Only the Paranoid Survive

Key Takeaways

Seven threads recur across the marginalia, most of them read forward into how change gets recognized, argued, and acted on inside an organization:

1. Anticipating the change, not reacting to it. The job is framed as guessing “what the music is doing a year, a month, a week from now” — the value sits in reading the periphery early, before the data confirms the trend. By the time the numbers prove a strategic inflection point, the fight is already for survival.

2. Steelmanning as the price of an opinion. The Munger paraphrase — you don’t deserve to hold an opinion unless you can state the opposite as well as the people who disagree with you — is attached to Grove’s chief technologist objectively representing both sides of the RISC/CISC debate. Constructive confrontation as the mechanism that sharpens contrast the way a photographer develops a print.

3. Everything important begins by looking like a toy. The trap of the first version: Grove dismissed the Macintosh as a “ridiculous toy” and missed the graphical interface beneath the weak first implementation. The discipline is to separate the crumminess of the early version from the long-term significance of the technology.

4. Diversification and acquisition as avoidance (“cope”). The escape/diversion pattern — plunging into unrelated mergers to occupy yourself respectably rather than face the destructive force head-on — is read as the Jack Welch playbook, “almost entirely cope.”

5. The inertia of success (SALY). Leaders keep running the plays that won their “championship season”; same-as-last-year reinforces denial. The very genetic selection that put you at the top retards your ability to see the new trend.

6. Commitment can’t be hedged. “Put all your eggs in one basket and WATCH THAT BASKET.” Hot or cold, never lukewarm — hedging dilutes commitment and confuses the organization; most companies die not because they were wrong but because they wouldn’t commit.

7. Enabling intrapreneurs, and the consumer/internet foresight-with-a-blind-spot. Drucker’s entrepreneur (moving resources from low to high yield) is the properly-motivated middle manager — one reason former founders are worth hiring. Alongside it: the “consumerization of everything,” and Grove intuiting the Internet mattered enormously while (in hindsight) calling cloud computing without appreciating its implications for Intel.

Connections

Books:

• Chip War — the same DRAM-to-microprocessor pivot told from the outside; Grove appears there as a character, and Chip War’s account of Intel abandoning memory is the third-person companion to Grove’s first-person telling here.
• The Innovator’s Dilemma — Christensen’s structural account of why incumbents get disrupted; Grove’s strategic inflection point is the manager’s-eye-view version of the same phenomenon, written by the CEO who lived through one.
• The Everything Store — Bezos’s “Day 1 / it’s always Day 1” is the same instinct as “only the paranoid survive”: institutional fear of complacency as a deliberate management doctrine.

Highlights

• 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.
• a strategic inflection point is a time in the life of a business when its fundamentals are about to change.
• 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.
• 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.
• 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.
• 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.
• At first, we were very concerned about this, so we mounted a major study to try to understand what once every nine billion divisions would mean. We found the results reassuring. For instance, they meant that an average spreadsheet user would run into the problem only once every 27,000 years of spreadsheet use. This is a long time, much longer than it would take for other types of problems which are always encountered in semiconductors to trip up a chip. So while we created and tested ways to correct the defect, we went about our business.

  Kyle: Possibility of long-shots are interesting plot points in a story. An infinite number of monkeys typing on typewriters eventually make Shakespeare

• All businesses operate by some set of unstated rules and sometimes these rules change—often in very significant ways. Yet there is no flashing sign that heralds these rule changes. They creep up on you as they crept up on us, without warning.
• Such phenomena are very common. Businesses are about creating change for other businesses. Competition is about creating change; technology is about creating change. The appearance and disappearance of regulations cause further changes. Sometimes these changes affect only a company, other times they affect an entire industry. So the ability to recognize that the winds have shifted and to take appropriate action before you wreck your boat is crucial to the future of an enterprise.

  Kyle: “My job is to guess what the music is doing a year, a month, a week from now…”

