When should you stay the course in life, and when should you shift with changing tides? This week, we bring you case studies from the world of business to explore the science of inflection points — changes that dramatically transform the course of events. Researcher Rita McGrath of Columbia University explains why we fail to see impending moments of upheaval, and what we can do to be more adept at spotting them.What you'll learn from this week's episode:The definition of an inflection point, and how to identify it in your own professional or personal life.The four stages of inflection points, and how to take advantage of them.The warning signs that an inflection point might be passing you by. If you find today's episode to be interesting or insightful, please share it with one or two people in your life! Your recommendation is one of the best ways to help us connect new listeners to the ideas we explore on the show. And for more of our work, be sure to sign up for our newsletter. Every week, we'll bring you the latest research about human behavior, along with a brain teaser and a moment of joy.
Chapter 1: What is the main topic of this episode?
This is Hidden Brain. I'm Shankar Vedantam. In the mid-1980s, Coca-Cola was feeling threatened by the growing popularity of its rival, Pepsi. Executives at Coca-Cola decided to shake things up. In April 1985, they launched a new product.
The supermarket shelves throughout America will have the new Coke by Memorial Day weekend, summer's kickoff, and the soft drink season.
New Coke promised to be sweeter and smoother.
Rounder, yet bolder. It's a more harmonious flavor. You're a pretty good copywriter.
Chapter 2: Why did New Coke fail in the 1980s?
Sounds great, right? But not everyone was happy. Consumers took to the streets to protest New Coke, pouring out the beverage in defiance. The Coca-Cola company received over 40,000 calls and letters from angry, dissatisfied customers.
Dear Chief Dodo, what ignoramus decided to change the formula of Coke? The new formula is unexciting and it's as bad as Pepsi. Burn it.
People didn't just take the change seriously. They took it personally.
That's un-American because we fought wars to have a choice, to have freedom.
New Coke was a disaster. Customers boycotted it, the media mocked and criticized the move, and distributors were reluctant to sell it. Sales plateaued and a rapid decline loomed on the horizon. The company threw in the towel and switched back to its original formula. Peace and taste buds were restored. There's a saying that's often attributed to Burt Lance, a political appointee of former U.S.
President Jimmy Carter in the late 1970s. If it ain't broke, don't fix it. The origins of this expression go back even further. Farmers believed that when something worked, it was best to leave well enough alone. Tinker with things, and you risk disaster. Today, we look at the truth of this old adage.
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Chapter 3: When should a company pivot its strategy?
When it makes sense to stay the course, and when it makes sense to change direction, this week on Hidden Brain. Imagine you're paddling a boat across a calm lake. The wind is steady. You're moving forward slowly but surely. There's no need to change course, adjust your stroke, or head back to shore.
But what if a storm rolls in, or your boat springs a leak, or you feel a sudden stabbing pain in your chest? Now, staying the course and sticking to your plan could be disastrous. At Columbia University, Rita McGrath studies when it makes sense to pivot and when it's wiser to stick with what's worked. Rita McGrath, welcome to Hidden Brain.
It's a pleasure to be here.
Rita, you tell the story of the Gillette Company, a popular personal care brand that most people are familiar with. Give me a brief history of the origins of the company.
Sure. So Gillette is one of the most successful consumer product companies in the world. They were founded in 1901 and they were one of the original safety razor manufacturers. So King C. Gillette, the actual man, founded this company. And before that, if you wanted to get a close shave, you pretty much had to go to a barbershop. So it was a huge breakthrough in mass market consumer products.
And they were basically able to pull off the strategy unthinkable. They maintained a competitive advantage for literally decades. They were the dominant player.
So in 2010, two entrepreneurs, Mark Levine and Michael Dubin, met at a holiday party. Mark was a product wholesaler who had a problem in one of his warehouses, and Michael was a marketer. What was the problem in the warehouse, Rita?
Well, Mark has this interesting career where he buys stuff from one part of the world and sells it for a profit in another. And as you mentioned, he was trying to unload this set of decent quality, not exceptional, but decent quality razors that were made by a South Korean manufacturer.
So I understand at this point, Mark has something like 250,000 twin razors in this warehouse, and he approaches Michael, who's an online video marketer, about potentially going into business together. What was the proposal?
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Chapter 4: What can we learn from the success of Dollar Shave Club?
And what they start thinking about is if you were going to try to sell razors in this day and age, in 2010, you know, we've had e-commerce for a while by then. We've had home delivery of just about everything. Why would you do it the way Gillette did it? Gillette's business model was basically you invest in high-end R&D. that allows you to charge higher prices for the great products that ensue.
And then you use your armies of marketing people to get these things in just the right places in the retail store. And in 1990, when they first introduced the sensor, this was revolutionary. The technology was patented. Nobody else could do it. By 2010, when this conversation happens, the world has changed completely.
