What is an 'Inflection Point'

An inflection point is an event that results in a significant change in the progress of a company, industry, sector, economy or geopolitical situation and can be considered a turning point after which a dramatic change, with either positive or negative results, is expected to result. Companies, industries, sectors and economies are dynamic and constantly evolving. Inflection points are more significant than the small day-to-day progress typically made, and the effects of the change are often well known and widespread.

BREAKING DOWN 'Inflection Point'

Based on mathematical charting models, the inflection point is where the direction of a curve changes in response to an event. To qualify, the shift must be noticeable or decisive and attributed to a particular cause. This principle can be applied to a variety of economic, business and financial information, such as shifts in the gross domestic product (GDP) or changes in security prices, but it is not used in reference to normal market fluctuations that are not the result of an event.

Andy Grove, Intel's co-founder, described a strategic inflection point as "an event that changes the way we think and act." Inflection points can be a result of action taken by a company, or through actions taken by another entity, that has a direct impact on the company. Additionally, inflection points may be caused by an intentional action or unforeseen event.

Events Marking Inflection Points

Regulatory changes, for instance, could lead to an inflection point for a corporation that was previously held back by regulatory compliance issues. Inflection points in technology include the advent of the Internet and smartphones. Politically, an inflection point can be illustrated by the fall of the Berlin Wall or the fall of communism in Poland and other Eastern Bloc countries.

Certain unforeseen events can include major economic downturns, such as the financial crisis of 2008, or natural disasters that affect a particular business or industry in a meaningful way. In this regard, an inflection point may not be identifiable until after the event has occurred and a change in direction has been subsequently noted.

Implications of the Inflection Point

When an inflection point is identified, it is often a sign that the affected industry must make certain fundamental changes in order to continue to operate. For example, with the introduction of the smartphone, other mobile technology manufacturers had to adapt to the changing market conditions in order to remain successful.

Palm Inc., the manufacturer of the Palm Pilot personal organizer, attempted to adjust to changing market conditions through the release of the Palm Trio smartphone but was ultimately unable to compete with stronger industry competitors such as the Blackberry offered by Research-in-Motion Limited and the iPhone offered by Apple Inc. This resulted in a loss of stock value, with the price beginning at $669 in 2000 and falling to $11 by 2009. In 2010, HP Inc. announced its acquisition of Palm, which included an offer that amounted to approximately $5.70 per common share of Palm stock.

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