• Middle managers—especially those who deal with the outside world, like people in sales—are often the first to realize that what worked before doesn’t quite work anymore; that the rules are changing. They usually don’t have an easy time explaining it to senior management, so the senior management in a company is sometimes late to realize that the world is changing on them—and the leader is often the last of all to know.
• He, like most CEOs, is in the center of a fortified palace, and news from the outside has to percolate through layers of people from the periphery where the action is.
• We must invite comments even from people whose job it is to constantly evaluate and critique us, such as journalists and members of the financial community. Turn the tables and ask them some questions: about competitors, trends in the industry and what they think we should be most concerned with. As we throw ourselves into raw action, our senses and instincts will rapidly be honed again.
• New techniques, new approaches, new technologies can upset the old order, mandate a new set of rules and create an entirely new climate in which to do business. This is what trucking and air transportation have done to railroads, what container shipping has done to traditional ports, what superstores have done to small shops, what microprocessors continue to do to computing and what digital media might do to entertainment.
• An inflection point occurs where the old strategic picture dissolves and gives way to the new, allowing the business to ascend to new heights. However, if you don’t navigate your way through an inflection point, you go through a peak and after the peak the business declines. It is around such inflection points that managers puzzle and observe, “Things are different. Something has changed.”
• As the microprocessor became the basic building block of the industry, the economics of mass production kicked in and manufacturing computers became extremely cost-effective, making the PC an enormously attractive tool in both home and business settings.
• IBM projected that they would be a $100 billion company by the end of the decade. But by the end of the 1980s, many large vertical computer companies were in the midst of layoffs and restructuring, and a whole new set of players emerged. I keep thinking of a computer-generated image of a person “morphing” from one face to another, one face imperceptibly dissolving and another simultaneously taking shape. You can’t tell the precise point when the first face disappears and the new face replaces it. You only know that at the beginning of the process you have one face and at the end of the process you have another face, but you can’t identify any point where the image is any more one than the other. So it was here, even in retrospect.
• IBM was composed of a group of people who had won time and time again, decade after decade, in the battle among vertical computer players. The managers who ran IBM grew up in this world. They got selected for their excellence in developing products and competing in the marketplace within this framework.
• Few of the top ten participants in the new horizontal computer industry rose from the ranks of the old vertical computer industry, bearing testimony to the observation that it is truly difficult for a successful industry participant to adapt to a completely different industry structure.
• There is an important lesson to be learned from Novell’s experience. Whereas as a hardware producer Novell had lack of scale working against them, by being the first to popularize networking software that runs on PCs and capturing a large share of the emerging networking market, they made scale work for them. They turned from losers to winners.
• In fact, there are two more lessons here. First, when a strategic inflection point sweeps through the industry, the more successful a participant was in the old industry structure, the more threatened it is by change and the more reluctant it is to adapt to it. Second, whereas the cost to enter a given industry in the face of well-entrenched participants can be very high, when the structure breaks, the cost to enter may become trivially small, giving rise to Compaqs, Dells and Novells, each of which emerged from practically nothing to become major corporations. What’s common among these companies is that they all instinctively followed the rules for success in a horizontal industry.
• One, don’t differentiate without a difference. Don’t introduce improvements whose only purpose is to give you an advantage over your competitor without giving your customer a substantial advantage.
• Two, in this hypercompetitive horizontal world, opportunity knocks when a technology break or other fundamental change comes your way. Grab it. The first mover and only the first mover, the company that acts while the others dither, has a true opportunity to gain time over its competitors—and time advantage, in this business, is the surest way to gain market share. Conversely, people who try to fight the wave of a new technology lose in spite of their best efforts because they waste valuable time.
• Three, price for what the market will bear, price for volume, then work like the devil on your costs so that you can make money at that price. This will lead you to achieve economies of scale in which the large investments that are necessary can be effective and productive and will make sense because, by being a large-volume supplier, you can spread and recoup those costs. By contrast, cost-based pricing will often lead you into a niche position, which in a mass-production-based industry is not very lucrative.
• In our example, a vertical computer company had to produce computer platforms and operating systems and software. A horizontal computer company, however, supplies just one product—for example, computer platforms or operating systems or software. By virtue of the functional specialization that prevails, horizontal industries tend to be more cost-effective than their vertical equivalents. Simply put, it’s harder to be the best of class in several fields than in just one.
• Reading the daily newspapers through a “10X” lens constantly exposes potential strategic inflection points.
• By learning from the painful experience of others, we can improve our ability to recognize a strategic inflection point that’s about to affect us. And that’s half the battle.
• The pervasiveness of the “10X” factor raises the question, “Is every strategic inflection point characterized by a ‘10X’ change? And does every ‘10X’ change lead to a strategic inflection point?” I think for all practical purposes the answer to both of these questions is yes.
• While Jobs was burning the midnight oil inside Next, in the outside world something changed.
• In short, Jobs thought PCs were a mess. The thing is, he was right. But what Jobs missed at the time was that the very messiness of the PC industry that he despised was the result of its power: many companies competing to offer better value to ever larger numbers of customers.
• But even as I write this, technological developments are brewing that are likely to bring changes of the same magnitude—or bigger—in the years ahead. Will digital entertainment replace movies as we know them? Will digital information replace newspapers and magazines? Will remote banking render conventional banks relics of the past? Will the wider availability of interconnected computers bring wholesale changes to the practice of medicine?
• In the span of a decade, a virtual instant in the history of shipping, the standardization of shipbuilding designs, the creation of refrigerated transport ships and, most importantly, the evolution of containerization—a technology that permitted the easy transfer of cargo on and off ships—introduced a “10X” change in the productivity of shipping, reversing an inexorably rising trend in costs.
• In 1984 the then head of Digital Equipment Corporation, the largest mini-computer maker at the time, sounding a lot like Chaplin, described PCs as “cheap, shortlived and not-very-accurate machines.” This attitude was especially ironic when you consider Digital’s past. Digital broke into the world of computers, then dominated by mainframes, in the 1960s with simply designed and inexpensive mini-computers, and grew to become a very large company with that strategy. Yet when they were faced with a new technological change in their environment, Digital—once the revolutionary that attacked the mainframe world—now resisted this change along with the incumbents of the mainframe era.
• Why would computer executives who had proven themselves to be brilliant and entrepreneurial managers throughout their careers have such a hard time facing the reality of a technologically driven strategic inflection point? Was it because they were sheltered from news from the periphery? Or was it because they had such enormous confidence that the skills that had helped them succeed in the past would help them succeed in the face of whatever the new technology should bring? Or was it because the objectively calculable consequence of facing up to the new world of computing, like the monumental cutbacks in staff that would be necessary, were so painful as to be inconceivable? It’s hard to know but the reaction is all too common. I think all these factors played a part, but the last one—the resistance to facing a painful new world—was the most important.
• In an analysis of the history of business failures, Harvard Business School Professor Richard Tedlow came to the conclusion that businesses fail either because they leave their customers, i.e., they arbitrarily change a strategy that worked for them in the past (the obvious change), or because their customers leave them (the subtle one).
• The computer industry has largely become one that services consumers who use their own discretionary spending to purchase a product, and who apply the same expectations to those products that they have for other household goods. Intel has had to start adjusting to this new reality, and so have other players in this industry. The environment has changed for all of us. The good news is, we all have a much larger market. The bad news is, it is a much tougher market than we were accustomed to servicing.

