Only the Paranoid Survive Read online

  Peter Drucker quotes a definition of an entrepreneur as someone who moves resources from areas of lower productivity and yield to areas of higher productivity and yield. That’s what a properly motivated and intelligent middle manager will do with resources under his or her command. The resources can range from wafer allocation for a production planner to how a salesperson schedules his or her efforts and energy. Are these random actions on the part of middle management or are they strategy being formed and executed? To be sure, they don’t seem strategic at first glance but I think they are.

  Avoiding the Trap of the First Version

  Helpful Cassandras are quick to notice the first signs of “10X” forces but those signs are often mixed in with symptoms of forces that might appear to be “10X” but aren’t. For instance, is the Internet really that big a deal? Are we going to do all our banking electronically? Is interactive television going to transform our lives? Are digital media going to transform the entertainment industry?

  The first thing you should realize is that everybody with a gadget hawks and hypes it and consciously or unconsciously works double time to make their product as important as possible. Under the circumstances, it’s only natural to be suspicious and so you should be.

  The second thing is that, when you explore these developments first hand, you’ll discover that mostly they aren’t what they’re cracked up to be. In the early days, getting from one place to another on the Internet took forever and when you got there, more often than not, you found a stale marketing brochure. Electronic banking is still a clumsy way to replace a stamp. And interactive television seems to have vanished even before the ink dried on the mega-announcements.

  On the other hand, don’t shut off your radar screens and go on about your business, discounting everything even if at first it seems quite crummy. A danger in assessing the significance of changes lies in what I call the trap of the first version.

  In 1984, when Apple introduced the Macintosh, I thought it was a ridiculous toy. Among other weaknesses I saw in it, it didn’t have a hard disk (at the time, all PCs already had one) and it was excruciatingly slow. Because of these two factors, the Mac’s graphical interface struck me as more of a nuisance than a significant advantage. The first implementation of the Mac blinded me to the far more important features that came with graphical interfaces, like the fact that they brought with them a uniformity for all the application programs that were based on them: You learned one and you learned them all. But I didn’t see through the problems of the first version to perceive the beauty of the technology that lay beneath them.

  In 1991, when Apple started to talk about the hand-held computing devices called personal digital assistants, or PDAs, a lot of people both inside and outside Intel considered them a “10X” force capable of restructuring the PC industry. PDAs could do to PCs what PCs were doing to mainframes, many said. Not wanting to be blind to this possibility, we made a very substantial external investment and started a major internal effort to ensure that we would participate in any PDA wave in a big way. Then Apple’s Newton came out in 1993 and was promptly criticized for its failings.

  What does this say about the PDA phenomenon? Is it less of a “10X” force because its first instantiation was disappointing? When you think about it, first versions of most things usually are. Lisa, the first commercial computer with a graphical user interface and the predecessor of the Mac, did not receive good acceptance. Neither did the first version of Windows, which was considered an inferior product for years—DOS with a pretty face, as many called it. Yet graphical user interfaces in general, and Windows in particular, have become “10X” forces shaping the industry.

  My point is that you can’t judge the significance of strategic inflection points by the quality of the first version. You need to draw on your experience. Perhaps you remember your reaction to the first PC you ever saw. It probably didn’t strike you as a revolutionary device. So it is with the Internet. Now, as you stare at your computer screen that’s connected to the Internet, waiting for a World Wide Web page to slowly materialize, let your imagination flow a bit. What might this experience be like if transmission speed doubled? Or better yet, if it were improved by “10X”? What might the content look like if professional editors rather than amateurs created it, not as a sideline but as their main occupation? You might extrapolate the evolution of this phenomenon by remembering how rapidly PCs evolved and improved.

  As you consider this or any new device, your answer may be that, even if it were “10X” better, it wouldn’t interest you as a consumer. Even if a company actually supplied it, it wouldn’t change the silver bullet test and it wouldn’t rearrange your complementors. Life would go on as before, just with one more gadget.

  But if your instincts suggest that a “10X” improvement could make this capability exciting or threatening, you may very well be looking at the beginning of what is going to be a strategic inflection point. Consequently, you must discipline yourself to think things through and separate the quality of the early versions from the longer-term potential and significance of a new product or technology.

  Debate

  The most important tool in identifying a particular development as a strategic inflection point is a broad and intensive debate. This debate should involve technical discussions (for example, is RISC inherently “10X” faster?), marketing discussions (is it a fashion fling or is it a business?) and considerations of strategic repercussions (how will it affect our microprocessor business if we make a dramatic move; how will it affect it if we don’t?).

