1: “There’s wind and then there’s a typhoon, there are waves and then there’s a tsunami,” Andy Grove writes in Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company.
The same is true in business.
“There are competitive forces and then there are supercompetitive forces,” he notes.
Andy calls it a “10X” change.
2: Harvard Professor Michael Porter identified the various forces that determine the level of competition a company faces.
“Generations of business people and business students have been trained to think in terms of these forces,” he writes, “so I’ll adopt them as our starting point.”
Competitive Force #1: The power, vigor and competence of a company’s existing competitors: “Are there a lot of them?” Andy asks. “Are they well funded? Do they clearly focus on your business?”
Competitive Force #2: The power, vigor, and competence of a company’s suppliers: “Are there a lot of them, so that the business has plenty of choices, or are there few of them, so that they have the business by the throat?” he writes. “Are they aggressive and greedy or are they conservative and guided by the long view of their customers?
Competitive Force #3: The power, vigor and competence of a company’s customers: Andy asks: “Are there a lot of them or is the business dependent on just one or two major customers? Are the customers very demanding, perhaps because their business operates under cutthroat competition, or is their business more ‘gentlemanly’?”
Competitive Force #4: The power, vigor and competence of a company’s potential competitors: “These players are not in the business today but circumstances could change and they might decide to come in,” he observes. “if so, they may be bigger, more competent, better funded and more aggressive than the existing competitors.”
Competitive Force #5: What does Andy believe to be the most deadly force of all? Substitution, “the possibility that our product or service can be built or delivered in a different way. . . New techniques, new approaches, new technologies,” he explains, “can upset the old order, mandate a new set of rules and create an entirely new climate in which to do business.
“This is what trucking and air transportation have done to the railroads, what container shipping has done to traditional ports, what superstores have done to small shops, what microprocessors continue to do to computing and what digital media [has done] to entertainment.”
Competitive Force #6: Andy then adds a sixth force: Complementors. These are “other businesses from whom customers buy complementary products. Each company’s product works better or sometimes only works with the other company’s product. Cars need gasoline; gasoline needs cars. Computers need software; software needs computers.
When our “interests are aligned, our products support each other,” he notes. “However, new techniques, new approaches, new technologies can upset the old order and change the relative influence of the complementors or cause the path of the fellow travelers to diverge from yours.”
3: So what happens when there is a “10X” change to one of the forces?
“All bets are off,” Andy observes.
“In the face of such ’10X’ forces, we can lose control of your destiny,” he notes. “Things happen to our businesses that didn’t before, our business no longer responds to our actions as it used to.”
What’s a phrase that’s likely to be said? “Something has changed.”
Indeed.
We have entered what Andy calls a “strategic inflection point.”
“To manage a business in the face of a ’10X’ change is very, very difficult,” Andy writes. “The business responds differently to managerial actions than it did before. We have lost control and don’t know how to regain it.”
The storm metaphor—whether a fierce typhoon or a sweeping tsunami—captures that reality.
But storms do not last forever. “Eventually, a new equilibrium in the industry will be reached,” he reflects. “Some businesses will be stronger, others will be weaker. However, the period of transition. . . is particularly confusing and treacherous.”
How do we know when we are experiencing a 10X force? We don’t. At least not at first.
“Nobody will ring a bell to call your attention to the fact that you are entering into such a transition,” Andy notes. “It’s a gradual process; the forces start to grow and, as they do, the characteristics of the business begin to change.
“Only the beginning and the end are clear,” he writes. “The transition in between is gradual and puzzling.”
More tomorrow!
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Reflection: Am I treating the turbulence around my work as normal market noise, or is it possible I’m actually facing a 10X change that will require me to rethink the fundamentals of how we compete?
Action: List the key forces shaping our business (customers, competitors, suppliers, substitutes, new entrants, and complementors), note where I see signs of 10X change, and start one focused conversation this week about how we might need to respond differently.