  Kyle: Consumerization of everything

• One industry association predicted that 40 percent of all agencies might go out of business. It is possible that this single act by the suppliers can precipitate a strategic inflection point that might in time alter the entire travel industry.
• The result of the morphing of the computer industry, i.e., the emergence of computers as a practically interchangeable commodity, has been greatly aided by the common microprocessor on which they were built.
• Their management grew up in a regulatory environment where their core competencies revolved around their ability to work with the regulators; their work force was accustomed to a paternalistic work environment.
• As I scan it, I can’t help but be impressed by the variety and pervasiveness of strategic inflection points. Note that everywhere there are winners and losers. And note also that, to a large extent, whether a company became a winner or a loser was related to its degree of adaptability. Strategic inflection points offer promises as well as threats. It is at such times of fundamental change that the cliché “adapt or die” takes on its true meaning.
• As I think back, it’s clear to me that struggling with this tough technology and the accompanying manufacturing problems left an indelible imprint on Intel’s psyche. We became good at solving problems. We became highly focused on tangible results (our word for it is “output”). And from all the early bickering, we developed a style of ferociously arguing with one another while remaining friends (we call this “constructive confrontation”).
• Then, in the early eighties, the Japanese memory producers appeared on the scene. Actually, they had first shown up in the late seventies to fill the product shortages we had created when during a recession we pulled back our investments in production capacity. The Japanese were helpful then. They took the pressure off us. But in the early eighties they appeared in force—in overwhelming force.
• In fact, the quality levels attributed to Japanese memories were beyond what we thought were possible. Our first reaction was denial. This had to be wrong. As people often do in this kind of situation, we vigorously attacked the ominous data. Only when we confirmed for ourselves that the claims were roughly right did we start to go to work on the quality of our product. But we were clearly behind.
• Riding the memory wave, the Japanese producers were taking over the world semiconductor market in front of our eyes. This penetration into the world markets didn’t happen overnight; as shown in the figure below, it took place over a decade.
• Microprocessors and memories are built with a similar silicon chip technology but microprocessors are designed differently than memories. And because they represented a slower-growing, smaller-volume market than memory chips, we didn’t stress their technological development as heavily.
• Then in the fall of 1984 all of that changed. Business slowed down. It seemed that nobody wanted to buy chips anymore. Our order backlog evaporated like spring snow. After a period of disbelief, we started cutting back production. But after the long period of buildup, we couldn’t wind down fast enough to match the market slide. We were still building inventory even as our business headed south.
• We had meetings and more meetings, bickering and arguments, resulting in nothing but conflicting proposals. There were those who proposed what they called a “go for it” strategy: “Let’s build a gigantic factory dedicated to producing memories and nothing but memories, and let’s take on the Japanese.” Others proposed that we should get really clever and use an avant-garde technology, “go for it” but in a technological rather than a manufacturing sense and build something the Japanese producers couldn’t build. Others were still clinging to the idea that we could come up with special-purpose memories, an increasingly unlikely possibility as memories became a uniform worldwide commodity. Meanwhile, as the debates raged, we just went on losing more and more money. It was a grim and frustrating year. During that time we worked hard without a clear notion of how things were ever going to get better. We had lost our bearings. We were wandering in the valley of death.
• 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 I 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 shouldn’t you and I walk out the door, come back and do it ourselves?”
• Not only was I too tentative as I started discussing this course of action with colleagues, I was also talking to people who didn’t want to hear what I meant. As I got more and more frustrated that people didn’t want to hear what I couldn’t get myself to say, I grew more blunt and more specific in my language. The more blunt and specific I got, the more resistance, both overt and covert, I ran into.
• The company had a couple of beliefs that were as strong as religious dogmas. Both of them had to do with the importance of memories as the backbone of our manufacturing and sales activities. One was that memories were our “technology drivers.”
• I rationalized to myself that such a major change had to be accomplished in a number of smaller steps. But in a few months we came to the inevitable conclusion that this halfway decision was untenable and we finally worked up our determination and clearly decided—not just in the management ranks but throughout the whole organization—that we were getting out of the memory business, once and for all.
• 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.
• 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 do the job.
• I gathered them all in an auditorium and made a speech. The theme of the speech was, “Welcome to the mainstream.” I said that Intel’s mainstream was going to be microprocessors. By signing up to do microprocessor development, they would be bearing the flag for Intel’s mainline business.
• I learned that the word “point” in strategic inflection point is something of a misnomer. It’s not a point; it’s a long, torturous struggle.
• We decided to characterize ourselves as a “microcomputer company.” This started first in our public statements, literature and advertising but over the years, as the 386 became a phenomenal success, it took hold of the hearts and minds of our management and most of our employees. Eventually the outside world started to look at us that way too.
• One last lesson, and this is a key one: while Intel’s business changed and management was looking for clever memory strategies and arguing among themselves, trying to figure out how to fight an unwinnable war, men and women lower in the organization, unbeknownst to us, got us ready to execute the strategic turn that saved our necks and gave us a great future.
• This is not unusual. People in the trenches are usually in touch with impending changes early. Salespeople understand shifting customer demands 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 our earlier successes, our production planners and financial analysts dealt with allocations and numbers in an objective world. For us senior managers, it took the crisis of an economic cycle and the sight of unrelenting red ink before we could summon up the gumption needed to execute a dramatic departure from our past.
• There simply is no surefire formula by which you can decide if something is signal or noise. But because there is no surefire formula, every decision you make should be carefully scrutinized and reexamined as time passes.
• Although I have a technical background, it is not in computer science and I was not that comfortable with the architectural issues involved. To be sure, we had lots of people who had the right background but they had all split into warring camps, each camp 100 percent convinced of its own chip’s supremacy.
• So how do you know whether a change signals a strategic inflection point? Ask these questions to attempt to distinguish signal from noise: Is your key competitor about to change? First, figure out who your key competitor is by asking a hypothetical question that I call the “silver bullet” test. It works like this: if you had just one bullet in a figurative pistol, whom among your many competitors would you save it for? Asked point-blank, this question usually provokes a visceral response and I find that people can normally give an answer without much hesitation. When the answer to this question stops being as crystal clear as it used to be and some of your people direct the silver bullet to competitors who didn’t merit this kind of attention previously, it’s time to sit up and pay special attention. When the importance of your competitors shirts, it is often a sign that something significant is going on. In an analogous fashion, you should ask, is your key complementer about to change? Does the company that in past years mattered the most to you and your business seem less important today? Does it look like another company is about to eclipse them? If so, it may be a sign of shifting industry dynamics. Do people seem to be “losing it” around you? Does it seem that people who for years had been very competent have suddenly gotten decoupled from what really matters? Think about it. You and your management have both been selected by the evolutionary forces of your business to be at the top of your organization. Your genes were right for the original business. But if key aspects of the business shift around you, the very process of genetic selection that got you and your associates where you are might retard your ability to recognize the new trends. A sign of this might be that all of a sudden some people “don’t seem to get it.” Conversely, it may be that you yourself are often inclined to shake your head in confusion. When they don’t get it or you don’t get it, it may not be because of encroaching age; it may be because the “it” has changed around you.
• Cassandras are usually in middle management; often they work in the sales Organization. They usually know more about upcoming change than the senior management because they spend so much time “outdoors” where the winds of the real world blow in their faces. In other words, their genes have not been selected to achieve perfection in the old way.
• Classify the time you spend listening to them as an investment in learning what goes on at the distant periphery of your business, whether you think of distances in geographical or technological terms. Think of it this way: when spring comes, snow melts first at the periphery, because that’s where it’s most exposed. Factoring in the news from the periphery is an important contribution to the process of sorting out signal from noise.
• During the height of Intel’s RISC versus CISC debate, when I was most confused, our chief technologist asked to see me. He sat down and methodically took me through his point of view while at the same time representing the other side’s argument in the most objective way that I heard. His knowledge and insights made up for my own lack of self-confidence and expertise in this area and helped me listen to the ongoing debates with a better grasp of what I was hearing. Although this encounter did not lead me to a firm position, it helped me form a framework in which to better evaluate everyone else’s arguments.