  The more complex the issues are, the more levels of management should be involved because people from different levels of management bring completely different points of view and expertise to the table, as well as different genetic makeups.

  The debate should involve people outside the company, customers and partners who not only have different areas of expertise but also have different interests. They bring their own biases and their own interests into the picture (as Compaq’s CEO did when he urged us to continue with CISC development) but that’s okay: a business can succeed only if it serves the interests of outside parties as well.

  This kind of debate is daunting because it takes a lot of time and a lot of intellectual ergs. It also takes a lot of guts; it takes courage to enter into a debate you may lose, in which weaknesses in your knowledge may be exposed and in which you may draw the disapproval of your coworkers for taking an unpopular viewpoint. Nevertheless, this comes with the territory and when it comes to identifying a strategic inflection point, unfortunately, there are no shortcuts.

  If you are in senior management, don’t feel you’re being a wimp for taking the time to solicit the views, convictions and passions of the experts. No statues will be carved for corporate leaders who charge off on the wrong side of a complex decision. Take your time until the news you hear starts to repeat what you’ve already heard, and until a conviction builds up in your own gut.

  If you are in middle management, don’t be a wimp. Don’t sit on the sidelines waiting for the senior people to make a decision so that later on you can criticize them over a beer—”My God, how could they be so dumb?” Your time for participating is now. You owe it to the company and you owe it to yourself. Don’t justify holding back by saying that you don’t know the answers; at times like this, nobody does. Give your most considered opinion and give it clearly and forcefully; your criterion for involvement should be that you’re heard and understood. Clearly, all sides cannot prevail in the debate but all opinions have value in shaping the right answer.

  What if you are not in management at all? What if you are a salesperson, a computer architect or a technologist who manages no one? Should you leave the decisions to others? On the contrary, your firsthand knowledge eminently qualifies you as a know-how manager. As a potentially full-fledged participant in these debates, what you may miss in perspective and breadth you make up in the depth of your hands-on experience.

 
; It is important to realize what the purpose of these debates is and what it isn’t. Don’t think for a moment that at the end of such debates all participants will arrive at a unanimous point of view. That’s naive. However, through the process of presenting their own opinions, the participants will refine their own arguments and facts so that they are in much clearer focus. Gradually all parties can cut through the murkiness that surrounds their arguments, clearly understand the issues and each other’s point of view. Debates are like the process through which a photographer sharpens the contrast when developing a print. The clearer images that result permit management to make a more informed—and more likely correct—call.

  The point is, strategic inflection points are rarely clear. Well-informed and well-intentioned people will look at the same picture and assign dramatically different interpretations to it. So it is extraordinarily important to bring the intellectual power of all relevant parties to this sharpening process.

  If the prospect of a vigorous debate scares you, it’s understandable. Lots of aspects of managing an organization through a strategic inflection point petrify the participants, senior management included. But inaction might lead to a bad result for your business and that should frighten you more than anything else.

  Arguing with the Data

  Contemporary management doctrine suggests that you should approach any debate and argument with data in hand. It’s good advice. Altogether too often, people substitute opinions for facts and emotions for analysis.

  But data are about the past, and strategic inflection points are about the future. By the time the data showed that the Japanese memory producers were becoming a major factor, we were in the midst of a fight for our survival.

  At the risk of sounding frivolous, you have to know when to hold your data and when to fold ‘em. You have to know when to argue with data. Yet you have to be able to argue with the data when your experience and judgment suggest the emergence of a force that may be too small to show up in the analysis but has the potential to grow so big as to change the rules your business operates by. The point is, when dealing with emerging trends, you may very well have to go against rational extrapolation of data and rely instead on anecdotal observations and your instincts.

  Fear

  Constructively debating tough issues and getting somewhere is only possible when people can speak their minds without fear of punishment.

  The quality guru W. Edwards Deming advocated stamping out fear in corporations. I have trouble with the simplemindedness of this dictum. The most important role of managers is to create an environment in which people are passionately dedicated to winning in the marketplace. Fear plays a major role in creating and maintaining such passion. Fear of competition, fear of bankruptcy, fear of being wrong and fear of losing can all be powerful motivators.

  How do we cultivate fear of losing in our employees? We can only do that if we feel it ourselves. If we fear that someday, any day, some development somewhere in our environment will change the rules of the game, our associates will sense and share that dread. They will be on the lookout. They will be constantly scanning their radar screens. This may bring a lot of spurious warnings of strategic inflection points that turn out to be false alarms, but it’s better to pay attention to these, to analyze them one at a time and make an effort to dispose of them, than to miss the significance of an environmental change that could damage your business forever.

