Former Intel CEO Andy Grove was actually born András István Gróf in Budapest in 1936. The son of a Jewish merchant family, he had to live under a false identity and escaped Nazi persecution only after finding shelter with friends. In 1957 he decided to flee to the United States after the Soviet armed forces’ suppression of the popular uprising in Hungary in October 1956. Once in America, he changed his name to Andrew Stephen Grove but became known as Andy Grove. He assiduously taught himself English and enrolled at Berkeley, emerging with a Ph.D. in 1963. After his studies he took a job at Fairchild Semiconductor, where he got to know Gordon Moore and Bob Noyce, with whom he teamed up in 1968 to found Intel.
The three men made a remarkable team. When they met, Grove was just 27, while Moore and Noyce were in their mid-thirties. The trio provides us with one of many examples highlighting the fact that it is never too early to look out for top talent. Before working for Fairchild, Noyce and Moore had been employed by William Shockley, who had won the 1956 Nobel Prize for Physics for developing the transistor and published the first academic book on semiconductor electronics. In 1975, Moore formulated a hypothesis that would later become known as Moore’s law, predicting that the number of transistors on a computer chip would double about every 24 months. This prediction turned out to be astonishingly accurate and bears witness to Moore’s excellent foresight. Grove, on the other hand, brought not only his management skills to Intel’s founding team, but also a healthy understanding of human nature, which was crucial for ensuring that everything the company developed stayed firmly in touch with reality and had a practical application. The following quotation really sums up his pragmatic approach: “I have a rule in my business: To see what can happen in the next ten years, look at what has happened in the last ten years.”1
How Grove managed to overcome successive major crises when building Intel makes for fascinating—and valuable—reading. One of the worst dilemmas arose in the early 1980s when Japanese manufacturers succeeded in producing memory chips that were not only superior in quality to those turned out by Intel, but also cheaper. As a result, Grove’s company lost its dominance of the market, and in 1985 the situation became so serious that Intel’s survival hung in the balance. One day, when it became clear that all efforts to resolve the company’s problems were in vain, Grove asked Moore what a new CEO would probably do. Without hesitating Moore replied: “He would get us out of memories.”2 Grove was shocked, though it was patently clear to him that doing so would mean changing the entire company from the bottom upward. After all, Intel had effectively lost its core market and would have to turn to a new one—a long and painful process.
As Grove would say later, it was one of the toughest decisions he and his management team ever had to make. They duly made a clean break with the company’s past to embark on something completely new, ultimately creating a totally new business. The change took three years and involved closures due to redundencies in around one-third of all the company’s areas of activity. Intel had finally decided to invest very deeply in microprocessor technology with a view to tapping into what at the time was an emerging mass market.
What lessons can be learned from this? First, true to one of Grove’s guiding principles—“Only the paranoid survive”—a certain degree of paranoia or, more specifically, “healthy skepticism” is good, indeed essential, for anyone intent on being a successful entrepreneur. Intel almost waited too long before reading the writing on the wall and recognizing that its Japanese rivals were on the verge of forcing it out of a market it had previously dominated. With refreshingly down-to-earth clarity Grove said: “Complacency often afflicts precisely those who have been the most successful.”3 In over 40 years of Intel’s existence, Grove has never allowed himself the luxury of complacency.
The second lesson to learn is how essential it is to always look at a business from the outside and ask: “What would a new CEO do?” By consciously looking at the company from the outside, Grove and Moore succeeded in reaching totally new conclusions and also used what Joseph Alois Schumpeter called “creative destruction” in a positive way, namely to create a new business that was stronger than its predecessor had ever been.
In 1994, Andy Grove found himself facing a second relatively major crisis with Intel. The company was just launching its latest generation of microprocessors, the Intel Pentium processor, when news reached Grove in December that IBM was immediately ceasing its deliveries of all Pentium-based computers. The reason cited for IBM’s decision was a “minor design flaw” that had been reported to Grove a few weeks before but that was supposedly under control.
In fact, that “minor” flaw ended up plunging the company into one of the deepest crises in its history. The computer giant’s refusal not to deliver some of its computers because they contained the Pentium chips in question not only damaged the reputation of Intel’s product, but threatened the credibility and ultimately the continued existence of the entire company, leaving just two possibilities: either Intel could prove there was nothing wrong with the chip, or it could recall all the microprocessors it had delivered—a decision that would cost the company more than half a billion dollars. Ultimately Intel opted to recall the offending chips.
Looking back at the incident later in his book, Grove wrote: “You only know that something has changed, something big, something significant, even if it’s not entirely clear what that something is.”4 Intel’s management felt that it had totally lost control. Computer users, who were not even Intel’s direct customers, demanded the processor’s removal. What Intel thought it knew about quality and reliability suddenly no longer applied. The company had reached a strategic inflection point, as Grove called it: a situation necessitating a massive transformation far exceeding the scope of a normal change. Such inflection points are characterized by a drastically and extremely rapidly shifting situation and can involve competitors, technology, customers, suppliers, complementary services, products, or even certain rules and regulations.
The actual problem is not so much the fact of change as its scope and intensity. Grove himself quantified such radical shifts as ten times more intense than the changes to which an organization is “normally” accustomed.