  Kyle: “I don’t feel like I deserve to hold an opinion unless I can state the opposite of that opinion as well as the people who actually disagree with me.” (Charlie Munger, paraphrased)

• Peter Drucker quotes a definition of an entrepreneur as someone who moves resources from areas of lower productivity and yield to areas of higher productivity and yield. That’s what a properly motivated and intelligent middle manager will do with resources under his or her command.

  Kyle: Enable intrapreneurs; one element of why Ramp and other companies like to hire former founders

• Helpful Cassandras are quick to notice the first signs of “10X” forces but those signs are often mixed in with symptoms of forces that might appear to be “10X” but aren’t. For instance, is the Internet really that big a deal? Are we going to do all our banking electronically? Is interactive television going to transform our lives? Are digital media going to transform the entertainment industry?
• The first thing you should realize is that everybody with a gadget hawks and hypes it and consciously or unconsciously works double time to make their product as important as possible. Under the circumstances, it’s only natural to be suspicious and so you should be.
• The second thing is that, when you explore these developments first hand, you’ll discover that mostly they aren’t what they’re cracked up to be. In the early days, getting from one place to another on the Internet took forever and when you got there, more often than not, you found a stale marketing brochure. Electronic banking is still a clumsy way to replace a stamp. And interactive television seems to have vanished even before the ink dried on the mega-announcements. On the other hand, don’t shut off your radar screens and go on about your business, discounting everything even if at first it seems quite crummy. A danger in assessing the significance of changes lies in what I call the trap of the first version.
• In 1984, when Apple introduced the Macintosh, I thought it was a ridiculous toy. Among other weaknesses I saw in it, it didn’t have a hard disk (at the time, all PCs already had one) and it was excruciatingly slow. Because of these two factors, the Mac’s graphical interface struck me as more of a nuisance than a significant advantage. The first implementation of the Mac blinded me to the far more important features that came with graphical interfaces, like the fact that they brought with them a uniformity for all the application programs that were based on them: You learned one and you learned them all. But I didn’t see through the problems of the first version to perceive the beauty of the technology that lay beneath them.