  It is fear that makes me scan my e-mail at the end of a long day, searching for problems: news of disgruntled customers, potential slippages in the development of a new product, rumors of unhappiness on the part of key employees. It is fear that every evening makes me read the trade press reports on competitors’ new developments and leads me to tear out particularly ominous articles to take to work for follow-up the next day. It is fear that gives me the will to listen to Cassandras when all I want to do is cry out, “Enough already, the sky isn’t falling,” and go home.

  Simply put, fear can be the opposite of complacency. Complacency often afflicts precisely those who have been the most successful. It is often found in companies that have honed the sort of skills that are perfect for their environment. But when their environment changes, these companies may be the slowest to respond properly. A good dose of fear of losing may help sharpen their survival instincts.

  That’s why in a way I think that we at Intel were fortunate to have gone through the terrible times in 1985 and 1986 that I described in Chapter 5. Most of our managers still remember what it felt like to be on the losing side. Those memories make it easy to conjure up the lingering dread of a decline and generate the passion to stay out of it. It may sound strange but I’m convinced that the fear of repeating 1985 and 1986 has been an important ingredient in our success.

  But if you are a middle manager you face an additional fear: the fear that when you bring bad tidings you will be punished, the fear that your management will not want to hear the bad news from the periphery. Fear that might keep you from voicing your real thoughts is poison. Almost nothing could be more detrimental to the well-being of the company.

  If you are a senior manager, keep in mind that the key role of Cassandras is to call your attention to strategic inflection points, so under no circumstances should you ever “shoot the messenger,” nor should you allow any manager who works for you to do so.

  I can’t stress this issue strongly enough. It takes many years of consistent conduct to eliminate fear of punishment as an inhibitor of strategic discussion. It takes only one incident to introduce it. News of this incident will spread through the organization like wildfire and shut everyone up.

  Once an environment of fear takes over, it will lead to paralysis throughout the organization and cut off the flow of bad news from the periphery. An expert in market research once told me how at her company every layer of management between her and the chief executive watered down her fact-based research. “I don’t think they want to hear that” was the byword with which bad news was eliminated, bit by bit, data point by data point, as her information was advanced along the management chain. Senior management in this company didn’t have a chance. Bad news never reached them. This company has gone from greatness to real tough times. Watching them from the outside, it seemed that management didn’t have a clue as to what was happening to them. I firmly believe that their tradition of dealing with bad news was an integral part of their decline.

  I have described how our Asia-Pacific sales manager and a key technologist came to see me with their warnings and/or perceptions. Both of them were long-term employees, self-confident and comfortable with Intel’s culture. They were results-oriented and familiar with constructive confrontation; they understood how these help us collectively to make better decisions and come to better solutions. They knew how we go about doing things and how we don’t—rules that you don’t find written down anywhere. Both overcame their hesitation and took what might be seen as a risk. One came to tell me a piece of news that he felt was a serious problem; it might have been a valid warning or he might have thought he was foolish to raise it but he knew he could mention his misgivings without fear of repercussion. The other could explain his views on RISC designs with the unstated premise of, “Hey, Grove, you’re out of your depth here, let me teach you a few things.”

  From our inception on, we at Intel have worked very hard to break down the walls between those who possess knowledge power and those who possess organization power. The salesperson who knows his territory, the computer architect and engineer who are steeped in the latest technology possess knowledge power. The people who marshal or shuffle resources, set budgets, assign staff and remove them from projects possess organizational power. One is not better than the other in managing strategic change. Both of them need to give their best to guide the corporation to good strategic results. Ideally, each will respect the other for what he or she brings to the party and will not be intimidated by the other’s knowledge or position.

  An en
vironment like this is easy to describe but hard to create and maintain. Dramatic or symbolic moves do nothing. It requires living this culture, promoting constant collaborative exchanges between the holders of knowledge power and the holders of organizational power to create the best solutions in the interest of both. It requires rewarding those who take risks when pursuing their jobs. It requires making adherence to the values by which we operate part of the formal management performance process. And, as a last recourse, it requires parting ways with those who can’t find it in themselves to adapt. I think whatever success we have had in maintaining our culture has been instrumental in Intel’s success in surviving strategic inflection points.

  Let Chaos Reign

  “Resolution

  comes through

  experimentation. Only

  stepping out of the

  old ruts will bring

  new insights.”

  With all the rhetoric about how management is about change, the fact is that we managers loathe change, especially when it involves us. Getting through a strategic inflection point involves confusion, uncertainty and disorder, both on a personal level if you are in management and on a strategic level for the enterprise as a whole. These two levels are more intimately connected than one might think.