Book Summary: “Only The Paranoid Survive” by Andrew S. Grove

Book Summary: “Only The Paranoid Survive” by Andrew S. Grove

Short Review and Score

Pretty good book, describing the major crises of Intel and how they handled them, and why it’s crucial to always prepare for the next upcoming crises. Great for any tech company CEO or the small start-up entrepreneur looking to compete with the giants and succeed.

 

Summary

Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business.

Japanese memory producers brought upon us an inflection point so overwhelming that it forced us out of memory chips and into the relatively new field of microprocessors.

You need to steer the the boat in a different direction quickly before you are in trouble, yet you have to get a feel of the new direction and the strength of the wind before you can hope to right the boat and set a new course.

If you work in one of these industries and you are in middle management, you may very well sense the shifting winds on your face before the company as a whole and sometimes before your senior management does. 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.

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. Our IT manger is the periphery.

We need to expose ourselves to lower-level employees, who, when encouraged, will tell us a lot that we need to know.

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.

The power, vigor and competence of a company’s existing competitors: are there a lot of them? Are they well funded? Do they clearly focus on your business?
4The power, vigor and competence of a company’s suppliers: Are there are lot of them?, so that the business has plenty of choices, or are there few of them, so that they have the business by the throat?

Complementors often have the same interests as your business and travel the same road.

Put another way, a strategic inflection point is when the balance of forces shifts from the old structure, from the old ways of doing business and the old ways of competing, to the new.

“If our product worked a little better or it cost a little less, we would have no problems” … only partially right.

“The industry has gone nuts” – another sign of an inflection point.

If you undertake these changes while your company is still healthy, while your onion business forms a protective bubble in which you can experiment with new ways of doing business, you can save much more of your company’s strength, your employees and your strategic position.

These signals may have been out there all along but you may have ignored them.

There are plenty of historical examples, such as how small retailers are being wiped out by superstores.

If you base your business on the volume leader, you wil be going after a larger business yourself.

Over time, they chose to base their work on the former, gradually reinforcing success of Intel’s microprocessors and Microsoft’s operating system.

Their long reign of success deeply reinforced and ingrained the thought processes and instincts that led to winning in the vertical industry. So when the industry changed, they attempted touse the same type of thinking that worked in the past.

In effect, they came to the conclusion that they couldn’t fight this industry-wide change, so they adapted to it.

By moving quickly into a new way of doing business, Novell became a “first mover” in networking in the new horizontal industry and became a billion-dollar software company by the end of the decade.

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.

Don’t differentiate without a difference.

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.

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.

Cost-based pricing will often lead you into a niche position, which in a mass-production-based industry is not very lucrative.

Simply put, it’s harder to be the best of class in several fields than in just one.

When a Wal-Mart moves into a small town, the environment changes for every retailer in that town.

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  strategic inflection point that’s about to affect us. And that’s half the battle.

Wal-Mart comes to town with a superior “just-in-time” logistics system,with large-volume-based purchase costs, store=location system designed to pinpoint areas where competition is generally weak.

What would work against a Wal-Mart? Specialization has a good chance.

Redefining your business to provide an environment, rather than a product. An independent bookstore that became a coffeehouse with books to compete with the chain bookstores that brought Wal-Mart-style competitive advantages to their business.

Windows wasn’t even as good as the Mac, let alone the Next interface. While Jobs was burning the midnight oil inside NExt, in the outside world something changed.

When Jobs started developing Next, the competition he had in mind was the Mac.

Yet the years later, at thirty, Jobs was stuck in his own past.

Jobs did not easily give up the conviction that had made him such a passionate and effective pioneer. It took facing a business survival situation for reality to win over long-held dogmas.

Others still clung to their old trade, simply adopting an attitude of denial in the face of a major environmental change.

Chaplin finally surrendered to spoken dialogue with The Great Dictator in 1940.

New York City, once a major magnet for shipping, has been steadily losing money.

After each strategic inflection point, there ar ewinners and there are losers. Whether a port won or lost clearly depended on how it responded to the “10X” force in technology that engulfed it.

A fundamental rule in technology says that whatever can be done will be done.

Digital-once the revolutionary that attacked the mainframe world-now resisted this change along with the incumbents of the mainframe era.

In another example of denial, IBM’s management steadfastly blamed weakness in the worldwide economy.

