“Only The Paranoid Survive”: Thoughts on the Andy Grove bestseller

Andy used to teach a strategic management class at Stanford GSB  while working as Intel’s CEO, so this book stemmed from both his experiences running Intel and his reflections on those experiences while teaching.

  • Only the paranoid survive is a phrase attributed to Andy in the valley. He strongly believes in the value of paranoia when it comes to business since business success sows the seeds of its own destruction.
  • The book focuses on strategic inflection points, times in the lifetime of a business when its fundamentals are about to change. These bring full-scale changes in the way a business is conducted, so merely adopting new technology or changing a few processes here or there don’t count.
  • A classic example of a strategic inflection point is when Intel went from being a memory technology company to a microprocessor company. This was an inflection point for Intel that later caused inflection points for many others – such as the mainframe industry, with PCs becoming ubiquitous.

  • The lessons of dealing with strategic inflection points are similar, whether you are dealing with a company or your own career.
  • No amount of planning can help anticipate these changes. This doesn’t mean you shouldn’t plan at all. Liken this to how the fire department works –  they can never anticipate where the next fire will be, but they can and do work towards being agile and efficient enough that they can deal with ordinary as well as unanticipated events.
  • For Andy personal, the Intel pentium division bug was a huge inflection point. It changed how he and other management folks thought of the company and interacted with their “customers” (or even who they thought their customers were!). This is reflected in the difference between how Intel initially dealt with the issue and later, after it had blown out of proportion. Intel was used to thinking of itself as a giant start-up, one that dealt with businesses and supplied to businesses (OEMs, computer manufacturers) and hence dealing with engineers in a closed room. The Pentium FDIV incident put them in a spot where they had the ordinary Joe customer calling up their support staff and asking for a replacement component. They realized the world at large thought of them as yet another “big corporation”. Initially Intel’s stance was “we will decide whether the bug affects you or not”, which was rationally valid. The FDIV bug wouldn’t have affected the ordinary home user anyway.. But they soon realized this would not work with the end customers and offered to replace every single chip shipped out. This cost them a whopping $475 million in those times (~750 mn today).
  • Andy’s statement from those times are fairly amusing. “We found ourselves dealing with people who bought nothing from us directly yet were very angry with us.” “Suddenly I found a CNN crew awaiting me.”
  • Top management or folks in leadership roles are usually late, even the last folks, to know about inflection points. Andy acknowledges this was the case with himself in the FDIV incident. “It took a barrage of relentless criticism to make me realize that something had changed – and that we needed to adapt to the new environment.”
  • He encourages listening to foot soldiers (marketing, sales crew out in the wild) and middle managers with a keen ear, watching out for signs of change. They are the first ones to feel the effects of a strategic inflection point and it shows in how they change the way they perform their jobs. This will inevitably happen – when Intel’s memory technology business was floundering, middle managers managing the foundries and assembly lines had quietly begun reducing the amount of resources dedicated to memory and increasing the proportion of logic components such as microprocessors, for that would help yield better results for their divisions and themselves.
  • A 10X change – Michael Porter’s 5 forces talk about the factors that can endanger a business – competitors, customers, suppliers, new entrants and substitute products. Andy adds complementors to that list – other businesses from whom customers buy the same products. They have the same business interests as you do and travel the same road as you. A very large change in one of these forces is what Andy calls a “10X” force.
  • The microprocessor and the personal computer were a 10X force in the computer industry, which changed the industry from vertically integrated players in early 1908s (IBM, DEC types – doing everything from low-level hardware, fab-bing in-house to high-level operating systems) to a horizontally spread (Intel, Motorola dominating chips,  Compaq, Dell and IBM doing the PC-making and Microsoft leading the software side) during early 1990s.
  • Jobs’ NeXT is an example of a company that refused to acknowledge this 10X force, but eventually bowed down to it, turning into a software-only company.
  • These inflection points affect not only the high-tech industry but all businesses around us. A wal-mart store opening in a small town is a 10X force for the small shops in that town.