A large proportion of Grove’s highly readable book Only the Paranoid Survive is devoted to dealing with strategic inflection points. Incidentally, Peter F. Drucker, who only very rarely commented on books, had this to say about it: “This terrific book is dangerous. . .. It will make people think.”5 The point here is that the action Intel chose to take when faced with strategic inflection points highlights the importance of constant circumspection, healthy skepticism, and a certain degree of paranoia, regardless of whether the threats faced stem from technological progress or arise through competition.
Which specific steps can be taken to ensure that impending changes or even strategic inflection points are recognized at an early stage? The first essential step is to encourage tough, open debate. Only when situations, possibilities, and dangers are discussed at length will an organization have a chance to spot impending strategic inflection points, possibly even at an early stage. This step also entails deliberately aspiring to—or even demanding—differences of opinion in such discussions. Alfred Sloan was a master in this respect.
Any organization deeming this kind of culture of debate a necessity and wishing to embrace it will also end up without sycophants—and, for that matter, without bosses fond of surrounding themselves with people who agree with everything they say. Observation and analysis of what competent managers or advisory or supervisory bodies bear in mind when making staff-related decisions reveals that they like filling management posts with strong characters and with people who like working alongside such individuals. It has been known for some time that the quality of decisions depends primarily on a healthy culture of debate within an organization, so care needs to be taken to ensure that such a culture can arise and flourish.
Another key step entails encouraging targeted discussions on core issues throughout your organization, across departmental boundaries. Such exchanges could result in change or lead to strategic inflection points. Many problems and opportunities arising today are too complex for any few individual knowledge holders to have a sufficient overview of them. This is why in the future it will increasingly make sense for organizations to engage in opinion-forming and consensus-building across all departmental boundaries when issues of central importance are involved.
A further recommendation is to display healthy skepticism toward the data available to you and question the assumptions underlying your views and conclusions. At the same time, check whether the management team (including you) is keeping up with shifting reality. If it’s not, decide what needs to be done to close the gap and “catch up.” This may sound banal, but in the real world it regularly emerges that this issue has not been addressed or ends up being taken seriously only when it is almost too late to remedy the situation. Intel, too, waited a long time on both the occasions described above.
Naturally, it should be stressed that long before Intel faced any crises that jeopardized the company’s very existence, it also successfully steered clear of many threats, preventing them from ever becoming really serious problems in the first place. Sensible questions to ask are: “What can we do to circumvent crises and dangers at an early stage?” “What do we need to look out for?” “Which targets should we set for ourselves?”
Over the past 50 years, specific key areas have proved their relevance for organizations to keep in mind and set targets for. Peter F. Drucker published them for the first time in 1954 in his book The Practice of Management.6 Ever since, many authors have adopted, slightly altered, or based their work on them. According to Drucker, organizations should aim to meet specific performance targets and objectives in the following eight areas:
1. Market standing
2. Innovation
3. Productivity
4. Physical and financial resources (especially liquidity and cash flow)
5. Profitability
6. Manager performance and development
7. Worker performance and attitude
8. Public responsibility.
This approach has four distinct consequences: first, it sets performance targets; second, it defines areas that can be appraised; third, these eight areas create a practical framework from which to order and structure a wide range of real-life phenomena; and fourth, they serve to focus the systematic search for risks that may arise for the organization.
It is often supposed that different organizations need to cover different key areas, but in actual fact practical experience in this domain since the first publication on this issue half a century ago has shown that these areas are quite universal. In fact, they apply equally to organizations in all kinds of sectors, of every conceivable size, at every conceivable stage of development, and in any economic situation. Naturally, different organizations are likely to vary considerably in how they differentiate these areas, that is, subdividing them into variables or objectives of secondary importance within a key area. In addition, any such variable or objective may have to be altered to keep it in line with changing internal or external circumstances. Implementing this constant adaptation of development-driven objectives, limit values, factors to monitor, and variables is one of the main strategic tasks facing the management team.
The eight key areas listed above can be useful for neatly structuring the debate about what to look out for. Asking the following questions may be a useful way of setting the ball rolling:
What determines our organization’s market standing?
How can we structure that market standing and view it in different perspectives?
How can we define innovation performance? What does this performance determine for our organization’s innovations, both internally and in the marketplace? How is our innovation performance developing over time? Is it getting worse or better?
How productive is our organization in terms of labor, capital, time, and its exploitation of knowledge?
What, apart from liquidity and cash flow, do we use to assess our financial resources? Which trends can we recognize?
Which physical resources are of central importance to us?
How high should our minimum profit be to ensure that we remain in business?
How good is our corporate culture and how do we appraise the performance, development, and attitude of our managers and workers?
In which areas do we accept public responsibility? In which domains do we have to decline such responsibility on the grounds that our organization would “overheat” if we did accept it?”
If you deal thoroughly and diligently with the eight key areas, not only will you lead your organization more reliably and with greater precision, but you will also be able to spot impending changes and strategic inflection points early on.
Use the questions on the eight key areas to start a discussion with your colleagues. What else could you do to consolidate and improve your organization’s performance in these areas?
In which area is complacency jeopardizing lasting success?
Where can you find the really good people you would like to have working alongside you? Can you offer them something they want as well?
What can you do to recognize change or even strategic inflection points at an early stage? Encourage open debate? Discuss issues at the interdepartmental level? Question assumptions? Do you have any other ideas?