Customers drifting away from their former buying habits may provide the most subtle and insidious cause of a strategic inflection point.

Businesses fail either because they leave their customers, i.e., they arbitrarily change a strategy that worked for them in the past, or because their customers leave them.

A key commodity, the standard microprocessor became available only from its developer – us. First, our influence on our customers increased. Second, since most PCs increasingly were built on microprocessors from one supplier, they became more alike.

They have no experience of how to deal with competition. They never had to market to consumers; after all, why would a monopoly have to court customers?

Their management grew up in a regulatory environment where their core competencies revolved aroudn their ability to work with the regulators.

The Japanese first showed up to fill the product shortages – The Japanese were helpful then. They took the pressure off us, but in the early eighties they appeared in force – in overwhelming force.

The key portion of the memory said, “Win with the 10% rule… Find AMD and Intel sockets… Quote 10% below their price. if they reqoute, go 10% again… Don’t quit till you win”

We persevered because we could afford to.

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?”

People who have no emotional stake in a decision can see what needs to be done sooner.

A strategic inflection point is not a point; it’s a long, torturous struggle.

I also learned that strategic inflection points, painful as they are for all participants, provide an opportunity to break out of a plateau and catapult to a higher level of achievement.

Bit by bit, they allocated more and more of our silicon wafer production capacities to those lines which were more profitable, like microprocessors, by taking production capacity away from the money-losing memory business. Simply by doing their daily work, these middle managers were adjusting Intel’s strategic posture. The exit decisions has less drastic consequences as a result of the actions of our middle managers.

Even if it lingers on your periphery, you still keep an eye on it because its course and speed may change.

Ask these questions to attempt to distinguish signal from noise:
* Is your key competitor about to change? If you had only one silver bullet in a figurative pistol, whom among your many competitors would you save it for? Asked point-blank, this questions usually provokes a visceral response and I find that people can normally give an answer without much hesitation. When the answer to this question stop 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.

Do people seem to be “losing it” around you?

Your genes were right or 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.

It may not be because of encroaching age; it may be because the “it” has changed around you.

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 to achieve perfection in the old way.

Lost sale affect a salesperon’s commission, technology that never makes it to the marketplace disrupts an engineer’s career. Therefore, they take the warning signs more seriously.

They will “sell” their concern to you with a passion.

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.

When I absorb news or information coming from people who are geographically distant or who are several levels below me in the organization, I will triangulate on business issues with their view, which comes from a completely different perspective. This will bring insights that I would not likely get from my ordinary contacts.

These people didn’t have the authority to get us out of memories but they had the authority to fine-tune the production allocation process by lots of little steps.

Peter Drucker quotes a definition of an entrepreneur as someone that moves resources from areas of lower productivity and yield to areas of higher productivity and yield.

When you think about it, first versions of most things usually are.

My point is that you can’t judge the significance of strategic inflection points by the quality of the first version.

World Wide Web page to slowly materialize let your imagination flow a bit. What might this experienced be like if transmissions speed doubled. Or better yet, if it were improved by “10X”?

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 ot be a strategic inflection point.

Your time for participating is now. You owe it to the company and you owe it to yourself. Don’t justify holding back by saying that you don’t know the answers.

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.

Yet you have to be able to argue with the data when your experience and judgment suggest the emergence of a frce that may be too small to show up in the analysis but has the potential to grow so big as to change the rules your business operates by.

The most important role of managers is to create an environment in which people are passionately dedicated to winning in the market. Fear plays a major role in creating  and maintaining such passion. Fear of competition, fear of bankruptcy, fear of being wrong and fear of losing can all be powerful motivators.

They will be constantly scanning their radar screens.

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 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.

Complacency often allicts precisely those who have been the most successful. It is often found in companies that have honed the sort of  skills that are perfect or their environment. But when their environment changes, these companies may be the slowest to respond properly.

That the fear of repeating 1985 and 1986 has been an important ingredient in our success.

Almost nothing could be more detrimental to the well-being of the company.

So under no circumstances should you ever “shoot the messenger” nor should you allow any manager who works for you to do so.

Constructive confrontation; they under how these help us collectively to make better decisions and come to better solutions. 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.