  Kyle: Everything important begins by looking like a toy.

• When you think about it, first versions of most things usually are. Lisa, the first commercial computer with a graphical user interface and the predecessor of the Mac, did not receive good acceptance. Neither did the first version of Windows, which was considered an inferior product for years—DOS with a pretty face, as many called it. Yet graphical user interfaces in general, and Windows in particular, have become “10X” forces shaping the industry.
• Now, as you stare at your computer screen that’s connected to the Internet, waiting for a World Wide Web page to slowly materialize, let your imagination flow a bit. What might this experience be like if transmission speed doubled? Or better yet, if it were improved by “10X”? What might the content look like if professional editors rather than amateurs created it, not as a sideline but as their main occupation? You might extrapolate the evolution of this phenomenon by remembering how rapidly PCs evolved and improved.
• But if your instincts suggest that a “10X” improvement could make this capability exciting or threatening, you may very well be looking at the beginning of what is going to be a strategic inflection point. Consequently, you must discipline yourself to think things through and separate the quality of the early versions from the longer-term potential and significance of a new product or technology.
• The most important tool in identifying a particular development as a strategic inflection point is a broad and intensive debate. This debate should involve technical discussions (for example, is RISC inherently “10X” faster?), marketing discussions (is it a fashion fling or is it a business?) and considerations of strategic repercussions (how will it affect our microprocessor business if we make a dramatic move; how will it affect it if we don’t?).
• This kind of debate is daunting because it takes a lot of time and a lot of intellectual ergs. It also takes a lot of guts; it takes courage to enter into a debate you may lose, in which weaknesses in your knowledge may be exposed and in which you may draw the disapproval of your coworkers for taking an unpopular viewpoint. Nevertheless, this comes with the territory and when it comes to identifying a strategic inflection point, unfortunately, there are no shortcuts.
• Don’t justify holding back by saying that you don’t know the answers; at times like this, nobody does. Give your most considered opinion and give it clearly and forcefully; your criterion for involvement should be that you’re heard and understood. Clearly, all sides cannot prevail in the debate but all opinions have value in shaping the right answer.
• It is important to realize what the purpose of these debates is and what it isn’t. Don’t think for a moment that at the end of such debates all participants will arrive at a unanimous point of view. That’s naive. However, through the process of presenting their own opinions, the participants will refine their own arguments and facts so that they are in much clearer focus. Gradually all parties can cut through the murkiness that surrounds their arguments, clearly understand the issues and each other’s point of view. Debates are like the process through which a photographer sharpens the contrast when developing a print. The clearer images that result permit management to make a more informed—and more likely correct—call.

  Kyle: “Disagree and commit”

• Contemporary management doctrine suggests that you should approach any debate and argument with data in hand. It’s good advice. Altogether too often, people substitute opinions for facts and emotions for analysis. But data are about the past, and strategic inflection points are about the future. By the time the data showed that the Japanese memory producers were becoming a major factor, we were in the midst of a fight for our survival.
• The point is, when dealing with emerging trends, you may very well have to go against rational extrapolation of data and rely instead on anecdotal observations and your instincts.
• Constructively debating tough issues and getting somewhere is only possible when people can speak their minds without fear of punishment.
• It is fear that makes me scan my e-mail at the end of a long day, searching for problems: news of disgruntled customers, potential slippages in the development of a new product, rumors of unhappiness on the part of key employees. It is fear that every evening makes me read the trade press reports on competitors’ new developments and leads me to tear out particularly ominous articles to take to work for follow-up the next day. It is fear that gives me the will to listen to Cassandras when all I want to do is cry out, “Enough already, the sky isn’t falling,” and go home.
• That’s why in a way I think that we at Intel were fortunate to have gone through the terrible times in 1985 and 1986 that I described in Chapter 5. Most of our managers still remember what it felt like to be on the losing side. Those memories make it easy to conjure up the lingering dread of a decline and generate the passion to stay out of it. It may sound strange but I’m convinced that the fear of repeating 1985 and 1986 has been an important ingredient in our success.
• I can’t stress this issue strongly enough. It takes many years of consistent conduct to eliminate fear of punishment as an inhibitor of strategic discussion. It takes only one incident to introduce it. News of this incident will spread through the organization like wildfire and shut everyone up.
• An expert in market research once told me how at her company every layer of management between her and the chief executive watered down her fact-based research. “I don’t think they want to hear that” was the byword with which bad news was eliminated, bit by bit, data point by data point, as her information was advanced along the management chain. Senior management in this company didn’t have a chance. Bad news never reached them. This company has gone from greatness to real tough times. Watching them from the outside, it seemed that management didn’t have a clue as to what was happening to them. I firmly believe that their tradition of dealing with bad news was an integral part of their decline.
• From our inception on, we at Intel have worked very hard to break down the walls between those who possess knowledge power and those who possess organization power.
• 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.
• 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.
• 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.

