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Inflection Point

Any key event that dramatically changes the trajectory of a business, industry, or economy

What is an Inflection Point?

In mathematics, an inflection point refers to the point at which the curvature of a function changes its sign. In the business world, the meaning of inflection point is stretched to describe the turning point due to any dramatic change that may lead to a positive or negative result.

 

Inflection Point

 

Summary

  • In mathematics, an inflection point is where the curvature of a function changes its direction, either from concave to convex or vice versa.
  • In the real world, any key event that dramatically changes the trajectory of a business, industry, or economy can be regarded as an inflection point.
  • A strategic inflection point is a major change in the competitive environment that requires a fundamental change in a business’ strategy.
  • A business may end up with growth or decline from a strategic inflection point, depending on whether the business can timely and properly adapt to the change.

 

Inflection Point in Mathematics

In mathematics, the curvature of a function changes its sign at an inflection point. It means the graph of a function may change from concave to convex or from convex to concave at each inflection point.

The inflection point can be identified by taking the second derivative [f’”(x)] of a function. When the second derivative equals zero [f”’(x) = 0], which means the tangent changes its sign, that is where the inflection point is.

 

Inflection Point in Business

In the business area, the term “inflection point” comes with a similar meaning as in mathematics, but it covers a much broader range of situations. As long as a key event happens and changes the trajectory of a business, industry, or economy, the event can be considered as an inflection point.

Compared to day-to-day progress, the impact of inflection point events is more widespread and dramatic. The introduction of new technology, bust of a bubble, and change in the regulatory environment can possibly be an inflection point.

 

Strategic Inflection Point

Andy Grove, the former CEO of Intel Corporation, first popularized the concept of the strategic inflection point in the 1990s. It refers to any major change taking place in the competitive environment that requires a fundamental change in a business’ strategy.

As a turning point of a trajectory, a strategic inflection point can be either an opportunity to reach further business growth or a start of fall. Businesses may face completely different destinies in the same market environment change. The outcome heavily relies on the executive team’s strategic decision-making.

More proactive and timely adaption to the change in the competitive environment is more likely to result in a positive outcome. Failure to recognize the inflection point or reluctance to change often leads to an irreversible business decline.

 

Strategic Inflection Point

 

Real-World Examples of Inflection Points

At the economic level, besides changes in the regulatory environment, black swan events that result in economic downturns are often considered to be inflection points. One typical example is the 2008 Global Financial Crisis (GFC), which turned the global economy upside down. Synchronized economic decline, asset value crush, and financial distress took place across the world.

The COVID-19 pandemic is another example that puts a dramatic drop in the GDP and economic activity level in many major economies. The pandemic is also an inflection point at the industry level, such as airlines, hotels, and retail stores.

With an accelerated shift to e-commerce and online business, many retailers and restaurants changed their strategies to move the business online. Many of the ones that could not pivot quickly in response to this inflection point were forced to close their businesses.

There are also examples that individual businesses grow or decline after an inflection point. The introduction of the iPhone in 2007 is one of the inflection points with the most extensive impact on Apple. It became the flagship product of Apple and turned Apple into a technology magnate, whose share price soared since then.

The introduction of the smartphone is not only an inflection point to Apple but also to many other phone makers as it restructured the entire phone market. BlackBerry is one of the many examples whose business declined after this inflection point. The shares of BlackBerry peaked at $236 in the same year of the introduction of the iPhone.

Yet, the executives decided to continue to focus on government and business customers who buy BlackBerry devices for their employees and leave the juicy pie of general-use smartphones to Apple. It proved to be a fatal decision. The stock price of BlackBerry continuously dropped in the next six years to around $10, and the company was sold for less than $5 billion in 2013.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

  • Black Swan Event
  • Dotcom Bubble
  • Gross Domestic Product (GDP)
  • Strategic Planning

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