When Andy Grove arrived at his office one December morning in 1994, he had no idea that his world was about to be turned upside down once again. Intel was then in the midst of launching its latest-generation microprocessor, the Pentium processor. Some weeks earlier, a "minor design error" had been discovered in the chip, and reports of the problem began circulating online. However, the situation seemed to be under control, since testing showed that the problem was likely to occur only once in every 27,000 years of use.
But that fateful morning, everything changed. Grove was informed that IBM had stopped shipment of all Pentium-based computers. Intel's credibility—and, by extension, the entire company—was threatened as anxiety about the "bug" spun out of control in the business community. Grove faced a crucial decision: Try to reassure the world that the chip was sound, or replace every chip, which would cost Intel about half a billion dollars. He decided on the latter course of action. For the second time in a decade, the company was facing chaos, and possibly extinction. No matter what the outcome, Grove wrote later, nothing would ever be the same again:
Something has changed, something big, something significant, even if it's not entirely clear what that something is.
What had happened? According to Grove, the rules that had governed his business for decades were no longer valid. Suddenly, what Intel thought—about quality, about reliability—no longer mattered. For the first time, computer users, who were not even Intel's direct customers, were demanding that an Intel product be replaced. Intel had reached what Grove calls a "strategic inflection point"—a point at which a company comes face to face with a massive change, one that is powerful enough to threaten the life of the enterprise.
Strategic inflection points, Grove later concluded, tend to arise following a long period of unbroken success. It is at these junctures, when the managers of the enterprise can't imagine anything but continued success, that the organization is most vulnerable. Grove has won wide acclaim for his seminal work on this topic, which was the main subject of his aforementioned book.
To Grove, the difference between ordinary change and a strategic inflection point (SIP) is the magnitude of the potential effect on the business:
We managers like to talk about change, so much that embracing change has become a cliché of management. But a strategic inflection point is not just any change. It compares to change the way Class VI rapids on a river, the kind of deadly and turbulent rapids that even professional rafters approach gingerly, compare to ordinary waters.
Grove even quantified a strategic inflection point by calling it a "10x change," meaning that the magnitude of the change is 10 times that of the changes that the business has been accustomed to. He noted that strategic inflection points are not restricted to technological changes. Almost anything can precipitate a strategic inflection point, including new or shifting competition, a change in regulation, a new channel of distribution, and so on. Strategic inflection points seldom announce themselves, and they can affect a single company or an entire industry.
The senior managers' earlier battle with the Japanese— and themselves—was a textbook strategic inflection point, and it had clarified Grove's thinking on the subject. What used to work now no longer works. Chaos, or at least a sense of being out of control, predominates. We had "lost our bearings," declared Grove. "We were wandering in the valley of death."
But as Grove had already discovered once—and was about to prove again—strategic inflection points don't necessarily mean institutional death. If managed skillfully, they can also breathe life into an organization.