  Kyle: The Jack Welch playbook was almost entirely cope

• 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.
• 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.

  Kyle: SALY principle

• The phrase you’re likely to hear at such times is “Just give us a bit more time.”
• 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.
• 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.
• The operating phrase should be: “Let chaos reign!”
• 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.
• 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.
• I wasn’t any smarter than he; I was just unfettered by the responsibility of actually having to order up the changes.
• During a strategic inflection point, management continually has to refine its conception of the strategic map of the industry. We all automatically do this in our heads. But mental maps are awfully forgiving of ambiguity. You must force yourself to commit your thoughts to paper.
• Management writers use the word “vision” for this. That’s too lofty for my taste. What you’re trying to do is capture the essence of the company and the focus of its business. You are trying to define what the company will be, yet that can only be done if you also undertake to define what the company will not be.
• I remember a meeting of our executive staff in which we were discussing Intel’s new direction as a “microcomputer company.” Our chairman, Gordon Moore, said, “You know, if we’re really serious about this, half of our executive staff had better become software types in five years’ time.” The implication was that either the people in the room needed to change their areas of knowledge and expertise or the people themselves needed to be changed. I remember looking around the room, wondering who might remain and who might not. As it turned out, Gordon Moore was right. In our case, about half the management transformed themselves and were able to move in the new direction. Others ended up leaving the company.
• When Intel was making its transformation from a “semiconductor company” to a “microcomputer company,” I realized that I needed to learn more about the software world. After all, how we would do our job depended on the plans, thoughts, desires and visions of the software industry. So I deliberately started to spend a significant amount of time getting acquainted with software people. I set out to visit heads of software companies. I called them up one at a time, made appointments, met with them and asked them to talk to me about their business—as it were, to teach me. This entailed some personal risk. It required swallowing my pride and admitting how little I knew about their business. I had to walk into conversations with important people whom I had never met, not having a clue how they would respond. It also required a measure of diligence; as I sat talking with these people, I took copious notes, some of which I understood and some of which I didn’t. I then took the stuff that I didn’t understand back to our internal experts and asked them to explain what this individual might have meant by it. Basically, I went back to school. (I was aided by the fact that Intel is a schoolish company, where it’s perfectly respectable for a senior person with twenty years of experience to take some time, buckle down and learn a whole new set of skills.)
• Assigning or reassigning resources in order to pursue a strategic goal is an example of what I call strategic action. I’m convinced that corporate strategy is formulated by a series of such actions, far more so than through conventional top-down strategic planning. In my experience, the latter always turns into sterile statements, rarely gaining traction in the real work of the corporation. Strategic actions, on the other hand, always have real impact.
• I describe such a strategy as a “taillight” approach. When you drive in the fog, it is a lot easier to drive fast if you’re chasing the taillights of the car ahead of you. The danger with a “taillight” strategy is that, once you catch up and pass, you will find yourself without a set of taillights to follow—and without the confidence and competence in setting your own course in a new direction.
• A question that often comes up at times of strategic transformation is, should you pursue a highly focused approach, betting everything on one strategic goal, or should you hedge? The question may come in the form of an employee asking me, “Andy, shouldn’t we be investing in areas other than microprocessors instead of putting all of our eggs in one basket?” or “Andy, shouldn’t we work on enhancing the television set in addition to betting on personal computers?” I tend to believe Mark Twain hit it on the head when he said, “Put all of your eggs in one basket and WATCH THAT BASKET.”
• If competition is chasing you (and they always are—this is why “only the paranoid survive”), you only get out of the valley of death by outrunning the people who are after you. And you can only outrun them if you commit yourself to a particular direction and go as fast as you can. You could argue that, since they are chasing you, you should give yourself all sorts of alternative directions—in other words, hedge. I say, “No.” Hedging is expensive and dilutes commitment. Without exquisite focus, the resources and energy of the organization will be spread a mile wide—and they will be an inch deep.
• If you’re wrong, you will die. But most companies don’t die because they are wrong; most die because they don’t commit themselves. They fritter away their momentum and their valuable resources while attempting to make a decision. The greatest danger is in standing still.
• Heads of companies often inadvertently contribute to this confusion. Some time ago a business reporter told me of an encounter with the head of a major Japanese corporation. The reporter was working on a profile of the company. When he asked questions that tried to clarify the strategy of the corporation, the other man angrily retorted, “Why would I tell you our strategy? So I could help our competitors?” I think this man wouldn’t talk about his strategy not because he was afraid of helping his competitors but because he didn’t have one: this company’s public statements have always struck me as extraordinarily ambiguous.
• The point is this: how can you hope to mobilize a large team of employees to pull together, accept new and different job assignments, work in an uncertain environment and work hard despite the uncertainty of their future, if the leader of the company can’t or won’t articulate the shape of the other side of the valley?
• The point is this: you can’t hedge in a choice of direction and you can’t hedge in your commitment to it. If you do, your people will be confused and after a while they will throw up their hands in resignation. Not only will you lose direction, but you will continue to sap the energy of your organization as well.