Both of them need to give their best to guide the corporation to good strategic results. Ideally, each will respect the other for what he or she brings to the party and will not be intimidated by the other’s knowledge or position.

Promoting constant collaborate exchanges between the holders of knowledge power and the holders of organizational power to create the best solutions in the interest of both.

Loss of your company’s preeminence in the industry, of its identity, of a sense of control of your company’s destiny, of job secueity and, perhaps the most wrenching, the loss of being affiliated with a winner.

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 standing their time on and make progress in instead of figure out how to cope with an impending strategically destructive force.

And as I write this, I wonder what storm clouds I might be ducking now. I’ll probably know in a few years.

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 mundance issues as why we are gradually losing sales at the smaller accounts”.

That takes me away from something that I don’t know how to handle. I wonder to what extent all the acquisitions of movie studios by the major Japanese consumer electronics companies were motivated by the need of senior management to engage in diversions from the far more intractable and mundane problems of a secular slowdown of their core businesses.

Good leaders eventually emerge to the acceptance and action phases.

Necessarily more capable but who do not have the emotional investment in the previous strategy. This a key point the replacement of corporate heads is far more motivated by the need to bring in someone who is not invested in the past than to get somebody who is a better manager or a better leader in other ways.

We refuse to acknowledge changes around us, almost like a child who doesn’t like what he’s seeing so he closes his eyes an counts to 100 and figures that what bothered him will go away.

They might be caused by a growing dissonance between my well-worn answer and a diverging reality. “Grove, listen up, something is not quite right here”.

At times likethis they must become more tolerant of the new and the different. Only stepping out of the old ruts will bring new insights.

The operating phrase should be: “Let chaos reign!”

But the old order won’t give way to the new without a phase of experimentation.

Ideally, you should have experimented with new products, technologies, channels, promotions and new customers all along. Then, when you sense that “something has changed”, you will have a number of experiments that can be relied on to expand your bag of tricks and your organization will be in a much better position to expand the scope of experimentation and to tolerate the increased level of chaos that is the precursor for re-positioning the company in a new business direction.

I have never made a tough change, whether it involved resource shifts or personnel moves, that I haven’t wished I had made a year or so earlier.

I wasn’t any smarter than he; I was just unfettered by the responsibility of actually having to order up the changes.

We even know what we should be doing. But we don’t trust our instincts or don’t act on them early enough to take advantage of the benign business bubble. We must discipline ourselves to overcome our tendency to do too little too late.

It reinforced our belief in the significance of compatibility with all of the rest of the horizontal layers and provided further encouragement for our drive toward high volume and low cost in our microprocessor business.

Try out your evolving map on your close associates.

In a modern organization, rapid response to market forces depends on the autonomous actions of middle managers.

Sharing a common picture of the map of the industry and its dynamic is a key tool in making your organization an adaptive one.

To make it through the valley of death successfully, your first task is to form a mental image of what the company should look like when you get to the other side.

What you’re trying to do is capture the essence of the company and the focus of its business.

(What the Japanese memory producers were to us, Microsoft’s presence in applications software was to them)

How can you motivate yourself to continue to follow a leader when he appears to be going around in circles? I can’t help but wonder why leaders are so often hesitant to lead. I guess it takes a lot of conviction and trusting your gut to get ahead of your peers, your staff and your employees while they are still squabbling about which path to take, and set an unhesitating, unequivocal course whose rightness or wrongness will not be known for years.

By contrast, it doesn’t take much self-confidence to downsize a company – after all, how can you go wrong by shuttering factories and laying people off if the benefits of such actions are going to show up in tomorrow’s bottom line and will be applauded by the financial community?

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 never met, not having a clue how they would respond.

How you spend your time has enormous symbolic value. It will communicate what’s important or what isn’t far more powerfully than all the speeches you can give.

Your tendency will almost always be to wait too long.

If you act too early, chances are the momentum of your previous business is still healthy.

Simply put, in times of change, managers almost always know which direction they should go in, but usually act too late and do too little.

“Put all your eggs in one basket and watch that basket” IT takes every erg of energy in your organization to do a good job pursuing one strategic aim, especially in the face of aggressive and competent competition.

After that retraction, his credibility had to have been damaged. He will have to work that much harder to impart direction and have people believe it. In other words, screw up once and it wil take a lot more work later to communicate the right message to correct your mistake.

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