Mark, who had the warehouse of 250,000 South Korean razors, and Michael, the video marketer, asked themselves if they could sell razors over the internet. This could save customers a trip to the store to buy Gillette's higher-priced razors. But the duo also had a brainwave about how to lock in customers long-term. They called it Dollar Shave Club.
Other companies had shown that direct-to-consumer could work, which is a company shipping stuff directly to your door and developing a personal relationship with you. Don't forget, Gillette's main relationships would be like with Walmart, right? They don't actually get all the way to the end customer. And so it gives those DTC, as we call them, companies a big advantage.
And he had quite a bit of experience with wholesaling, with retailing, and Dubin knew the power of the internet. So it was that kind of magical moment where the possibilities have really changed. And now you could see a niche in the market where you could actually create something that was entirely new.
So the idea was you sell a subscription to people and razors basically show up at your doorstep on a regular basis. So you don't have to go to the store. You don't have to buy it. There's a predictability about it. I understand they went to a number of bloggers to try and spread word about it and decided to get people to sign up. What was Gillette's initial response to this upstart, Rita?
They ignored them.
um gillette's position now you know as you said in the introduction um if you've had a smooth ship for a long time i mean if you're an executive at gillette at that time what are you thinking about you're thinking about two blades versus three blades three blades versus four you're thinking about how much ad placement do i place in television right because we hadn't yet realized television is kind of on the way out in terms of reaching lots of people especially young people um so your whole mental capacity is taken up with those kinds of questions you're not
looking for what's the hot new thing that might introduce a completely different variable into your sales process.
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Chapter 5: How did Gillette respond to digital disruption?
So I understand that Gillette eventually pivoted to try and get into the subscription business as well and sell Razor as a service. They started a Gillette club. How did that go?
Better, better. They picked up many of the segments that found shopping in the stores to be irritating. There are some men who felt the quality of the shave was better using their traditional Gillette blades. And so they were able to kind of mount a rear guard there. But that's a defensive action. That's not really winning and taking the offensive. It really just stops the bleeding.
So we talked about how Gillette missed two potential inflection points, the subscription model, but also this changing tide in the kind of marketing that customers were responding to. What was the long-term effect on Gillette's market dominance, Rita?
When Procter & Gamble bought Gillette in 2005, they spent $57 billion for it. Dollar Shave Club got its going with like Dubin's life savings of $35,000. I mean, in the past, it would be inconceivable that a tiny little upstart literally running out of his apartment, sticking on labels on packages by hand could be... even a modest threat to Mighty Gillette.
So if you think about sort of intellectual deniability, why would you believe that could be true? But what had happened in the interval was some big changes in tech. So Dollar Shave Club could start up without servers, and they didn't have to hire programmers to build custom websites, and they didn't have to manufacture.
You know, manufacturing razors is really hard, and they already had a supply because of Mark's efforts. So I think it was very difficult for the Gillette executives to realize this was real.
But it's also the case that the market dominance they had for much of the century, much of the 20th century, that has sort of disappeared. I mean, they no longer are in quite as dominant a position as they were through much of the 20th century.
And, you know, don't get me wrong, 50% share in a high-margin business like that is nothing to sneeze at. That's a really good business. It's just not as good as it was, right? And I have a lot of credit for the people at Procter & Gamble and Gillette. They really know their game, but the game changed.
You use the term inflection point to describe situations like what happened with Gillette and Dollar Shave Club. What is an inflection point, Rita?
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Chapter 6: What are inflection points in business?
And there were kind of two warring camps there. So she kind of let him carve out his own space around printing. So they forged a joint venture with Kodak, which went on for a few years. Perez wanted to buy Kodak. I don't think he got the board to buy into that. And eventually when the CEO rolled up and opened up a Kodak, he took that role.
And what he did in that role was he made the, what turned out to be pretty fatal decision to aim the whole company at printing just at that period when screens were getting so good that we didn't need to print. And I don't know this, but my belief and others observing the situation would agree that it was kind of ego-fueled.
He was going to show the HP board and all the others how wrong they were to not have given him that role and was using Kodak as his vehicle to do that.
So what's striking about the Antonio Perez story, Rita, is that he had been wildly successful betting on printers while he was at HP. And in fact, as you just pointed out, it had produced billions of dollars in revenue. The very same play, five years later, 10 years later at a different company, completely different outcome. Indeed.
And we see that a lot, you know, that there is a time and a place for a particular strategy to be successful. And when the conditions change, you can't just rinse repeat.
Another reason organizations can miss out on inflection points is timing. We can see how trying to jump on a bandwagon late, like Gillette offering a subscription service after the inflection point had passed. But you say that companies can also jump on an inflection point too early. I understand this was the case with the video rental company Blockbuster?