  Kyle: Would rather that you were hot or cold; but when you’re lukewarm…

• When you have to reach large numbers of people, you can’t possibly overcommunicate and overclarify. Give a lot of speeches to your employees, go to their workplaces, get them together and explain over and over what you’re trying to achieve. (Take particular care to answer questions of the “Does it mean that…” variety. Those are the ones that offer the best chance of bringing your message home.) Your new thoughts and new arguments will take awhile to sink in. But you will find that repetition sharpens your articulation of the new direction and makes it increasingly clear to your employees. So speak and answer questions as often as possible; while it may seem like you’re repeating yourself, in reality you will be reinforcing a strategic message.
• The best aspect of this type of exposure is that you will test whether you can pass the gauntlet of your employees’ questions, assuming you have the kind of corporate culture in which they feel comfortable questioning you. Your employees’ questions are usually shrewd, and in a free environment they can question you in a way that no one else can. If there is strategic illogic in your thinking, they will sniff it out and poke at it.
• Equally important is the opportunity that incoming e-mail gives me to be exposed to the thoughts, reactions, biases and preferences of large numbers of people. More Cassandras bring me news from the periphery this way than through any other means. I witness more arguments, I hear more business gossip, sometimes from people I have never met, than I ever did when I could walk the halls of the one building that housed all Intel employees. What used to be referred to as “managing by walking around” has to a large extent been supplanted by letting your fingers do the walking on your computer keyboard. Given that Intel has now spread all around the world and I couldn’t walk the halls of our sixty-odd buildings even if I spent full time at it, this has become doubly important.

  Kyle: This is the same dynamic you’re seeing play out when a CEO is responding to some rando on Twitter about specific issues

• I witnessed some of the discussions in meetings we had with them, and catching even a glimpse of the process gave me a sense as to why Hewlett-Packard has such a spectacular record of navigating transformations. The discussions were rational, nonthreatening and slow but they steadily moved forward instead of meandering around in circles.
• The best results seem to prevail when bottom-up and top-down actions are equally strong. We can display this point in the following two-by-two matrix: The best quadrant to be in is the top right one—strong top-down and strong bottom-up actions roughly balancing.
• What we needed was a balanced interaction between the middle managers, with their deep knowledge but narrow focus, and senior management, whose larger perspective could set a context. The dialectic between these two would often result in searing intellectual debates. But through such debates the shape of the other side of the valley would become clear earlier, making a determined march in its direction more feasible.
• An organization that has a culture that can deal with these two phases—debate (chaos reigns) and a determined march (chaos reined in)—is a powerful, adaptive organization.
• At one point he organized a committee and charged it to investigate an issue and come up with a recommendation. It turned out that this manager knew all along what he wanted to do, but instead of giving that direction to the committee, which he could have, he was hoping to engineer a bottom-up decision to the same effect. When the committee came up with the opposite recommendation, he felt cornered. At this late stage, he tried to dictate his solution to people who by now had spent months struggling with an issue and had firmed up their minds. It just couldn’t be done. Coming as it did at this late stage, his dictate seemed utterly arbitrary. The workings of our corporate culture rejected it, and the man had a very hard time understanding where he went wrong.
• The other side of the valley of death represents a new industry order that was hard to visualize before the transition. Management did not have a mental map of the new landscape before they encountered it. Getting through the strategic inflection point required enduring a period of confusion, experimentation and chaos, followed by a period of single-minded determination to pursue a new direction toward an initially nebulous goal. It required listening to Cassandras, deliberately fostering debates and constantly articulating the new direction, at first tentatively but more clearly with each repetition. It required casualties and personal transformation; it required accepting the fact that not all would survive and that those who did would not be the same as they had been before.
• The idea was to provide a means of communication that could survive a nuclear explosion that might take down the country’s ordinary telephone infrastructure. Then other computers started joining in. The Internet kept growing and multiplying as people developed more university networks, corporate networks and government networks, and connected them to all the other previously linked networks.

  Kyle: Reminds me of the talk show trying to understand what the @ symbol is

• The second was that a researcher at CERN (a European nuclear research organization) named Tim Berners-Lee developed a means of linking the data on one computer to the data on any other computer in a way that made it extremely simple for a computer user to perform such a feat. When you clicked on a highlighted key word, such as the name of a company, the connection would automatically be made throughout the entire Internet network, and the computer that contained information about that company would be opened up for your examination. The portion of the Internet that combines colorful graphics with Berners-Lee’s search method is the World Wide Web.
• All the media companies are getting caught up in this swirl too. In the past several years practically every media organization—the Viacoms, the Time Warners—has founded “a new media” division for experimentation, much of which is now focused on the World Wide Web. Start-up companies are springing up on both coasts of the United States to service those companies who want to create their own Web site and to measure how many people look at their information as such. Even advertisers are joining in.
• A few industry figures have been going around touting the emergence of inexpensive “Internet appliances.” These simplified computers would rely on other larger centralized computers someplace on the Internet to store their data and to do much of their number crunching, and would just transmit to the computer users whatever software and data they needed, whenever they needed it. The argument goes that, this way, users would not have to know as much about computing as they do now because all of their tasks would be performed behind the scenes by the network of larger computers. Such an Internet appliance could be built around a simpler and less expensive microchip. Clearly, this would be detrimental to our business.
• The Internet fosters the emergence of a third class of use: applications and data that are stored at some other computer someplace, prepared and owned by unrelated individuals or organizations, that anyone can access through this pervasive, inexpensive set of connections, the “connection co-op.”
• Is the Internet that big a deal? Or is it an overhyped fad? I think it is that big a deal. I think anything that can affect industries whose total revenue base is many hundreds of billions of dollars is a big deal.
• All this suggests that the Internet is not a strategic inflection point for Intel. But while the classic signs suggest it isn’t, the totality of all the changes is so overwhelming that deep down I think it is.

