Survival of the Paranoid

Strategic Inflection Point and the Survival of the Paranoid — Andrew S. Grove

Unisem. Mostek. Advanced Memory Systems.

Do you recognize any of these semiconductor memory companies? I didn’t think so.

Did you know that Intel almost had its own grave in the cemetery of fallen Silicon Valley companies?

Intel escaped this near-death fate because they were dynamic, agile, and perceptive. But most of all, paranoid.

Summary

Andrew S. Grove, in his book Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company and Career, lays out a detailed case of how a company should act when it encounters an “inflection point.”

Part management book, part memoir, and part semiconductor history, it is a not-to-be-missed book by semiconductor management professionals. The book recounts a fascinating — and tortuous — tale of Intel Corporation’s pivot from a memory to microprocessor company.

This transition propelled Intel to the top of the semiconductor industry — in revenue, prestige, and most importantly, influence.

My Journey with Intel

Intel was my first job fresh out of graduate school. It was an incredible company to work for — an engineer’s dream job.

I started my work in Intel at its headquarters in Santa Clara, the exact location where the core incidents in this book took place.

I often saw Andy Grove in the Intel cafeteria in the Robert Noyce Building. He was spry, often donning an elegant black turtleneck. With a bite-sized portion of lunch in hand, he was usually swarmed by acolytes, assistants, and the like. With a piercing intellect and articulation, he appeared intense.

Andy Grove was not just the CEO of Intel; he was a legendary figure in the semiconductor industry in his own right. I had admired Andy Grove even before joining Intel. At the University of Maryland, College Park, his book on semiconductor devices helped me clear my PhD qualifying exam. The story is that while I understand MOSFET and diode device physics well, bipolar junction transistor (BJT) eluded me. Andy’s book — deliciously short and insanely well written — explained the BJT operation with penetrating precision. I knew his command over science and engineering was well established, but it soon became evident that he was a management genius too. This book is a testament to that.

If there is any company which has taken egalitarianism to its ultimate height, it is Intel. No one had closed offices, assigned parking spots, or special privileges.

One late night at Intel, a conversation with a coworker veered off to what Andy Grove’s cubicle might look like. Naturally, we walked over to the Robert Noyce building to find out. While Andy wasn’t there, we could still see what his cubicle looked like: it was like any other cubicle in Intel, except it was fantastically neat and organized as if the owner had cleaned it up before leaving and made it ready for the next day.

The Intel Story

Intel, often hailed as the world’s most important company, had many iconic leaders and technologists. Andrew S. Grove defined Intel more than anyone. Andy personified all things Intel.

Intel Corporation, started in 1968, defined itself as memory company. It had 100% of the market. Memories were Intel’s identity — “Memories were us,” Andy Grove remarks.

Though not the initial focus of Intel, the Microprocessor revolutionized the industry and came to define the Intel brand. The Microprocessor (the brain of the computer) was invented by Intel in 1970 as a side project, but it did not receive much attention. It was a slow growing, small volume market. Microprocessors had to fight for fab space, while memory got the most volume on the advanced process nodes.

But that was about to change.

Japan had identified semiconductors as the most important ingredient of an industrial economy. They called it the “rice of the industry.” Through innovation, investment, and government investment, Japan shook the semiconductor world. With high quality and aggressively priced products, Japanese memory producers attained market domination by the early 1980s.

Grove writes that Intel employees who visited Japan found the previously respectful attitude turn derisory. Their reports of “something changed” was noted as the earliest sign of an impending crisis.

Soon Intel began hemorrhaging revenue and market share. Intel discovered a memo from Japanese manufacturers that outlined their strategy to undercut competition by always offering prices that were 10% lower than other sellers.

Cornered and paranoid, Intel floundered. The initial impulse was to fight it by doing what they had always done before: trying to out-innovate, reduce costs, design niche products, create special-purpose products, and even the “go for it” strategy, in the memory space. But this was an unwinnable war. This situation couldn’t continue.

This was a strategic inflection point, or in Grove’s terminology, a “10x event.” Something more dramatic had to be done.

In 1985, Andy Grove and Gordon Moore (CEO, Chairman, co-founder of Intel) were sitting in the Intel HQ in Santa Clara looking at the Ferris wheel of the Great America amusement park. Grove’s own recounting is too powerful to be reworded:

Our mood was downbeat. I (Andy) turned back to Gordon and I asked,“If we get 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 and then said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?”

The Shift — The Valley of Death

From that point on, Intel set out to make microprocessors its chief product. The path — dubbed the Valley of Death — wasn’t easy. Grove had to communicate the new idea, get buy in, and change mindsets.

