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. Understanding the nature of strategic inflection points and what to do about them will help you safeguard your company’s well-being. It is your responsibility to guide your company out or harm’s way and to place it in a position where it can prosper in the new order. Nobody else can do this but you.
All business 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.
You know only that something has changed, something big, something significant, even if it’s not entirely clear what that something is.
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 you boat is crucial to the future of an enterprise.
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 have learned these implicit rules.
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 PC 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 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.
Our instructor played this scene over and over to illustrate a superbly enacted instance of building up the determination necessary to undertake the hard, unpleasant and treacherous task of leading a group of people through an excruciatingly tough set of changes — the moment when a leader decides to go forward, no matter what.
I always related to this scene and empathized with that officer. Little did I know when I watched that movie that I would have to go through something similar in a few years’ time. But beyond experiencing this crisis personally, the incident that I’m about to describe is how I learned with every fiber of my being what a strategic inflection point is about and what it takes to claw your way through one, inch by excruciating inch. It takes objectivity, the willingness to act on your own conviction and the passion to mobilize people into supporting those convictions. This sounds like a tall order, and it is.
The incredible tough task of development segued into the nightmare of producing a device that was held together with the silicon equivalent of baling wire and chewing gum. The name of this device was the 1103. To this day, when a digital watch shows that number, I and other survivors of that era still take note.
Managers from HP reported that quality levels of Japanese memories were consistently and substantially better than those produced by the American companies. 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 this kind of situation, we vigorously attacked the ominous data.
We had been losing money on memories for quite some time while trying to compete with the Japanese producers’ high-quality, low-priced, mass-produced parts. But because business had been so good, we just kept at it, looking for the magical answer that would give us a premium price. We persevered because we could afford to. However, once business slowed down across the board and our other product couldn’t take up the slack, the losses really started to hurt. The need for a different memory strategy, one that would stop the hemorrhage, was growing urgent.
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 remember a time in the middle of 1985, after this aimless wandering had been going on for almost a year. I was in my office with Intel’s chairman and CEO, Gordon Moore, and we were discussing our quandary. Our mood was downbeat. 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?”
With that comment and with Gordon’s encouragement, we started on a very difficult journey. To be completely honest about it, as I started to discuss the possibility of getting out of the memory chip business with some of my associates, I had a hard time getting the words out of my mouth without equivocation. It was just too difficult a thing to say. Intel equaled memories in all our minds. How could we give up our identity? How could we exist as a company that was not in the memory business? It was close to being inconceivable. Saying it to Gordon was one thing; talking to other people and implementing it in earnest was another.
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.
After all manner of gnashing of teeth, we told our sales force to notify our memory customers. This was one of the great bugaboos: How would our customer react? Would they stop doing business with us altogether now that we were letting them down? In fact, the reaction was, for all practical purposes, a big yawn. Our customers knew that we were not a very large factor in the market and they had half figured that we would get out; most of them had already made arrangements with other suppliers.
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.
I believe this has a great deal to do with why there is such a high turnover in the ranks of CEOs today. Every day, it seems, leaders who have been with the company for most of their working lives announce their departure, usually as the company is struggling through a period that has the looks of a strategic inflection point. More often than not, these CEOs are replaced by someone from the outside.
I suspect that the people coming in are probably no better managers or leaders then the people they are replacing. They have only one advantage, but it may be crucial: unlike the person who has devoted his entire life to the company and therefore has a history of deep involvement int he sequence of events that led to the present mess, the new managers come unencumbered by such emotional involvement and therefore are capable of applying an impersonal logic to the situation. They can see thing more objectively than their predecessors did.
It was through the memory business crisis — and how we dealt with it — that I learned the meaning of a strategic inflection point. It’s a very personal experience. I learned how small and helpless you feel when facing a force that’s “10X” larger than what you are accustomed to. I experienced the confusion that engulfs you when something fundamental changes in the business, and I felt the frustration that comes when the things that worked for you in the past no longer do any good. I learned how desperately you want to run from dealing with even describing a new reality to close associates. And I experienced the exhilaration that comes from a set-jawed commitment to a new direction, unsure as that may be. Painful as it has all been, it turned me into a better manager. I learned some basic principles, too.
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.
Going through the whole strategic inflection point took us a total of three years. And while today, ten years later, they now seem compressed to one short and intense period, at the time, those three years were long and arduous — and wasteful. While we were fighting the inevitable, trying out all sorts of clever marketing approaches, looking for a niche that couldn’t possibly exist in a commodity market, we were wasting time, getting deeper into red ink and ultimately forcing ourselves to take harsher actions to right things when we finally got around to taking actions at all. While the realization of what we were facing was a flash of insight that took place in a single conversation, the work of implementing the consequences of that conversation went on for years.