  Kyle: Seems like he called cloud computing without really appreciating the implications of it for Intel

• There seems to be a measure of embarrassment surrounding things to do with the Internet. People know a lot less than they let on. Being familiar with the Internet has become a cultural mandate that causes people to be embarrassed to ask basic questions, so my sense is that a lot of the familiarity that exists is extremely superficial.
• Intel operates by following the direction set by three high-level corporate strategic objectives: the first has to do with our microprocessor business; the second with our communications business; the third with our operations and the execution of our plans. We add a fourth objective, encapsulating all the things that are necessary to mobilize our efforts in connection with the Internet. This is preceded by a lot of argument; some think we might just as well fold all the Internet-related things we need to do under the other three objectives. I feel otherwise. Packaging Internet activities separately and elevating them on a par with our other three objectives is a way to communicate their significance to the entire company.
• It is likely that the Internet appliance is a case of turning the clock backward, given that the trend over the last twenty to thirty years has consisted of pulling down intelligence from big computers to little ones. I don’t believe that the Internet is about to reverse this trend. But then again, my genes were formed by those same twenty or thirty years. And I’m likely to be the last one to know.
• There are other forces at work today that further alter the work environment. The Internet tidal wave that I described in Chapter 9 has grown and accelerated, increasingly affecting the way a large number of companies do business. It destroys existing business methods and creates new ones. Many jobs get shaken up in the process.
• I have long held that each person, whether he is an employee or self-employed, is like an individual business. Your career is literally your business, and you are its CEO. Just like the CEO of a large corporation, you must respond to market forces, head off competitors, take advantage of complementors and be alert to the possibility that what you are doing can be done in a different way. It is your responsibility to protect your career from harm and to position yourself to benefit from changes in the operating environment.
• The most important—and the most difficult—is to be alert to changes in your environment. When you work inside an organization, you’re often sheltered from a lot of things going on in the world at large that are relevant to the health of the business you work for. When you got this job, even though deep down you knew it was unlikely to be what you would do for the rest of your work life, you may very well have tacitly relinquished responsibility for your welfare to your employer. But by taking your eyes off the environment in which your company operates, like the CEO of a large organization, you too may be the last to know of potential changes that could have an impact on your career.
• Put yourself in the shoes of the CEO of a large company. You must open up your mind to outside views and stimuli. Read the newspapers. Attend industry conferences. Network with your colleagues in other companies. You may hear anecdotal descriptions of changes that may be relevant to you before they add up to a cogent trend. Listen to chatter from colleagues and friends.
• The existence of career inflection points is best analyzed by conducting a vigorous debate with sympathetic associates. You need to cultivate the habit of constantly questioning your work situation. By examining the tacit assumptions underlying your daily work, you will hone your ability to recognize and analyze change. In other words, get into the habit of conducting an internal debate about your work environment with yourself.
• Often you’ll be tempted to believe that because of your particular individual excellence, you’ll be exempt from the change. You’ll think, “It may happen to others but not to me.” This is a dangerous conceit. It’s the equivalent of the “inertia of success” that dogs companies which have done well. 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.
• Just as athletes get in shape for competition, this is your time to get in shape for change. Picture yourself in different roles. Read about these roles. Talk to people who are in them. Ask yourself questions about them. Conduct a dialogue with yourself about how you suit those roles. Train your brain in preparation for the big change.
• Experimentation is a key way to prepare for change. The banker/stockbroker started on his transition to business journalism while he was still employed as a stockbroker. This served several purposes. He dusted off his writing skills, tested the feasibility and practicality of his future change and established contact with potential sources of business before giving up on his main source of income. In doing so, he verified that he could plausibly make a living by writing if he devoted himself to it full-time.
• Guide yourself by your knowledge and understanding of the nature of the changes that are upon you; in this way, the experimentation propels you forward in a direction that gets you out of the way of those changes. Look for something that allows you to use your knowledge or skills in a position that’s more immune to the wave of changes you have spotted. (Better yet, look for a job that takes advantage of the changes in the first place. Go with the flow rather than fight it.)
• As CEO of your own career, you will have to supply both the vision and commitment yourself. Both are daunting. Arriving at the clarity of direction through a dialogue with yourself and maintaining your conviction when you wake up in the middle of the night filled with doubts are both tough. Yet you have no choice. Inaction will leave you in a position where the action will be forced upon you.
• At times like this, looking back may be tempting, but it’s terribly counterproductive. Don’t bemoan the way things were. They will never be that way again. Pour your energy, every bit of it, into adapting to your new world, into learning the skills you need to prosper in it and into shaping it around you. Whereas the old land presented limited opportunity or none at all, the new land enables you to have a future whose rewards are worth all the risks.