Only the Paranoid Survive
Page 1
Other books by Andrew S. Grove
High Output Management
One-on-One with Andy Grove
Physics and Technology of Semiconductor Devices
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
Contents
Preface: Only the Paranoid Survive
“Sooner or later, something fundamental in your business world will change.”
Chapter 1: Something Changed
“New rules prevailed now-and they were powerful enough to cost us nearly half a billion dollars.”
What Happened to Us
“That Guy Is Always the Last to Know”
Chapter 2: A “10X” Change
“What such a transition does to a business is profound, and how the business manages this transition determines its future.”
The Six Forces Affecting a Business
A “10X” Force
The Strategic Inflection Point
Chapter 3: The Morphing of the Computer Industry
“Not only has the basis of computing changed, the basis of competition has changed too.”
Before the Strategic Inflection Point
After the Strategic Inflection Point
Winners and Losers
The New Rules of the Horizontal Industry
Chapter 4: They’re Everywhere
“Strategic inflection points are not a phenomenon of the high-tech industry, nor are they something that only happens to the other guy.”
“10X” Change: Competition
Wal-Mart: An overwhelming force in town
Next: The software company
“10X” Change: Technology
Sound takes over silent movies
Upheaval in the shipping industry
The PC revolution: A tale of denial
“10X” Change: Customers
Changing tastes in cars
Attitude shifts
The double whammy in supercomputers
“10X” Change: Suppliers
Airlines flex their muscles
The end of second sourcing
“10X” Change: Complementors
“10X” Change: Regulation
The demise of patent medicines
The reordering of telecommunications
Privatization
Chapter 5: “Why Not Do It Ourselves?”
“The memory business crisis—and how we dealt with it-is how I learned the meaning of a strategic inflection point.”
Entering Our Strategic Inflection Point
The Route to Survival
Looking Back
Chapter 6: “Signal” or “Noise”?
“How do we know whether a change signals a strategic inflection point? The only way is through the process of clarification that comes from broad and intensive debate.”
Is X-ray Technology a “10X” Force?
RISC versus CISC
Is It or Isn’t It?
Helpful Cassandras
Avoiding the Trap of the First Version
Debate
Arguing with the Data
Fear
Chapter 7: Let Chaos Reign
“Resolution comes through experimentation. Only stepping out of the old ruts will bring new insights.”
The Touchy-Feely Issues
The Inertia of Success
Strategic Dissonance
Experimentation
The Business Bubble
A New Industry Map
Chapter 8: Rein in Chaos
“Clarity of direction, which includes describing what we are going after as well as describing what we will not be going after, is exceedingly important at the late stage of a strategic transformation.”
Traversing the Valley of Death
Redeploying Resources
Leading Via Strategic Actions
The Clarity Imperative
Adjusting to the New
Dynamic Dialectic
The Other Side of the Valley
Chapter 9: The Internet: Signal or Noise? Threat or Promise?
“Anything that can affect industries whose total revenue base is many hundreds of billions of dollars is a big deal.”
What Is the Internet Anyway?
Bits and Stolen Eyeballs
What About Us?
Threat or Promise?
What Do We Do?
Chapter 10: Career Inflection Points
“Career inflection points caused by a change in the environment do not distinguish between the qualities of the people that they dislodge by their force.”
Your Career Is Your Business
The Mental Fire Drill
Timing Is Everything
Get in Shape for Change
A New World
Notes
Acknowledgments
The ideas of this book have their origin in two sets of experiences. First and foremost, they are based on my years in management roles at Intel, during which I have experienced a number of strategic inflection points. Second, for the last five years, I have cotaught a course in strategic management at the Stanford University Graduate School of Business where, through the eyes of my students, I got to relive some of my experiences, as well as the experiences of others. The first represents a kind of in vivo lesson about managing change; the second, its in vitro counterpart.
Correspondingly, my thanks go to those who worked alongside me: my fellow managers at Intel and my students at Stanford. Special thanks go to my coteacher, Professor Robert Burgelman, who, in addition to being my mentor in the art of case teaching, helped me clarify and amplify many of my thoughts.
I had no intention of writing a book on this subject until Harriet Rubin, from Doubleday, sought me out and convinced me that I should do so. Her understanding of the subject, her insistence on clarity and her elaboration of the basic ideas have been very helpful in the development of the manuscript.
Thanks are due to Robert Siegel for his unceasing efforts in locating source reference material for many of my examples, reference material for the notes in the back of this book, and for his nitpicky eyes that ferreted out numerous errors and inconsistencies.
The most significant credit goes to Catherine Fredman, who helped me throughout the long process of transforming a precis into a book. Her understanding of my subject matter, her ability to follow my thought processes, and her incredible organizational skills were immensely valuable. Particularly helpful were her insights into the parallels between individuals’ careers and corporate strategy. And her sense of humor has helped me skirt many a pothole.
Last—and definitely not least—my gratitude goes to my wife, Eva, who did double duty. She supported me through decades of navigating changes, many of them quite profound and correspondingly capable of taking their toll. Then she supported me again as I relived some of these events in the pages of this book—and she even helped make sure that my text is clear.
Santa Clara
February 1996
Preface
Only the Paranoid Survive
“Sooner or later,
something
fundamental in your
business world
will change.”
