

Given the amount of change and disruption in business, some people have concluded that the entire enterprise of formulating strategy is to some extent futile. But my research suggests that a core strategy is more important now than ever before, as without real clarity on strategy and priorities, the spontaneous approach will disintegrate into rudderless activity.

I want to share a few real-world stories to help you think about implementing a strategy to successfully navigate key inflection points.

Let’s consider one example point that’s gathering significant interest. Larry Fink, founder and CEO of BlackRock and the manager of over $6.3 trillion in assets, sent a much-talked-about letter to numerous CEOs in January of 2018.  In it, he said that companies must “make a positive difference” to society and that he intended to hold their leaders accountable. Andrew Ross Sorkin of the New York Times termed the letter “an inflection point in the long-simmering argument over the state of global capitalism.”

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Fink announced that going forward, BlackRock would be investing in such a way that would take into account the long-range impact on society created by the companies they invest in. Fink is among a growing group of observers who decry economic short-termism by public companies. One idea in particular is being criticized as unhealthy for capitalism in its current form, and that is the notion that companies should be run only in the interest of generating financial returns to their investors.

The larger issue—the idea that investors are the only stakeholders that matter— is coming under increasing fire. It is being blamed for thwarting investment not only in innovation but also in people development and community creation. It has been blamed for the potential “end of the modern political order” by no less an expert than Martin Wolf of the Financial Times. The instruments used to implement the “shareholder-first” perspective, such as share repurchases, lavish stock-related executive compensation, and extracting as much profit- ability from existing assets as possible, have also been widely criticized for distorting market pricing and rewarding executives and investors to the detriment of others, such as long-term employees, who have a stake in what happens to companies.

While the exact policies BlackRock is proposing are not spelled out in Fink’s letter, it is clear that investors are paying attention. The firm posted on its website a document that lays out the questions it may well be asking in meetings with management teams and boards. Note that BlackRock is not telling companies to take a specific action. Rather, it is attempting to put this issue on the agenda of its conversations with CEOs and other investors. Strategically, in other words, firms that desire BlackRock’s support need to have topics such as human capital management up front and center in terms of what they are paying attention to.

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Note the way in which the strategy has been executed. Yes, BlackRock has said that social purpose is important, but it has not dictated what ways it should show up in company strategies. That is up to the individual CEOs with whom the company wants to have strategic conversations.

Here are some actionable tips to help navigate change, and disruption:

1. Maintain the Organization’s Openness to New Information

Andy Grove articulated this point in his original work on strategic inflection points. Before the pattern is clear, he said, you have to let a certain amount of chaos reign. Lots of inputs, lots of ideas, and lots of arguments are essential. Only after you have sufficient information (the weak signals have become strong enough) should you coalesce the organization around a selected strategic path.

Absolute candor—and the willingness to confront unpleasant information— is crucial. Wishing things were different is a recipe for corporate disaster.

High-performing CEOs are unanimously alike in this one thing: they insist on total candor and brutal truth, even if it challenges their previously held assumptions. No, make that especially if it challenges their previously held assumptions.

Some leaders listen to alarmists— those people who occasionally are dismissed as Cassandras for conveying bad news. Instead of immediately dismissing them, we should think of them instead as “helpful Cassandras,” who broaden the range of outcomes we are considering or who are exposed to subtle or key inputs that are different from those we normally see. The furor surrounding Facebook’s sale of users’ private data to advertisers and those who want to target individuals was not only anticipated but widely discussed years before it became public knowledge— as far back as 2006!

2. Push Decision-Making as Close to the Edges as Possible

General Stanley McChrystal is widely credited with having transformed the way U.S. intelligence forces do their work. In his book Team of Teams, he describes how in the fight against Al Qaeda, even the military had to discover a different way of leading than the usual “command-and-control” that was their historical norm. He writes, “The wisest decisions are made by those closest to the problem— regardless of their seniority.”

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McChrystal has found that the answer to how senior leaders can become comfortable with the loss of control is by helping their teams develop shared consciousness. As he has said, “This means getting to a point where you trust almost anyone to make decisions on their own because you believe they have the same information and objectives you do.”

3. Simplify and Create a Rallying Cry

Sharon Price John stepped into the CEO role at Build-A-Bear Workshop at a pivotal time for the firm.  Founded by Maxine Clark in 1997, it was one of the first companies to create the concept of experiential retail. Clark had risen to the rank of president of Payless ShoeSource and, like many leaders who go through personal inflection points, over time realized the “spark” was no longer there. So she left Payless and began to look for a new idea. The inspiration came, suitably enough, from a shopping trip with a child of a friend of hers.

Build-A-Bear Workshop was incredibly successful in an era when conventional toy stores were closing and sales of toys were becoming concentrated in the Walmarts, Targets, and, yes, Toys “R” Uses of the world. But the Great Recession hurt it badly, and the company was at an inflection point. In 2013, Clark announced her intention to retire from her position as “Chief Executive Bear,” while remaining on the board of directors to provide continuity. Sharon Price John was hired as CEO in 2013.

As John described at our Women in Leadership class in 2016, she framed the journey of being a turnaround CEO with the acronym SPARK:

  • S: See it. Envisioning.
  • P: Plan it.
  • A: Actionit.
  • R: Repeatit.
  • K: Keep the faith.

For John, the “seeing” has to become an “authentic and inspiring vision. You have to be able to tell the story about this business and why it exists,” she told the class. Build-A-Bear, she concluded, was in the business of selling memories—but it could also be more. The “more” was key to the company looking into a bigger presence in tourist locations, leveraging popular children’s attractions like the movie Frozen, extending the brand beyond its stores, and doing more to ap- peal to boys (and even grown-ups).

In terms of “planning,” she used the upcoming twentieth anniversary of the brand in 2017 as a pivot point to attract the attention of the rest of the organization.

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The “action it” part of her acronym is difficult. It’s not enough to see the problems or inflection points; the critical ingredient of powering through them is to get the organization to do something about them, when most of the time people would prefer not to. To address this issue, John created a short mantra, which she called SDSS, short for “Stop doing stupid stuff.” If something doesn’t have value, in other words, stop doing it so that you can free up time for more important activities.

Her lever to get the organization focused was a goal she announced when she first arrived. The company was losing something like $380 million a year. She said, “We are going to make a dollar” this year. The effect, she told the Women in Leadership class in 2016, was “magical. Everyone thought to themselves, ‘Well, I’m not going to be the person who spends the last dollar.’ We did it. We climbed back out, we broke even, and we were able to provide bonuses to people for their hard work.”

Having achieved this first success, however, the organization could have lost momentum. The low-hanging and easy-to-understand things had been accomplished, and the path ahead was going to be much more difficult.

Key Takeaways

Leaders who successfully take an organization through inflection points increasingly facilitate the energy, connections, and talents of the organization, while at the same time providing clear direction.

Simply seeing an inflection point on the horizon is the first step toward successfully navigating it. You next need to decide what direction you will take and then mobilize the organization.

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Clarity about strategy, the “why” of what you are doing and key priorities, is not optional. Absent candid feedback, it is very easy to get off track. You don’t have time to waste on anything other than total candor and brutal truth. The role of the leader moves from designer and commander to premise-setter and judge. Simplify complexity—create a common rallying cry that resonates with everybody.

As a leader, you may increasingly need to be prepared to act in wartime.

This story was originally published on Techonomy.

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