The recent death of Andy Grove passed unremarked in the Australian press. Grove has been called the greatest CEO in tech history: he mentored a young Steve Jobs. A former Intel CEO, Grove was responsible for the transformation of Intel from a ‘memory company’ to a ‘microprocessor company’. Few companies have successfully redefined themselves so fundamentally. When Grove stepped down as CEO in 1998 Intel was earning $6.9B profit on $25B revenue.
The story of the transformation remains a classic case study in strategic leadership.
Intel made its name – and its early revenue and profits – as a memory company. Memory was their technology driver that made everything else possible. But by the mid-80’s Japanese competitors were producing better chips at lower prices[i]. In 1986 Intel lost $173M. It was beset by layoffs, plant closures, salary cuts, and time off without pay.
Intel was confronting what Grove labelled a ‘strategic inflection point’: an order of magnitude shift in the competitive dynamic. Identifying the shift is one thing. Making big calls based on the insight is another thing all together.
Intel’s first reaction was 12 months of ‘frustrating debate and dithering’. They explored various options within the memory business. New low cost factories? Push the technology envelope? Target niche markets? The reality was there was no solution within the memory business. But how do you abandon your identity?
Facing this dilemma, Grove asked his CEO, Gordon Moore[ii]: “if we got kicked out and the Board brought a new CEO in, what do you think he would do?” Moore had no hesitation: “he would get us out of memories”. To which Grove responded “Why shouldn’t you and I walk out of the door, and come back and do it ourselves?”
But having persuaded the CEO, they still had to persuade the Board. It took nearly three years for the company to fully commit to the microprocessor. But so began one of the most successful business transformations ever.
So what are the lessons we can learn from the Intel experience.
Firstly, beware inflection points. Groves inflection points might now be labelled disruption. While disruption is seemingly everywhere today, we cannot be paralysed by the threat. To borrow from a former Prime Minister: be aware, not alarmed. How do we ‘see’ these inflection points?
Most deep strategic change begins with a change in the definition of the firm’s situation. Grove’s starting point was to search for external forces that shift the competitive dynamic by an order of magnitude. He used Porter’s five forces framework (see my previous blog: Better practice, not neater theories ), but he added a 6th force: complementors. Complementors add value to each other: for example, Intel and Microsoft.
But disruptive competitive threats rarely arise from a singular change but rather from a combination of changes. Uber required the combination of mobile, social and cloud technologies. Anticipating the possibilities from combinatorial innovation is difficult at best.
Secondly, transformational change presents both a rational-logical dimension and a socio-emotional element. A common theme in my teaching on strategy is that being right is only half the battle: you also need to persuade. This is one of the central problems in the management of innovation. Schon has labelled this process “the management of ideas into good currency”. It moves through a process of surfacing ideas, galvanising networks, political debate and legitimation.
Negotiating through this process requires individuals to become attached to the ideas and invest sustained effort. Despite the CEO and Grove recognising the need for Intel to move from memories to microprocessors, it took three years for the organisation to fully commit.
And finally, the story illustrates the need for decision makers to separate themselves from their emotional and intellectual ‘baggage’ in making decisions. Transformation requires of us to redefine our identity. Identity is a multi-dimensional construct which includes both and individual and social element. Are we willing to sacrifice what we are for what we could become?
Here are three ways you can translate these insights into your personal leadership practices.
- Change your environmental scanning process. Begin with asking: what are the most significant entry barriers to our industry and market. If you were a taxi company, it would be taxi licensing. If you were a hotel chain, maybe it was ‘trust’. How could someone overcome this barrier?
- Think of a case where you were unable to gain traction with the idea. What were the socio-emotional barriers to the adoption of the idea? Did you have enough people willing to sustain the effort? What could you do differently if you were to apply the stage model show above?
- Adopt Grove’s ‘walk out the door and come back in’ mental process. You don’t need to wait for a disruptive threat. My own CEO leadership practice was to use long flights as an opportunity to imagine myself starting tomorrow. What would I do differently? It allows you to leave accumulated baggage at the door.
[i] The Japanese adopted a 10% rule: they would undercut Intel by 10% to get the customer. If Intel responded, they’d go again.
[ii] The creator of Moore’s Law, originally expressed as the doubling of the number of transistors on a chip every 18 months.