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Only the Paranoid Survive | Andrew Grove

Only the Paranoid Survive | Andrew Grove

We live in an age in which the pace of technological change is pulsating ever faster, causing waves that spread outward toward all industries. This increased rate of change will have an impact on you, no matter what you do for a living. It will bring new competition from new ways of doing from corners that you don't expect.

It doesn't matter where you live. Long distances used to be a moat that both insulated and isolated people from workers on the other side of the world. But every day, technology narrows that moat inch by inch. Every person in the world is on the verge of becoming both a coworker and a competitor to every one of us, much the same as our colleagues down the hall of the same office building are. Technological change is going to reach out and sooner or later change something fundamental in your business world. [...]

Chapter 1. Something Changed

"New rules prevailed now and they were powerful enough to cost us nearly half a billion dollars."

The Six Forces Affecting a Business

Generations of business people and business students have been trained to think in terms of these forces, so I'll adopt them as our starting point. Porter describes five forces that determine the competitive well-being of a business. In my paraphrasing, they are:

  • 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?
  • The power, vigor and competence of a company's suppliers: Are there a 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? Are they aggressive and greedy or are they conservative and guided by the long view toward their customers?
  • The power, vigor and competence of a company's customers: Are there a lot of them or is the business dependent on just one or two major a:stomers? Are the customers very demanding, perhaps because their business operates under cutthroat competition, or is their business more "gentlemanly"?

  • The power, vigor and competence of a company's potential competitors: These players are not in the business today but circumstances could change and they decide to come in; if so, they may be bigger, more competent, better funded and more aggressive than the existing competitors.

  • The possibility that your product or service can be built or delivered in a different way. This is often called "substitution", and I've found that this last factor is the most deadly of all. New technique, 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 ports, what superstores have done to small shops, what microprocessors continue to do to computing and what digital media do to entertainment.

A "10X" Force

When a change in how some element of one's business is conducted becomes an order of magnitude larger than what that business is accustomed to, then all bets are off. There's wind and then there's a typhoon, there are waves and then there's a tsunami. There are competitive forces and then there are super-competitive forces. I'll call such a very large change in one of these six forces a "10X" change, suggesting that the force has become ten times what it was just recently. This is illustrated in the following.

When a busines goes from the condition shown in the first figure to second, die changes it are enormous. In the face of such "10X" forces, you can lose of your destiny. Things happen to your business that didn't before, your business no longer responds to your actions as it used to. It is at times like this that the telling phrase "Something has changed" is apt to come up.

To manage a business in the face of a "10X" change is very, very difficult. The business responds differently to managerial actions than it did before. We have lost control and don't know how to regain it. Eventually, a new equilibrium in the industry will be reached. Some business will be stronger, others will be weaker. However, the period of transition depicted in the diagram below is particularly confusing and treacherous. 

Now, nobody will ring a bell to call your attention to the fact that you are entering into such a transition. It's a gradual process; the forces start to gow and, they do, the characteristics of the business begin to change. Only die beginning and the end are clear; the transition in between in is gradual and puzzling.

What such a transition does to a business is profound, and how the business manages this transition determines its future. I like to describe this phenomenon as an inflection point.

The Strategic Inflection Point

What is an inflection point? Mathematically, we encounter an inflection point when the rate of change of the slope of the curve (referred to as its "second derivative") changes sign, for instance, going from negative to positive. In physical terms, it's where a curve change from convex to concave, or vice versa. As shown in the diagram, it's the point at which a curve stops curving one way and starts curving the other way.

After Strategic Inflection Point

After 1981, when IBM chose Intel to provide the microprocessor in their PC, Intel grew to become the most widely accepted supplier of microprocessors. After that, industry participants in the layers above, i.e., computer manufacturers and operating systems suppliers, found it more economically advantageous to build their business on Intel architecture microchips than on any other. Why? Because there were a lot more of those being produced every year. If you base your business on the volume leader, you will be going after a larger business yourself. [...]

Winners and Losers

In fact, there are ovo 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. 

The New Rules of the Horizontal Industry

Horizontal industries live and die by mass production and mass marketing. They have their own rules. The companies that have done well in the brutally competitive horizontal computer industry learned these implicit rules. By following them, a company has the opportunity to compete and prosper. By defying them, no matter how good its products are, no matter how well they their plans, a company is slogging uphill.

