Riding Waves of Change
Exploit industry transitions to seize new high ground before others adapt
Waves of change are major shifts in technology, cost, competition, politics, or buyer perceptions that upset existing competitive structures, erasing old advantages and enabling new ones. They are largely exogenous, meaning no single organization creates them. The strategic opportunity lies in reading these waves correctly and positioning to seize the new high ground they create.
Rumelt identifies several analytical tools for reading waves: understanding the rise of software as the dominant competitive force, recognizing attractor states (industry configurations toward which a market is evolving), identifying incumbent inertia that prevents established players from adapting, and applying the insight that important transitions typically have predictable biases such as assuming that current trends will continue smoothly.
The key insight is that waves of change create high ground that did not previously exist. Just as an earthquake reshapes terrain, a wave of change creates new advantageous positions and destroys old ones. The strategist's task is to read the wave, identify the new high ground, and move to occupy it before competitors who are trapped by their own inertia.
- Waves of change create new high ground: positions of advantage that did not previously exist
- The most reliable strategy for seizing new high ground is exploiting the inertia of incumbents who cannot adapt
- Attractor states are industry configurations toward which the market is evolving; identifying them early provides strategic direction
- Software's increasing importance shifts competitive advantage from hardware assets to knowledge and design
- Beware predictable biases in forecasting: people tend to assume smooth continuation of current trends and underestimate disruption
- Identify the WaveDetermine what fundamental forces are reshaping the competitive landscape. Look for technology shifts, regulatory changes, demographic trends, cost structure changes, or shifts in buyer behavior that are creating new possibilities and undermining old ones. Focus on the forces that are exogenous and cannot be controlled by any single player.Pro tipThe rise of the microprocessor was not just a technology change but a force that vertically disintegrated the entire computer industry. When one layer of an industry becomes commoditized, the adjacent layers often capture the value. Understanding which layers are commoditizing helps predict where new high ground will emerge.WarningDo not confuse a fad with a wave. Waves are driven by fundamental shifts in technology, cost, or structure. Fads are driven by fashion and social dynamics. The distinction is critical for strategic positioning.
- Identify the Attractor StateAn attractor state is the industry configuration toward which the market is evolving. Determine where the industry is heading by asking: given the fundamental forces at work, what does the industry look like when the transition is complete? What business models, structures, and positions will be dominant?Pro tipWhen the newspaper industry faced the Internet wave, the attractor state was clear: a world where news content is freely available online, advertising shifts to digital, and print revenue declines permanently. Organizations that identified this attractor state early could position accordingly, rather than hoping the old model would survive.WarningThe timing of reaching the attractor state is much harder to predict than the state itself. Many companies identified the right attractor state but moved too early or too late.
- Assess Incumbent InertiaDetermine which established players will be unable to adapt to the wave due to their own routines, culture, commitments, and organizational structure. Incumbent inertia creates openings for new entrants and nimble competitors to seize positions that the incumbents should logically occupy.Pro tipCisco's rise was enabled by the inertia of established telecom equipment makers who were committed to proprietary networking protocols. Even though these incumbents had vastly more resources, their commitment to proprietary systems prevented them from embracing the Internet Protocol that would become the industry standard.
- Position for the New High GroundBased on your reading of the wave, the attractor state, and incumbent inertia, identify the new positions of competitive advantage and move to occupy them. Focus resources on building the capabilities and positions that will be valuable in the post-transition world rather than defending the old order.Pro tipThe skill is not in predicting the future but in reading what has already happened and understanding its implications. Pierre Wack said certain aspects of future events are 'predetermined.' If there is a storm in the Himalayas, flooding in the Ganges plain is not a prediction but an inevitability.WarningMoving too early can be as dangerous as moving too late. The key is to move when the wave's direction is clear but incumbents are still trapped by their inertia.
Cisco identified the wave of change from proprietary networking protocols to Internet Protocol (IP) networking. Founded by Stanford computer scientists who understood IP technology, Cisco positioned itself to provide the routers and switches that would connect the Internet. Established telecom equipment makers were trapped by their commitment to proprietary protocols and regulated utility business models.
When the Internet emerged, the newspaper industry faced a clear attractor state: readers and advertisers would migrate online, print circulation would decline, and the bundled newspaper model (combining news, opinion, classifieds, weather, and sports) would disaggregate. Some newspapers recognized this early and began building digital capabilities; others hoped print would survive.
Rumelt developed this framework by studying the vertical disintegration of the computer industry, the rise of the Internet, telecommunications deregulation, and the emergence of companies like Cisco Systems. The framework was sharpened by his analysis of why incumbents like AT&T and DEC consistently failed to adapt to waves of change while new entrants like Cisco and Apple seized the new high ground. His study of the semiconductor industry, particularly the shift from proprietary systems to modular architectures, provided the template for understanding how waves create and destroy competitive positions.