  • It takes a great amount of determination and objectivity to move yourself (and your team, if there is one) through an excruciatingly tough series of changes. This happened at Intel in 1985, when they had been going through a tough time in the memory business for about a year. There were great emotions attached since this had the foundation stone of Intel as a company, but it wasn’t working out for them. Andy asked the co-founders what would happen if the board kicked them out and brought in a new CEO. “He would get us out of memories.” “Then why don’t you and I walk out the door, come back and do it ourselves?”
  • The word “point” in inflection point is a misnomer. It’s not a point – its a long, torturous struggle. Intel was being beaten by the Japanese in memories since early 1980s. Intel’s performance slumped badly around 1984. Andy and the founders got to decision making only in late 1985 and it wasn’t until mid 1986 that the switch was made. Its worth asking two things here – (a) is the same timeline even affordable in today’s world? Perhaps for the size of Intel or other tech giants, who have a lot of runway left, huge “war coffers”, perhaps such a timeline is still affordable. (b) is a similar timeline affordable when making career/life decisions in today’s fast-paced world?
  • Signal or Noise: When evaluating whether a change is a 10X force or not, false negatives are a big problem too. Andy walks us through his thought-process while evaluating the “RISC vs CISC” debate and while debating the implications the rise of the internet would have on Intel.  It is worth noting that ARM surfaced as a dominant competitor to Intel only after Andy stepped down as CEO – I wonder if this has to do with the fact that his judgement of RISC not mattering was right when he was CEO (mobile hadn’t emerged, power still wasn’t a concern in desktops, and memory/frequency walls had not been hit, and x86 was providing better performance than RISC) but the people who followed in his footsteps failed to change the judgement when the scenario changed.
  • Listen to the Cassandras – Cassandra was the priestess who foretold the fall of Troy. For a company these Cassandras are people who are out in the field, and can feel the pulse of the market, the situation. Field sales managers in remote markets will know a lot more about upcoming changes than the top management sitting in California. Who are these Cassandras when it comes to individual life/career decisions?
  • Debate a lot – When dealing with RISC vs CISC, Andy brought in senior folks, middle managers from all functions in the company, customers and partners. He was also careful to offset for the biases and interests of these different individuals. Sometimes its OK to factor in the biases and accept them – a business only succeeds when it can serve the interest of outside parties.
  • Arguing with data is a double-sided sword. “You have to be able to argue with the data when your experience and judgement suggest the emergence of a force that may be too small to show up in the analysis but has the potential to grow so big so as to change the rules your business operates by.”
  • Let people speak their minds without fear of punishment. Cultivate an environment where everyone is aware that someday, some development somewhere will change the rules of the game and everyone is on the lookout for those kinds of changes.
  • It is the fear (of losing) that gives me the will to listen to Cassandras when all I want to do is to cry out, “Enough already, the sky isn’t falling yet” and go home. Simply put, fear can be the opposite of complacency.
  • “From our inception on, we have worked very hard to break down the walls between those who possess knowledge power and those who possess organization power.”
  • Managing an inflection point is a two-step process – let chaos reign and then rein in chaos.
  • Dealing with an inflection point  and dealing with loss: “A manager in a business that’s undergoing a strategic inflection point is likely to experience a variation of the well-known stages of what individuals go through when dealing with a serious loss. This is not surprising because the early stages of a strategic inflection point are fraught with loss – the loss of your company’s presence in the industry, of identity, a sense of control over your destiny and most troubling, the loss of being affiliated with a winner.”
  • The difference: “denial, anger, bargaining, depression and ultimately acceptance” here becomes, “denial, escape or diversion and finally acceptance and pertinent action.”
  • Escape or diversion: Senior executives want to be legitimately occupied with things that demand their constant attention day in and day out and things that can provide a sense (illusion?) of progress , so that they can avoid looking at the small-ish signs that  foretell an impending strategically disruptive force. Grove hypothesizes that this is why several Japanese major consumer electronics companies acquired movie studios, the senior management wanted interesting diversions, rather than coping with a secular slowdown of the core business. He himself wrote “High output management” in the years preceding the memory crisis, and wonders if that was an accident. 🙂
  • The inertia of success: When people suffer from this, they believe that just working harder and doing the things that got them there will work, given enough time. “Just give us some more time” is a phrase that is often heard in this context.
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