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  The Touchy-Feely Issues

  How a company handles the process of getting through a strategic inflection point depends predominantly on a very “soft,” almost touchy-feely issue: how management reacts emotionally to the crisis.

  This is not so strange. Businesspeople are not just managers; they are also human. They have emotions, and a lot of their emotions are tied up in the identity and well-being of their business.

  If you are a senior manager, you probably got to where you are because you have devoted a large portion of your life to your trade, to your industry and to your company. In many instances, your personal identity is inseparable from your lifework. So, when your business gets into serious difficulties, in spite of the best attempts of business schools and management training courses to make you a rational analyzer of data, objective analysis will take second seat to personal and emotional reactions almost every time.

  If you are a middle manager, many of the same considerations apply. But very often your job is also at stake. How your corporation succeeds in working its way through a strategic inflection point may determine what happens to your career.

  A manager in a business that’s undergoing a strategic inflection point is likely to experience a variation of the well-known stages of what individuals go through when dealing with a serious loss. This is not surprising, because the early stages of a strategic inflection point are fraught with loss—loss of your company’s preeminence in the industry, of its identity, of a sense of control of your company’s destiny, of job security and, perhaps the most wrenching, the loss of being affiliated with a winner. However, unlike the accepted model of the sequence of emotions associated with grief (i.e., denial, anger, bargaining, depression and, ultimately, acceptance), in the case of a strategic inflection point, the sequence goes more as follows: denial, escape or diversion and, finally, acceptance and pertinent action.

  Denial is prevalent in the early stages of almost every example of a strategic inflection point I can think of. During Intel’s memory situation, I remember thinking, “If we had just started our development of the 16K memory chip earlier, the Japanese wouldn’t have made any headway.”

  Escape, or diversion, refers to the personal actions of the senior manager. When companies are facing major changes in their core business, they seem to plunge into what seem to be totally unrelated acquisitions and mergers. In my view, a lot of these activities are motivated by the need of senior management to occupy themselves respectably with something that clearly and legitimately requires their attention day in and day out, something that they can justify spending their time on and make progress in instead of figuring out how to cope with an impending strategically destructive force.

  At such times, senior managers often involve themselves in feverish charitable fundraising, a lot of outside board activities or pet projects. Take a look at a representative calendar of the CEO of a major corporation that was in the middle of a strategic inflection point. Does his allocation of time, his most precious resource, reflect the strategic crisis? I don’t think so.

  He is by no means unique. Frankly, as I look back, I have to wonder if it was an accident that I devoted a significant amount of my time in the years preceding our memory episode, years during which the storm clouds were already very evident, to writing a book. And as I write this, I wonder what storm clouds I might be ducking now. I’ll probably know in a few years.

  But let’s go back to acquisitions, my favorite example. If I undertake a multibillion-dollar acquisition, every decision associated with it will require my attention. I will have to work so very hard and very quickly that the acquisition will take on far more importance than anything else that I have to deal with in the ordinary line of my business. So I will have created an infinite sink for my attention. I can justify looking in the mirror every morning and saying, “I don’t have time to deal with such mundane issues as why we are gradually losing sales at the smaller accounts. I’ve got a very important midnight meeting with my investment advisers coming up.” Under the circumstances, my inattention to daily details is understandable, even respectable; the acquisition has taken on a life of its own that takes me away from something that I don’t know how to handle. I wonder to what extent all the acquisitions of movie studios by the major Japanese consumer electronics companies were motivated by the need of senior management to engage in diversions from the far more intractable and mundane problems of a secular slowdown of their core businesses.

  These stages aren’t just the province of bad senior managers.

  Calendar of the CEO of a Major U.S.

  Corporation During a Strategic Inflection Point

  MONDAY

  8:30–9:30 Strategic planning conference update

  10:00–10:30 Review plans for annual design award

  11:00–12:00 Management and measurement systems

  1:00–1:15 Review education speech

  1:30–2:00 Quality update

  4:00–4:45 Preparation for board meeting

  5:25 Depart for East Coast city

  6:30–9:30 Dinner meeting-outside board of directors

  Overnight in East Coast city

  TUESDAY

  8:00–9:00 Breakfast meeting

  9:30 Depart for second East Coast city

  11:00–11:45 Business association-education meeting

  12:00–2:00 Business association-education task force

  2:00–8:30 Business association board meeting

  Overnight in second East Coast city

  WEDNESDAY

  8:15–11:45 Charity executive committee

  12:15–1:30 Travel to company headquarters

  2:00–5:00 Executive staff meetings

  6:00 Depart for East Coast factory

  Overnight in factory town

  THURSDAY

  3:30–5:00 Plant celebration, night shift

  5:30–9:15 Second plant celebration

  9:30–10:30 Third plant celebration

  11:00–11:50 Fourth plant celebration

  12:00 Depart for company headquarters

  2:00–4:15 Executive Staff meetings

  FRIDAY

  8:15–8:30 Board meeting agenda

  8:30–9:00 3rd quarter outlook

  9:00–12:00 Executive staff meetings

  1:15–5:00 Company review—U.S. division

  Good leaders are also subject to the same emotional wriggling. They, however, eventually emerge to the acceptance and action phases. Lesser leaders are not capable of that and they are often removed. Then they are replaced by individuals who are not necessarily more capable but who do not have the emotional investment in the previous strategy.