Yes. So Blockbuster is another one of those fascinating stories, because I think we get it wrong. You know, Blockbuster always gets told as, oh, you know, dumb old company, never saw the power of streaming. And that's not actually true. There was a very well-known turnaround, retail turnaround guy called John Antioco, who was put in the CEO role there. And the company was in trouble.
There was a lot of competition. Their margins were getting squeezed. And they had two things that drove customers absolutely crazy. One was the late fees. And the other was that if you had a movie that came out that was really super popular, Blockbuster would only buy, you know, four or five to keep in the store at the time. So the hot new movies you often had to wait for.
And those were things that were irritating. So Antioco took a look at this and he said, well, what I think we need to do, I think we need to get rid of late fees. I think streaming is a thing. And he actually partnered with Enron, yes, that Enron, to build out a digital infrastructure that would make it possible to do that. But again, we're talking kind of before high-speed broadband.
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Chapter 7: Why do companies miss inflection points?
And there's a bunch of things that would have to be true. Medicare and Medicaid would have to figure out payment models for services that were not done in a facility, for services that were done either at home or mediated technologically. You probably would have to have legislative action which says, hey, drugs delivered electronically are as legitimate as drugs delivered any what way.
So we went back probably two and a half years later, and we looked at those early warnings that we had developed back in the day. And what you saw was yes, yes, yes, and yes. In fact, a bunch of the things that we'd anticipated were now starting to happen. When it came time to saying, hey, do we need to hire a data scientist? The answer was yes.
When it came time to say, let's figure out what marketing looks like in a doctor-free environment. And there were a whole bunch of other things as well. For example, a lot of private physician practices were being sold to large players. You saw the disproportionate influence of the paying, the insurance companies, and, and, and, and. And so it caused them to take a real strategic shift.
You know, I worked in the newspaper business for many years, Rita, before moving to radio and to audio. But I remember there was a point in my newspaper career where I was actually not reading the newspaper on the page, but I was reading it online online.
And at the time, I think the companies that I worked with were still sort of ambivalent about digital journalism and the idea that people would really read things in a widespread way online. But one of the things that you point out is that when you yourself or the employees at your company are not using your product, it's a warning sign. It's basically a canary in the coal mine.
And a very good one, you know, that it doesn't cost you anything to see what people are actually doing. So I'll never forget, I was some years back, probably in the late, right around 2000, I was doing some work with Nokia in a program called Choices, which was for the people that were in their new product development company. And at the time, I was working for a lot of telecom companies.
It was a very hot area. And so as I traveled around the world, I would always go to phone stores. So in the airport or on the street. And you'd watch what was going on in the physical phone store because it would tell you a lot about market share and who was hot and who was not and what were the salespeople pushing and all that kind of thing.
And what I started to see was the section of the store devoted to Nokia products was getting smaller and smaller and smaller. And so I was with this class and I said to people, well, tell me what you learn when you go visit a phone store. And the room went completely silent. And I said, well, nobody has any ideas. And they looked at me and they said, we don't visit phone stores.
I said, excuse me? They said, no, you know, R&D sends us the new phones with the new features to test out and we give them our feedback and we don't ever go to a phone store. And I was like, what?
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Chapter 8: What can Blockbuster and Kodak teach us about timing?
that's been part of who you are for a long time, and the need to do that and move on.
Another example of a company that found an innovative way to ride an inflection point was Procter & Gamble. They had come up with a water purification chemical, but it was not taking off. Tell me that story, Rita.
Yeah, so the thing was called Pure, if I remember properly. And the original concept for it was that there would be this huge market of providing safe drinking water in places which didn't have reliable access to it.
But, you know, it's really hard, I think, if you've always lived your life in a developed country where you open the tap and safe drinking water comes out to really understand the day to day circumstances of people who don't have that luxury. And what they came to realize was that if they tried to do this thing as a commercial enterprise.
That it was going to be very difficult for the people living in those areas to access it because safe water was just one of their problems, right? They were, you know, there's sanitation concerns, there's other health concerns, and they've got so little resources that to take what little they had and spend it on safe water, you know, maybe you'll just take the risk.
So it wasn't, they banged away at it for a while, but it just became clear that unless a government took an interest or an NGO took an interest, that it just wasn't going to be a commercial enterprise.
But then I believe it was a series of natural disasters that they were able to basically go in as a charity and say, hey, look, we will donate this, you know, to keep people from getting terrible illnesses and whatnot. And that then did attract the attention of the NGO community, of the governmental community.
And it became, I wouldn't say a wildly profitable business for them, but at least a viable business for them.
I understand that it also had significant public relations benefits because now they were in the business not just of making money, but they were also in the business of saving lives in poor countries. And that had sort of brand benefits, if you will, that also indirectly helped the bottom line.
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