What are these rules? There are three.

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. The personal computer industry is characterized by well-chronicled failures when manufacturers, ostensibly motivated by a desire to make "a better PC," departed from the mainstream standard. But goodness in a PC was inseparable from compatibility, so "a better PC" that was different turned out to be a technological oxymoron.

Two, in this hyper-competitive 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 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.

I think these rules are pretty general for horizontally based industries. I also think that there is a general trend toward horizontally based structure in many parts of industry and commerce: As an industry become more competitive, are forced to retreat to their strongholds and specialize, in order to become world class in whatever segment they end up occupying.

Chapter 2 : They're Everywhere

"Strategic inflection points are not a phenomenon of the high-tech industry, nor are they something that happens to the other guy."

"10X" Change: Competition

There's competition and there's megacompetition, and when there's megacompetition (a "10X" force) the business landscape changes. Sometimes the nature of the megacompetition is obvious, and the story of Wal-Mart that follows will give an example of that. Sometimes the megacompetition sneaks up on you. lt doesn't do business the way you are used to having business done, but it will lure your customers away just the same. 

Wal-Mart: An overwhelming force in town

From the standpoint of a general store in a small town, a Wal-Mart store is competition. So were the other general stores that it previously had to compete with. But Wal-Mart comes to town with a superior "just-in-time" logistics system, with inventory management based on modern scanners and satellite communications; with trucks that go from store to hub to store continuously replenishing inventories; with large-volume-based purchase costs, systematic company wide training programs, and a finely tuned store location system designed to pinpoint areas where competition is generally weak. All this adds up to a "10X" factor compared to the other competition the store previously had to face. For a small-town general store, once Wal-Mart moves to town, things will have changed in a big way.

A far superior competitor appearing on the scene is a mandate for you to change. Continuing to do what worked before doesn't work anymore.

What would work against a Wal-Mart? Specialization has a good chance. In-depth stocking, sewing a particular market segment, as Home Depot, Office Depot, Toys "R' Us and similar "category killers" are doing, can work to offset the overall imbalance of scale. So can customized service, as Staples is implementing through an in-depth computerized customer database. Alternatively, so might redefining your business to provide an environment, rather than a product, that people value, like the example of 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. [...]

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 promise as well as threats. It is at such times of fundamental change that the cliché "adapt or die" takes on its true meaning.

Chapter 3 : "Signal" or "Noise"?

"How do we know whether a change signals a strategic inflection point? The only way is through the process of clarification that comes from broad and intensive debate."

So how do you know whether a change signals a strategic inflection point?

Ask these qustions 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 shifts, it is often a sign that something significant is going on.

  • In an analogous fashion, you should ask, is your key complementor 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. [...]

Fear

Constructively debating tough issues and getting somewhere is only possible when people can speak their minds without fear of punishment.

The quality guru W. Edwards Deming advocated stamping out fear in corporations. I have trouble with the simplemindedness of this dictum. The most important role of managers is to create an environment in which people are passionately dedicated to winning in the marketplace. 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.

How do we cultivate fear of losing in our employees? We can only do that if we feel it ourselves. If we fear that someday, any day, some development somewhere in our environment will change the rules of the game, our associates will sense and share that dread. They will be on the lookout. They will be constantly scanning their radar screens. This may bring a lot of spurious warnings of strategic inflection points that turn out to be false alarms, but it's better to pay attention to these, to analyze them one at a time and make an effort to dispose of them, than to miss the significance of an environmental change that could damage your business forever.

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.

Simply put, fear can be the opposite of complacency. Complacency often afflicts precisely those who have been the most successful. It is often found in companies that have honed the sort of skills that are perfect for their environment. But when their environment changes, these companies may be the slowest to respond properly. A good dose of fear of losing may help sharpen their survival instincts. [...]

Chapter 7 : Let Chaos Reign

"Resolution comes through experimentation. Only stepping out of the old ruts will bring new insights."

The Touchy-Feely Issues

How a company handles the process of getting through a strategic inflection point depends predominantly on a very ''soft," almost touchy-feely issue: how management reacts emotionally to the crisis.