  This is a key point. The replacement of corporate heads is far more motivated by the need to bring in someone who is not invested in the past than to get somebody who is a better manager or a better leader in other ways.

  The Inertia of Success

  Senior managers got to where they are by having been good at what they do. And over time they have learned to lead with their strengths. So it’s not surprising that they will keep implementing the same strategic and tactical moves that worked for them during the course of their careers—especially during their “championship season.”

  I call this phenomenon the inertia of success. It is extremely dangerous and it can reinforce denial.

  When the environment changes in such a way as to render the old skills and strengths less relevant, we almost instinctively cling to our past. We refuse to acknowledge changes around us, almost like a child who doesn’t like what he’s seeing so he closes his eyes and counts to 100 and figures that what bothered him will go away. We too close our eyes and are willing to work harder, to dedicate ourselves to our traditional tasks or skills, in the hope that they and hard work will get us there by the count of 100. The phrase you’re likely to hear at such times is “Just give us a bit more time.”

  Strategic Dissonance

  As we begin to respond, maybe too little too l
ate, we face another emotional hurdle: to admit to ourselves consciously and explicitly the magnitude of the problem we are struggling with. Even as our actions begin to reflect the process of adjusting to the new environment, we still struggle with the task of describing them in clear words. Recall the story of how Intel exited the memory business. The company had been adjusting wafer allocation for some time, yet when I was asked point-blank about our plans I had difficulty explaining them in plain English.

  I have seen many companies fall into the same trap of saying one thing and doing another while they are in the midst of coping with a strategic inflection point. I call this divergence between actions and statements strategic dissonance. It is one of the surest indications that a company is struggling with a strategic inflection point.

  Why is strategic dissonance so inevitable? What brings it about? The process of adapting to change starts with employees who, through their daily work, adjust to the new outside forces. The Intel production schedulers shifted wafer capacity from memories to microprocessors because the latter were more profitable. Meanwhile, we senior managers were trapped by the inertia of our previous success. After all, we had grown up as a memory producer: that’s what we had been good at and that’s what shaped our view of ourselves. Consequently, while front-line employees and middle managers were implementing and executing strategic actions that said one thing, senior management was still issuing high-level strategic pronouncements that said the exact opposite.

  What tips you off to emerging strategic dissonance?

  Signs of strategic dissonance often surface when senior managers engage their middle management or their sales force in a freeflowing discussion, provided that the discussion takes place in a culture that permits open confrontation. This is how it works at Intel. Occasionally, when I stand in front of such a group and field questions, I find it awkward to attempt to defend the position of the corporation in the face of some specific questions and comments that come from people who are wise to their world and their environment. Often these questions come in the form of follow-up questions after I have been asked about our specific strategy regarding a particular product, customer or technology. After I have given my well-practiced answer, the follow-up question may start with “But what about …”or “Does it mean that …”

  Such questions usually represent sharp probing for the true intent behind the general answer I’ve just given. To be sure, they may be triggered by my not having been clear enough. But, on the other hand, they might be caused by a growing dissonance between my well-worn answer and a diverging reality. If it’s the latter case, this may be the first sign of a strategic dissonance and prompts me to say to myself, “Grove, listen up, something is not quite right here.”

  Strategic dissonance is so much an automatic reaction to a strategic inflection point that probing for it is perhaps the best test of one. When people in the company start asking questions like “But how can we say ‘X’ when we do?’?” more than anything else this is a tip-off that a strategic inflection point may very well be in the making.

  Experimentation

  While this dissonance between what the company does and what management says is understandable, it accompanies a terribly unproductive and distressing phase. The growing discomfort associated with strategic dissonance creates confusion and uncertainty even in the best of minds. You know that something substantial is not right—something is different—but you don’t know what it is, you don’t know how significant it really is and you don’t know what to do about it.

  Resolution of strategic dissonance does not come in the form of a figurative light bulb going on. It comes through experimentation. Loosen up the level of control that your organization normally is accustomed to. Let people try different techniques, review different products, exploit different sales channels and go after different customers. Much as management has been devoted to making and keeping order in the company, at times like this they must become more tolerant of the new and the different. Only stepping out of the old ruts will bring new insights.

