Published in: 1999
Andrew Grove emigrated to the United States from communist Hungary in 1956, co-founded Intel in 1968, where he became president in 1979 and CEO in 1987. Grove and his co-founders became pioneers in two of the most important building blocks of modern technology: memory chips and microprocessors. When the book was published in 1996, he taught at the Stanford University. Below are some of Grove’s lessons.
EXTRAPOLATION IS DIFFICULT. When the microprocessor became fundamental to the industry, the mass production economy kicked in. Manufacturing computers became cost-effective, which made the computer an attractive tool both at home and at work. In the 1980s, the old computer companies were vital and growing. IBM predicted annual sales of $100 billion at the end of the decade. In the late 1980s, several large vertical computer companies were in the midst of layoffs and restructuring. The calculation basis had changed, and so had the competition base.
”INFLECTION POINTS” ARE CHANGEABLE. Strategic inflection points are fundamental changes in an industry, whether technical or not. It is when the force balances from the old structure to the new (in physical terms when a curve changes from convex to concave, or vice versa). A leader must plan for this as the fire brigade: it is not possible to predict where the next fire will take place, but it is possible to have an energetic and efficient team that can respond to the unforeseen. It requires objectivity, the willingness to act on beliefs and the passion to mobilize people. Getting through the process requires clarity in the direction, including what to invest in and what not to invest in.
DATA IS ABOUT THE PAST. Grove describes an episode in which he waved away concerns from a subsidiary manager in Asia, in hindsight because he felt much safer in California than the subsidiary manager in “enemy territory.” Data is about the past, and strategic turning points are about the future. When data showed that Japanese memory manufacturers were becoming an important factor, Intel was in the midst of a struggle for survival. You need to know when to question data and when to trust it. To understand which of your competitors can change your business fundamentally: think if you only had one bullet in a figurative gun, which competitor would you save it for?
”10x CHANGE” – MANAGEMENT DETERMINES SURVIVAL. There are competitive forces and there are super competitive forces. A major change in any of Porter’s six forces (strength and competence of existing competitors, suppliers, customers, complementary, potential competitors and the ability to run the business in a different way) is what Grove calls a “10x” change. Eventually, the industry finds a whole new balance. Most market analysis is too static and do not include these events. Have a broad and intense debate instead. The way IBM and Intel responded to the X-ray technology threat showed that one company saw a “signal”, while the other classified it as “noise”. Competent people can have different conclusions with the same set of facts.
“But in capitalist reality, as distinguished from its textbook picture, it is not (price) competition which counts but the competition from the new commodity, the new technology, the source of supply, the new type of organization… competition which.. strikes not at the margins… of the existing firms but at their foundations and their very lives” – Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 1942
IT CAN HAPPEN TO ANYONE, NOT JUST IN TECHNOLOGY. The privatization in the 1990s was in many countries “the mother of all inflection points”. And when Wal-Mart establishes itself in a small town, a “10X” factor has arrived. However, most happen gradually. Typewriters cars, computers etc are getting better. A subtle change in the customer base or attitude can still have a “10x” force. What is a demographic time bomb for consumer companies is good news for the computer industry.
FIRST-MOVER-ADVANTAGE. Time advantage in the technology industry is the safest way to gain market share (and it’s harder to be best in class in several areas). Intel had almost 100% of the memory chip market segment. In the early 1970s, other companies joined, but Intel defended a large share. But when the Japanese pushed down the price, it became tough. Intel continued to spend a lot on R&D, but at the same time a small team worked with microprocessors, which the company had invented in 1970. Leaving the core business was difficult. But Grove asked himself: if the board brought in a new CEO, what do you think he would do? Why not go out the door, come back and do it yourself. Going through the entire strategic inflection point took Intel a total of three years.
DO WHAT IS HARD, WHEN IT IS EASY. Chaos is inefficient and burdens all participants. But the old order will not make room for the new without a phase of experimentation and chaos in between. Act while the driving force in your existing business is strong, cash flow is good, and the organization is intact. Grove has never made a tough change, either in terms of resource shifting or staff relocation, which he did not wish he had done a year earlier.