This is not so strange. Businesspeople are not just managers; they are also human. They have emotions, and a lot of their emotions are tied up in the identity and well-being of their business.

If you are a senior manager, you probably got to where you are because you have devoted a large portion of your life to your trade, to your industry and to your company. 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.

If you are a middle manager, many of the same considerations apply. But very often your job is also at stake. How your corporation succeeds in working its way through a strategic inflection point may determine what happens to your career.

A manager in a business that's undergoing a strategic inflection point is likely to 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—loss of your company's preeminence in the industry, of its identity, of a sense of control of your company's destiny, of job security and, perhaps the most wrenching, the loss of being affiliated with a winner. 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.

Denial is prevalent in the early stages of almost every example of a strategic inflection point I can think of. During Intel's memory situation, I remember thinking, "If we had just started our development of the 16K memory chip earlier, the Japanese wouldn't have made any headway."

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.

At such times, senior managers often involve themselves in feverish charitable fundraising, a lot of outside board activities or pet projects. Take a look at a reprsentative calendar of the CEO of a major corporadon that was in the middle of a strategic inflection point (page 126). Does his allocation of time, his most precious resource, reflect the strategic crisis? I don't think so.

He is by no means unique. Frankly, as I look bad, I have to wonder if it was an accident that I devoted a significant amount of my time in the years preceding our memory episode, years during which the storm clouds were already very evident, to writing a book. And as I write this, I wonder what storm clouds I be ducking now. I'll probably know in a few years.

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 moming 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. I wonder to what 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.

These stages aren't just the province of bad senior managers. Good leaders are also subject to the same emotional wriggling. They, however, eventually emerge to the acceptance and action phases. Lesser leaders are not capable of that and they are often removed. Then they are replaced by individuals who are not necessarily more capable but who do not have the emotional investment in the previous strategy.

This is 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. [...]

Strategic Dissonance

I have seen many companies faII 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. [...]

Strategic dissonance is so much an automatic reaction to a strategic inflection point that probing for it is perhaps the best of one. When people in the company start asking questions like "But how can we say 'X' when we do 'Y?" more than anything else this is a tip-off that a strategic inflection point may very well be in the making.

Experimentation

While this dissonance between what the company does and what management says is understandable, it accompanies a terribly unproductive and distressing phase. The growing discomfort associated with strategic dissonance creates confusion and uncertainty even in the best of minds. You know that something substantial is not right—something is different—but you don't know what it is, you don't know how significant it really is and you don't know what to do about it.

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, different sales channels and go after different customers. Much as management has been devoted to making and keeping order in the company, at times like this 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 !"

Not that chaos is good in general. It's awfully ineffcient and wearing on all participants. But the old order won't give way to the new without a phase of experimentation and chaos in between.

The dilemma is that you can't suddenly start experimenting when you realize you're in trouble unless you've been experimenting all along. It's too late to do it once things have changed in your core business. 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 repositioning the company in a new business direction. [...]

The Business Bubble

As in many sports, timing is everything. The same action taken in business early on may do the job; taken later on, it may well fall short because it won't be enough.

By "early" I mean acting while the momentum of your existing business is strong, while the cash flow is there and while the organization is intact. The momentum of a still healthy business provides you with a benign bubble within which you work on repositioning the company. Under the protection of this bubble you can make changes far more easily than when the vital signs of your business have all turned south.

In other words, it is bet when senior management recognizes and accepts the inevitability of a strategic inflection point early on and acts before the vitality of the business has been sapped by the "10X" forces affecting it. The necessary transformation of the business will likely be a lot less wrenching and more successful if proper action is taken early and enforced decisively.

The reality, unfortunately, is that we tend to do exactly the opposite. Owing precisely to the emotional factors described earlier, most management will do too little too late and therefore fritter away the protection that the bubble of their existing business would otherwise have provided them with. [...]

Chapter 8 : Reign in Chaos

"Clarity of direction, which includes describing what we are going after as well as describing what we will not be going after, is exceedingly important at the late stage of a strategic transformation."

When I think about what it's like to get through a strategic inflection point, I'm reminded of a classic scene in old western movies in which a bedraggled group of riders is traveling through a hostile landscape. They don't know exactly where they are going; they only know that they can't turn back and must trust that they will eventually reach a place where things are better.

