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FROM THE BOOKSHELF

ANDREW RUPPEL, Feature Editor, McIntire School of Commerce,
University of Virginia

Reflections on Inflections

by Andrew Ruppel, Feature Editor

Calculus has hit the management self-help books . . . well, sort of. Two prominent titles this past year were theme-d on the classical changeover point on a curve signaled by a change in sign of the second derivative. The first title, The Second Curve, by Ian Morrison, literally diagrams it on the cover, but oddly never uses a graph or chart of any kind once inside the text. The second title, Only the Paranoid Survive, features smiling author Andy Grove on the book jacket holding a microchip. Inside his book, he warns about 'strategic inflection points,' trotting out a graph with concave up & down curves coupled with the mathematical terminology associated with rates of change. Graphs aside, both authors warn the reader to anticipate a flagging first derivative (i.e., declining prospects) and move onto another product whose fortune (and graph) is looking up. Both authors are well tuned into technological and market trends. Morrison is president of the Institute for the Future, a think tank `brimming over' with ideas about the years ahead. Grove, of course, is CEO of Intel Corp., an outfit both responsible for, and taking advantage of, the yearly decline in hardware cost per executed computer instruction.

The Second Curve: Managing the Velocity of Change
Ian Morrison
Ballantine Books, 1996
272 pages
Morrison's approach is essentially a variation on what's in/what's out. For example, capital is `first curve'; knowledge is `second curve.' Japan is first curve; China is second curve. Hard work is first; hyper-effectiveness is second. First curve is owning factors of production; second curve is owning customers. And so on. Second-curve industries he identifies as: retail and distribution; health care; and financial services. No surprises here, but the value of the book lies in Morrison's discussion of the details behind the growing strength of these three sectors. Individual companies are also examined. Netscape is among Morrison's second-curve companies; so is Nestle'. What does it take to recognize second-curve potential? What does it take to avoid first-curve disaster? The answers -- understand paradoxes, tolerate ambiguity and conflicting goals. But when a curve takes off, it's hard to know whether it will continue, for as Morrison observes:
There are two million consumers who will buy anything new and another two million who will try to use it, no matter how ugly it is.

In the end, Morrison's two-curve metaphor for change is essentially an adaptation of the late Thomas Kuhn's notion that scientific progress is not the gradual refinement of hypotheses but rather it is discontinuous and revolutionary.

One reviewer (Lynda Brooker writing in KPMG's WORLDBUSINESS) counseled readers to skip Morrison's book if they were prone to depression or paranoia. But, according to Andy Grove . . .

Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company and Career
Andrew S. Grove
Doubleday-Currency, 1996
210 pages
This book is a quicker read than Morrison's, due both to shorter length and swifter style. You can even read (or listen to) it in serial form on the Intel Web site, complete with animated graphic that shows the "fork in the road" that firms encounter at an inflection point. Either they'll ride on the ascendant path up toward corporate success, or toboggan down toward corporate oblivion. The changes that make Grove paranoid are those of the ten-fold type, called by some a "sea change" or "quantum-level shift." Grove worries particularly about such changes in one or more of six broad areas (readers will recognize these as adapted from Michael Porter's typology). The six areas are: existing and potential competitors, customers and suppliers, complementary products and services, and ways of doing things-technology. Grove's prime example (one that he knows well, of course) is that of the computer industry, which underwent a shift from being structured in a classical vertical sense with companies producing everything -- hardware, operating system, applications and installation -- to an industry of horizontal groups by functional specialty: 'we make modems.' The reason for the shift says Grove: "It's harder to be the best in class in several fields than in just one."

Unlike Morrison, Grove thinks not just of two different curves, but rather of strategic inflection points on a host of curves. Realizing that you've encountered one of these points requires that you are ever alert for bad news (Grove rues Intel's initial discounting of the Pentium flaw's consequencesțapparently they forgot the Tylenol lesson). The strategic inflection point that worries Grove currently (and worries executives in most every other industry) is the Internet. Are we back to `dumb terminals?' Are print media obsolete? (Yet again?) What's the true signal amidst the noise? Grove isn't waiting to find out; he's pushing internally for Intel to develop an Internet appliance to preclude being surprised by someone somewhere changing the nature of computing radically. He knows that though the second derivative is exactly zero at the point of inflection, it doesn't stay that way very long.

Many readers will associate aspects of the concerns shared by Morrison and Grove as within the purview of the field of technological forecasting. One of the classic `second curve' examples here is the substitution of steam for sail in the motive power of ships. When plotted as percentage of new tonnage launched, the curve for steam declines in sigmoid fashion, while that for steam rises in complementary s-shaped form, crossing the latter at the 50% level. Such crossover conditions are of particular concern to corporate planners and other trend watchers. Here are some well known and less-well-known crossover examples: sales of music CDs versus cassettes; non-impact printers (e.g., laser-based) versus impact printers; Las Vegas non-gaming revenue now reportedly exceeds that from gaming; Mexican sauces and salsa sales have surpassed those of ketchup.

For readers interested in pursuing these trends and techniques for revealing them further, here are two titles that should prove of interest.

Encyclopedia of the Future
George Kurian & Graham Molitor (eds.)
Simon & Schuster Macmillan, 1996, 2 volumes
Both forecasting techniques and forecasting subjects are covered in this work. Also among the some 450 articles are biographies of well-known futurists, such as H.G. Wells. Forecasts in the social sciences get more attention than those in the physical sciences. Among the contributors are three Nobel prize winners and a comparable collection of well-known experts. (Editor Kurian is an experienced encyclopedia-assembler; Molitor is a vice president of the World Future Society.) The intended audience is the general reader more so than the specialist. At the end of the second volume is a chronology of predictions about the future made for pre-1995 events, plus predictions for post-1995.

Forecasting Principles and Applications
Stephen DeLurgio
Irwin, 1997
992 pages
Technological forecasting methods are among the broad array of techniques covered by the author in this interesting survey text, which aims to appeal to a variety of audiencesțboth academic and professional. The thrust is on forecasting for business. There are six major sections: Foundations; Univariate Methods; Univariate ARIMA Methods; Multivariate/ Causal Methods; Cyclical, Qualitative and Artificial Intelligence Methods; and, Combining, Validating, and Managerial Issues. Expert systems, neural networks, and genetic algorithms are given their own chapter. This book's versatility should make it attractive to both business and economics instructors of statistics beyond the introductory level. Additional details available at http://www.irwin.com.