I’m often credited with the motto, “Only the paranoid survive.” I have no idea when I first said this, but the fact remains that, when it comes to business, I believe in th
e value of paranoia. Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.
The things I tend to be paranoid about vary. I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off.
And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.
But these worries pale in comparison to how I feel about what I call strategic inflection points.
I’ll describe what a strategic inflection point is a bit later in this book. For now, let me just say that a strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.
Strategie inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are full-scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time even putting a finger on what has changed, yet you know that something has.
Let’s not mince words: A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.
But strategic inflection points do not always lead to disaster. When the way business is being conducted changes, it creates opportunities for players who are adept at operating in the new way. This can apply to newcomers or to incumbents, for whom a strategic inflection point may mean an opportunity for a new period of growth.
You can be the subject of a strategic inflection point but you can also be the cause of one. Intel, where I work, has been both. In the mid-eighties, the Japanese memory producers brought upon us an inflection point so overwhelming that it forced us out of memory chips and into the relatively new field of microprocessors. The microprocessor business that we have dedicated ourselves to has since gone on to cause the mother of all inflection points for other companies, bringing very difficult times to the classical mainframe computer industry. Having both been affected by strategic inflection points and having caused them, I can safely say that the former is tougher.
I’ve grown up in a technological industry. Most of my experiences are rooted there. I think in terms of technological concepts and metaphors, and a lot of my examples in this book come from what I know. But strategic inflection points, while often brought about by the workings of technology, are not restricted to technological industries.
The fact that an automated teller machine could be built has changed banking. If interconnected inexpensive computers can be used in medical diagnosis and consulting, it may change medical care. The possibility that all entertainment content can be created, stored, transmitted and displayed in digital form may change the entire media industry. In short, strategic inflection points are about fundamental change in any business, technological or not.
We live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing things, from corners that you don’t expect.
It doesn’t matter where you live. Long distances used to be a moat that both insulated and isolated people from workers on the other side of the world. But every day, technology narrows that moat inch by inch. Every person in the world is on the verge of becoming both a coworker and a competitor to every one of us, much the same as our colleagues down the hall of the same office building are. Technological change is going to reach out and sooner or later change something fundamental in your business world.
Are such developments a constructive or a destructive force? In my view, they are both. And they are inevitable. In technology, whatever can be done will be done. We can’t stop these changes. We can’t hide from them. Instead, we must focus on getting ready for them.
The lessons of dealing with strategic inflection points are similar whether you’re dealing with a company or your own career.
If you run a business, you must recognize that no amount of formal planning can anticipate such changes. Does that mean you shouldn’t plan? Not at all. You need to plan the way a fire department plans: It cannot anticipate where the next fire will be, so it has to shape an energetic and efficient team that is capable of responding to the unanticipated as well as to any ordinary event. Understanding the nature of strategic inflection points and what to do about them will help you safeguard your company’s well-being. It is your responsibility to guide your company out of harm’s way and to place it in a position where it can prosper in the new order. Nobody else can do this but you.
If you are an employee, sooner or later you will be affected by a strategic inflection point. Who knows what your job will look like after cataclysmic change sweeps through your industry and engulfs the company you work for? Who knows if your job will even exist and, frankly, who will care besides you?
Until very recently, if you went to work at an established company, you could assume that your job would last the rest of your working life. But when companies no longer have lifelong careers themselves, how can they provide one for their employees?
As these companies struggle to adapt, the methods of doing business that worked very well for them for decades are becoming history. Companies that have had generations of employees growing up under a no-layoff policy are now dumping 10,000 people onto the street at a crack.
The sad news is, nobody owes you a career. Your career is literally your business. You own it as a sole proprietor. You have one employee: yourself. You are in competition with millions of similar businesses: millions of other employees all over the world. You need to accept ownership of your career, your skills and the timing of your moves. It is your responsibility to protect this personal business of yours from harm and to position it to benefit from the changes in the environment. Nobody else can do that for you.
Having been a manager at Intel for many years, I’ve made myself a student of strategic inflection points. Thinking about them has helped our business survive in an increasingly competitive environment. I’m an engineer and a manager, but I have always had an urge to teach, to share with others what I’ve figured out for myself. It is that same urge that makes me want to share the lessons I’ve learned.
This book is not a memoir. I am involved in managing a business and deal daily with customers and partners, and speculate constantly about the intentions of competitors. In writing this book, I sometimes draw on observations I have made through such interactions. But these encounters didn’t take place with the notion that they would make it into any public arena. They were business discussions that served a purpose for both Intel and others’ businesses, and I have to respect that. So please forgive me if some of these stories are camouflaged in generic descriptions and anonymity. It can’t be helped.
What this book is about is the impact of changing rules. It’s about finding your way through uncharted territories. Through examples and reflections on my and others’ experiences, I hope to raise your awareness of what it’s like to go through cataclysmic changes and to provide a framework in which to deal with them.
As I said, this book is also about careers. As businesses are created on new foundations or are restructured to o
perate in a new environment, careers are broken or accelerated. I hope this book will give you some ideas of how you can shepherd your own career through these difficult times.
Let’s start by parachuting into the middle of a strategic inflection point, when something is changing in a big way, when something is different, yet when you’re so busy trying to survive that the significance of the change only becomes clear in retrospect. Painful as it is, let me relive the story of a problem that Intel had with our flagship device, the Pentium processor, in the fall of 1994.
Something Changed