Taking an organization through a strategic inflection point is a march through unknown territory. The rules of business are unfamiliar or have not yet been formed. Consequently, you and your associates lack a mental map of the new environment, and even the shape of your desired goal is not completely clear.

Things are tense. Often in the course of traversing a strategic inflection point your people lose confidence in you and in each other, and what's worse, you lose confidence in yourself. Members of management are likely to blame one another for the tough times the company is experiencing. Infighting ensues, arguments as to what direction to take bubble up and proliferate.

Then, at some point, you, the leader, begin to sense a vague outline of the new direction. By this time, however, your company is dispirited, demoralized or just plain tired. Getting this far took a lot of energy from you; you must now reach into whatever reservoir of energy you have left to motivate yourself and, most importantly, the people who depend on you so you can become healthy again.

I think of this hostile landscape through which you and your company must strugle--—or else perish—as the valley of death. It is an inevitable part of every strategic inflection point. You can't avoid it, nor can you make it less perilous, but you can do a better job of dealing with it.

Traversing the Valley of Death

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. This image not only needs to be clear enough for you to visualize but it also has to be crisp enough so you can communicate it simply to your tired, demoralized and confused staff. Will Intel be a broad-based semiconductor company, a memory company or a microprocessor company? Will Next be a computer company or a software company? What exactly is your bookstore going to be about—will it be a pleasant place to drink coffee and read or a place where you go to buy books at a discount?

You need to answer these questions in a single phrase that everybody can remember and, over time, can understand to mean exactly what you intended. In 1986, when we came up with the slogan "Intel, the microcomputer company," that was exactly what we were trying to achieve. The phrase didn't say anything about semiconductors, it didn't say anything about memories. It was meant to project our mental image of the company as we would emerge from the valley of death that the 1985—86 memory debacle/strategic inflection point represented for us.

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.

Doing this should actually be a little easier at this point because, as you're coming out of a very bad period, you're likely to have strong about what you don't want to be. By 1986 we knew we did not want to be in the memory business any longer. We knew it with a passion that only comes after struggling with a business and finding that we were no better off for those struggles.

There are dangers in this approach: the danger of oversimplifring the identity of the company, of narrowing its strategic focus too much, so that some people will say, "But what about my part of the business . . . does this mean that we are no longer interested in that?" After all, Intel continued to do other than microprocessors. We even continued to maintain a substantial business in a different type of semiconductor memories.

But the danger of oversimplification pales in comparison with the danger of catering to the desire of every manager to be induded in the simple description of the refocused business, therefore making that description so lofty and so inclusive as to be meaningless.

Consider the following example that shows the value of a strong strategic focus. Lotus's identity for its first ten years was as a supplier of personal computer software, specifically spreadsheets. Owing to some missteps of their own but, most importantly, because of a "10X" increase in the forces of competition (what the Japanese memory producers were to us, Microsoft's presence in applications software was to them), Lotus's core business weakened over time. But while this was happening, Lotus had developed a new generation of software, embodied in their product Notes, that promised to bring the same kind of productivity gains to groups that spreadsheets had brought to individuals. Even as Lotus was struggling with spreadsheets and its related software business, its management committed itself to group computing to the extent of deemphasizing their spreadsheet business. It continued to invest in developing Note throughout these diffcult years and it mounted a major marketing and development program that suffused all the corporate statements.

To be sure, the story is still evolving. But from the standpoint of giving the company an unequivocal future, Lotus's management did exactly the right thing. It was Lotus's strength in Notes that ultimately motivated IBM to purchase the company for $3.5 billion. [...]

Seeing, imagining and sensing the new shape of things is the first step. Be clear in this but be realistic also. Don't compromise and don't kid yourself. If you are describing a purpose that deep down you know you can't achieve, you are dooming your chance of climbing out of the valley of death.

Redeploying Resources

As Drucker sugests, the key activity that's required in the course of transforming an organization is a wholesale shifting of resources from what was appropriate for the old idea of the business to what is appropriate for the new. Over the three years that the production planners at Intel gradually cut the allotment of wafer production for memories and moved it to microprocessors, they were shifting rare and valuable resources from an area of lower value to an area of higher value. [...]

