One of the things that never made sense to me while attending business school was how to apply all of the theories and case studies we were learning to the real world. In most management books you read about successful companies and try to figure out their recipe for success. But the real world is complicated and messy. You can’t just follow a simple outline and expect to achieve the same level of success as the great businesses.
I was more worried about how to make decisions under stressful situations when things go wrong. What happens when there is no recipe for your current situation?
Then I read Andy Grove’s Only the Paranoid Survive and I was finally able to see how world class executives handle the process of making difficult decisions. It remains one of the best management books I have ever read to this day. Last night I read that the former CEO and chairman of Intel passed away at age 79. By all accounts, Grove was one of the best, most influential tech executives that Silicon Valley has ever seen.
Following the news, I dug out my old paperback copy of the book to take a look at some of the pages I had dog-eared in my first read-through.
My favorite story from the book was how Grove came to discover the importance of having an outsider’s perspective as a manager. In the 1980s Intel was seeing heavy competition in their main business line from Japanese technology companies. There was some serious soul searching going on for how to proceed since it was becoming apparent the current strategy wasn’t going to work:
I remember a time in the middle of 1985, after this aimless wandering had been going on for almost a year. I was in my office with Intel’s chairman and CEO, Gordon Moore, and we were discussing our quandary. Our mood was downbeat. I looked out the window at the Ferris Wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why don’t you and I walk out the door, come back in and do it ourselves?”
It was a difficult decision for management to make, but others could already see the writing on the wall, including their customers:
In fact, when we informed them of the decision, some of them reacted with the comment, “It sure took you a long time.” People who have no emotional stake in a decision can see what needs to be done sooner.
These moves always sound easy when you read about them in a book, but it takes a lot of gumption to make that kind of change. I love his idea of using an outsider’s perspective at an inflection point:
If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider’s intellectual objectivity. They must do what they need to do to get through the strategic inflection point unfettered by any emotional attachment to the past. That’s what Gordon and I had to do when we figuratively went out the door, stomped out our cigarettes and returned to the job.
This fresh look at the company’s challenges caused Intel to get out of the memory business and focus on microprocessors for PCs. The rest is history. Nearly every PC I’ve used for the past 20 years or so comes with a little Intel sticker on it. Intel has owned the semiconductor business.
After looking back on this time in Intel’s development, Grove summed it up with a few lessons learned:
I learned that the word “point” in strategic inflection point is something of a misnomer. It’s not a point; it’s a long, tortuous struggle.
I also learned that strategic inflection points, painful as they are for all participants, provide and opportunity to break out of a plateau and catapult to a higher level of achievement.
People in the trenches are usually in touch with pending changes early. Salespeople understand shifting customer demand before management does; financial analysts are the earliest to know when the fundamentals of a business change. While management was kept from responding by beliefs that were shaped by out earlier successes, our production planners and financial analysts dealt with allocations and numbers in an objective world.
It can be difficult to take the emotions out of your business or investing decisions, especially when you have to make a change from something that has worked so well in the past. This is why CEO turnover is so high at Fortune 500 companies and why armies of consultants are always called in to make the calls for change that management won’t. One of the more under-rated qualities you can have as a business leader is intellectual honesty. Grove’s perspective on having an outsider’s intellectual objectivity really drove home that point to me.
Ben Horowitz from Andreessen Horowitz shared an older piece he wrote on another of Grove’s books that is also worth checking out:
Introduction to High Output Management (a16z)