  The operating phrase should be: “Let chaos reign!”

  Not that chaos is good in general. It’s awfully inefficient and wearing on all participants. But the old order won’t give way to the new without a phase of experimentation and chaos in between.

  The dilemma is that you can’t suddenly start experimenting when you realize you’re in trouble unless you’ve been experimenting all along. It’s too late to do it once things have changed in your core business. Ideally, you should have experimented with new products, technologies, channels, promotions and new customers all along. Then, when you sense that “something has changed,” you will have a number of experiments that can be relied on to expand your bag of tricks and your organization will be in a much better position to expand the scope of experimentation and to tolerate the increased level of chaos that is the precursor for repositioning the company in a new business direction.

  Intel experimented with microprocessors for over ten years before the opportunity and imperative arose to make them the centerpiece of our corporate strategy. During this period of time, microprocessors were not our main line; in fact, for a number of years we spent more money on developing and marketing them than they generated in revenue. But we kept at it, our microprocessor business gradually grew and, when our circumstances changed in a big way, we had a more appealing business to focus our resources on.

  Experiments are not without controversy. Consider the conflict at Intel in the late 1980s between the 1860 RISC processor and the 486 CISC processor described in Chapter 6. While our stated strategy was to be fully dedicated to maintaining a compatible family of microprocessors, we allowed some of our best people to put their efforts and creative energies into developing a new architecture in the form of the 1860.

  That was not all bad. Had the old technology run out of steam, embracing the new technology might very well have been the right thing for us to do. Experimenting with it gave us a head start to make such a shift, had it been necessary.

  However, by letting this experiment grow and bubble up and reach the marketplace, the experiment itself grew to be a very large force affecting the company; it divided our efforts, muddied the waters about which microprocessor technology the company stood for and eventually could have weakened our entire microprocessor thrust. In short, it created chaos. We needed to deal with it one way or another, either by taking advantage of our momentum in the standard microprocessor market to create a new RISC branch, or by decisively reining in the experiment.

  The Business Bubble

  As in many sports, timing is everything. The same action taken in business early on may do the job; taken later on, it may well fall short because it won’t be enough.

  By “early” I mean acting while the momentum of your existing business is strong, while the cash flow is there and while the organization is intact. The momentum of a still healthy business provides you with a benign bubble within which you can work on repositioning the company. Under the protection of this bubble you can make changes far more easily than when the vital signs of your business have all turned south.

  In other words, it is best when senior management recognizes and accepts the inevitability of a strategic inflection point early on and acts before the vitality of the business has been sapped by the “10X” forces affecting it. The necessary transformation of the business will likely be a lot less wrenching and more successful if proper action is taken early and enforced decisively.

  The reality, unfortunately, is that we tend to do exactly the opposite. Owing precisely to the emotional factors described earlier, most management will do too little too late and therefore fritter away the protection that the bubble of their existing business would otherwise have provided them with.

  It’s easy to see why. There’s no panic in the early stages of an inflection point. One can couch the arguments for inaction in the early stages in statements like “We shouldn’t tinker with the golden
goose” or “How could we possibly take our best people away from the business that pays all of our salaries and put them on some speculative new project?” or the most alarming one of all, “The organization can take just so much change; it’s not ready for more,” meaning really, “I’m not ready to lead the organization into the changes that it needs to face.”

  Looking back over my own career, I have never made a tough change, whether it involved resource shifts or personnel moves, that I haven’t wished I had made a year or so earlier. Recall Intel’s memory episode. We had been losing money in memories for quite some time. Yet we only reacted when the rest of our business went into a recession also. Next only acted when their cash needs forced them to. The previously immensely successful Compaq was slow to act forcefully as the personal computer business turned into a lower-margin, commodity-like business. It took a six-month decline in revenue, profits and market share, including a $70 million loss and its first-ever layoffs before Compaq’s board of directors took draconian steps.

  This tendency is easy to see in others although we are prone to blindness when we do it ourselves. The other day I met with a manager of a company that is struggling with a strategic change. I was urging him to act aggressively in adopting a new direction. It was easy for me to encourage him: After all, I didn’t have to do anything, while he had to force his organization into a set of actions that would mean discontinuing some products that they had already committed to their customers. He knew that he needed to act; in fact, he was making some moves in the right direction. Yet these moves were pitifully inadequate in my view. They adjusted things at the margins—they dropped a few less successful versions of the product—whereas what he needed to do was discontinue the product altogether and redeploy development resources into obvious and far more promising directions. I wasn’t any smarter than he; I was just unfettered by the responsibility of actually having to order up the changes. When, during Intel’s memory crisis, I was in this manager’s shoes, for a long time I too was guilty of the same too-little-too-late syndrome.