The point is that redeploying ressources sounds like such an innocuous term: it implies that you're putting more attention and energy into something, which is wonderful, positive and encouraging. But the inevitable counterpart is that you're subtracting from someplace else. You're taking something away: production resources, managerial resources or your own time. A strategic transformation requires discipline and redeployment of all resources; without them, it turns out to be nothing more than an empty cliché.

One more word about your own time: if you're in a leadership position, 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.

Strategic change doesn't just start at the top. It starts with your calendar. [...]

When is the time right? When the momentum of your existing strategy is still positive, your business is still growing, your customers and complementors still think highly of you yet there's enough evidence of blips on your radar screen to warrant, at a minimum, exploring their significance. If your exploration confirms that they are real and are shift more ressources on to them.

Your tendency will almost always be to wait too long. Yet the consequences of being early are Iess onerous than the consequences of being late. If you act too early, chance are the momentum of your previous business is still healthy. Therefore even if you're wrong, you're in a better position to course-correct. For instance, you can even pull back to their old jobs people whom you've reassigned to other areas. Since they come from those tasks, they can pick up the pieces again in no time and help out. But management's tendency is to hang on to the old, so their strategic actions are more likely to happen later rather than earlier. The risk is that if you are late you may already be in an irreversible decline. [...]

The Clarity Imperative

Clarity of direction, which includes describing what we are going after as well as describing what we will not be going after, is exceedingly important at the late stage of a strategic transformation. Much as in the middle of the strategic inflection process you needed to let chaos reign in order to explore your alternatives, to lead your organization out of the resulting ambiguity and to energize your staff toward a new direction, you must rein in chaos.

The time for listening to the Cassandras is over. The time for experimentation is also over. The time to issue marching orders— exquisitely clear marching orders—to the organization is here. And the time to commit the resources of the corporation as well as your own resources—your own time, visibility, speeches, statements in external forums (which are always given more credibility inside the company than what you say directly to your employees)—is upon you. Most of all, you must be a role model of the new strategy. That is the best way to prove that you are committed to it. [...]

The Other Side of the Valley

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 direcdon toward an initially nebulous goal. It required listening to Cassandras, deliberately fostering debates and constanly 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.

Beyond a doubt, going through the valley of death that a strategic inflection point represents is one of the most daunting tasks an organization has to endure. But when "10X" forces are upon us, the choice is taking on these changes or accepting an inevitable decline, which is no choice at all.

Chapter 9 : The Internet Signal or Noise? Threat or Promise?

"Ahnything that can affect industries whose total revenue base is many hundreds of billions of dollars is a big deal."

Threat or Promise?

Before we ask what this balance sheet adds up to, let's ask a more basic question. Is the Intemet 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.

Does it represent a strategic inflection point for Intel? Does it change any of the forces affecting our business, including our complementors, by a "10X" factor?

As I look at the above balance sheet, I don't see that either our customers or our suppliers would be affected in a major way. What about our competition? Let's apply the silver bullet test. Does the Intemet bring on the scene players that would be more attractive targets for our silver bullet than the targets we have now? My gut says no. There will be new players on the scene to be sure, but they are just as likely to play the role of complementors as competitors. I certainly wouldn't want to use a silver bullet to take out a complementor that might bring new capabilities to us.

Does my list of fellow travelers change? It does, beause companies that used to be complementors to our competitors are now generating software that works as well on computers based on our microchips as on computers based on others. That makes them our complementors too. Also new companies are being created almost daily to take advantage of the opportunity provided by the Internet. Creative energy and funds are pouring in, much of which is going to bring new applications for our chips. So my fellow travelers are likely to grow in number, whereas I don't see that we are about to lose any.

What about our people? Will they be out of it and not "get it?" I don't think that's very likely. A lot of our people have followed the evolution of the Internet from research to mass market both in their capacities as researchers and in their capacities as users of the mass-market version. Their presence ensures that we have the genetic mixture that represents this technology in our midst.

Let's test for dissonance. Are we doing things that are different from what we are saying? We are busily involved in communicating Intel messages on the World Wide Web ourselves. We have ongoing contact with most of the key players in this emerging branch of our business. We even talk with the people who are advocating the development of the Internet appliance without an Intel chip in it. I don't see signs of strategic dissonance. But then again, as the CEO, I could very well be the last one to notice.

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. 

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