Intel did jettison its memory business and made the transition to becoming a microprocessor company. Had Intel not made this transition, it would have fallen into the same grave as Unisem, Mostek, and Advanced Memory Systems (memory companies that most readers would not know about). Soon Intel had a new slogan:

By 1986 the tagline became “Intel, the microcomputer company”

And by 1992 Intel became the largest semiconductor company in the world.

Valley of Death

This shift from identifying the inflection point and reaching a stable business on the other end is not easy — skilled management is imperative to traverse this treacherous valley of death:

• Communication — Give a lot of speeches. Back-and-forth interaction is critical. Prerecorded TV videos should be avoided.
• Calendar — Make it a strategic tool. Inertia of past will keep the schedule to support past outcomes; but make the Calendar represent the new priorities.
• Calendar — Make it a strategic tool. Inertia of the past will maintain old priorities, but make the Calendar reflect the new priorities.
• Email — Is a high-leverage activity. One may need to spend only a few hours per day on this, but even short 2–3 line emails go a long way. Cassandras use this channel, so don’t ignore it.
• Retrain the staff — Gordon Moore told his staff that half of them would need to become software types in five years, and he made it happen. You can’t change the company without changing its management or their minds.

Key Learning

Debate

Free-flowing internal debate is essential. Intel already had this in its DNA, but some companies struggle with it.

Engineers extol debating with data, but this should be done with caution. Data may not useful because it is more about the past while the inflection point is about the future.

“You have to know when to hold your data and when to fold ‘em”.

Closely related is the idea of strategic dissonance, divergence between action and words. Cognitive dissonance is exposed by free-flowing discussions. In fact, it is a sine qua non of the inflection point — you can identify the inflection point by simply sensing dissonance.

Chaos

Some amount of controlled chaos is necessary during the transition period. Embrace it and use it to drive change. Take strategic actions, both to signal change and also to shift the resources to more productive businesses.

Fear

Fear, Andy Grove posits, is a good thing. Readers should pause and not misunderstand this statement.

Fear is good for business: Managers should be fearful of failing products, losing business, and of competitors. Paranoia is good. It makes managers vigilant. They check emails often, check the pulse of the company, and monitor external threats assiduously. Only the paranoid survive, after all.

However, don’t bring fear inside the organization. Don’t shoot the messenger, the Cassandras. Fear will paralyze the organization.

Called “constructive confrontation” in Intel argot, Intel’s management genius is to cultivate paranoia but keep internal debate vigorous and frank.

“It takes years of consistent conduct to eliminate fear of punishment as an inhibitor of strategic discussion. It takes only one incident to introduce it.”

A Case for Cassandras

Greek mythology is shamelessly, almost amusingly, reused in management books. Though some parallels are forced, Grove invokes an intriguing example:

Cassandra was a Trojan priestess who foretold the fall of Troy but was cursed to never be believed. In business, this refers to those who bring information — often bad news — to the attention of senior management who may be unaware. Cassandras know the bad news before senior managers know it. Senior management typically is the last to know. Cassandras are critical for a well-run, growth-mindset-motivated company.

Cassandras are usually in middle management, and they often work in sales or outward-facing organizations. They know about the impending change because they work on the periphery:

When spring comes, snow first melts at the periphery.

Time spent listening to Cassandras is a good investment to learn about the distant periphery — geographically or technically.

My Cassandra Chronicle

I have personally both played the Cassandra role and also managed and nurtured Cassandras in my organization. One owes it to the company and yourself to be both a Cassandra and listen to the Cassandras that work for you.

I have noticed that senior executives are often unaware of developments that seem obvious to those in the periphery. A good manager should lean into the Cassandras to learn about customer needs and market dynamics, and also learn from their own sales force and field application engineers.

For example, in one company, I had a conversation with the Senior VP and highlighted that our customers and sales team were expressing strong demand for electrical models, which were impacting our sales performance. It was evident that he was unaware of this critical issue.

In another instance, while engaging with customers and distributors, I attended a conference in Europe where I learned about upcoming changes to the distributor-company relationship. Upon my return, I promptly shared this information with my manager. Although he was surprised by the developments, it allowed him to proactively prepare for future challenges and align the team accordingly.

From personal experience, Cassandra’s insights are not always received with open arms. Often it takes a high level of communication skills and emotional intelligence to get the message across. I embraced the Cassandra role and took it as part of my duty to my managers and the company. In the end it was rewarding to help my team and the organization.

Conclusion

Andrew S. Grove’s book Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company and Career is a classic piece of Silicon Valley semiconductor history. The book encourages identifying a signal in the noise to identify usually-shrouded inflection points. With a peculiar yet clinical tone of paranoia, it tactfully lays out the process of navigating the transition and crossing the Valley of Death making it an essential read for any manager. After all, only the paranoid survive.

Note: Also published at https://medium.com/@surinder_p_singh/survival-of-the-paranoid-32e4a178b403. Graphics art by K. Kaur. See my Behance post on the background on this cartoon.