The way IBM and Intel responded to the x-ray technology threat showed that one company deemed it “signal,” while the other classified it “noise.” We decided not to pursue the x-ray approach.
In this case, competent and serious-minded people came to a different set of conclusions about a given set of facts. This is not at all uncommon. 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. Ten years ago, we decided that x-ray technology was not a “10X” factor. However, we continued to watch it, looking to see if the threat grew, waned or stayed the same.
I was watching these developments with growing unease. The issue concerned the heart of our company, the microprocessor business that we had put our faith in and repositioned the company around when we abandoned the memory business just a few years earlier. It didn’t involve factors that might or might not arise a decade from now, like x-ray technology; it demanded a decision immediately, and the decision was crucial. On the other hand, if the RISC trend represented a strategic inflection point and we didn’t take appropriate action, our life as a microprocessor leader would be very short. On the other hand, the 386’s fantastic momentum seemed sure to extend into the 486 and perhaps even to future generations of microprocessors. Should we abandon a good thing, which for now at least was a sure thing, and lower ourselves back down into a competitive battle with the other RISC architectures, a battle in which we had no particular advantage?
Although they can come from anywhere in the company, 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.
Because they are on the front lines of the company, the Cassandras also feel more vulnerable to danger than do senior managers in their more or less bolstered corporate headquarters. Bad news has a much more immediate impact on them personally. Therefore, they take the warning signs more seriously.
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 TV seems to have vanished even before the ink dried on the mega-announcements.
My point is that you can’t judge the significance of strategic inflection points by the quality of the first version. You need to draw on your experience. Perhaps you remember your reaction to the first PC you ever saw. It probably didn’t strike you as a revolutionary device. So it is with the Internet.
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.
The quality guru 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.
The other could explain his views on RISC designs with the unstated premise of, “Hey, Grove, you’re out of your depth here, let me teach you a few things.”
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 you 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 a second seat to personal and emotional reactions almost every time.
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.
The phrase you’re likely to hear in such times is “Just give us a bit more time.”
Not that chaos is good in general. It’s awfully inefficient 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.
In other words, it is best 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.
It’s easy to see why. There’s no panic in the early stages of an inflection point. One can couch the arguments for inaction in the early stages in statements like “We shouldn’t tinker with the golden goose” or “How could we possibly take our best people away from the business that pays all of our salaries and put them on some speculative new project?” or the most alarming one of all, “The organization can take just so much change; it’s not ready for more,” meaning really, “I’m not ready to lead the organization into the changes that it needs to face.”
Looking back over my own career, 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.
The tendency is easy to see in others although we are prone to blindness when we do it ourselves. The other day I met with a manager of a company that is struggling with a strategic change. I was urging him to act aggressively in adopting a new direction. It was easy for me to encourage him: After all, I didn’t have to do anything, while he had to force his organization into a set of actions that would mean discontinuing some products that hey had already committed to their customers.
Implicit in doing business every day is a mental map of the structure of the industry. This map is composed of an unstated set of rules and relationships, ways and means of doing business, what’s “done” and how it is done and what’s “not done,” who matters and who doesn’t, whose opinion you can count on and whose opinion is usually wrong, and so on. If you’ve been in the industry for a long time, knowing these things has become second nature. You don’t even think about them; you just know that’s the way things are.
But when the structure of the industry changes, all of these elements change too. The mental map that you have been carrying with you all these years and relied upon in charting your company’s course of action suddenly loses its validity. However, you haven’t had a chance to replace it with a new mental map. You haven’t made the explicit substitutions about how things are done now versus how they were done before, or who matters now versus who mattered then.
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.
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. The 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 the tired, demoralized and confused staff. Will Intel be a broad-based semiconductor company, a memory company or a microprocessor company? Will Next be a 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.
But the danger of simplification pales in comparison with the danger of catering to the desire of every manager to be included in the simple description of the refocused business, therefore making that description so lofty and so inclusive as to be meaningless.
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 unhesitating, unequivocal course whose rightness or wrongness will not be known for years. Such a decision really test the mettle of the leader. 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?
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 20 years of experience to take some time, buckle down and learn a whole new set of skills.)
Admitting that you need to learn something new is always difficult. It is even harder if you are a senior manager who is accustomed to the automatic deference which people accord you owing to your position. But if you don’t fight it, that very deference may become a wall that isolates you from learning new things. It all takes self-discipline.
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 powerful than all the speeches you can give.
Strategic change doesn’t just start at the top. It starts with you calendar.
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? 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.”
While you’re going through the valley of death, you may think you see the other side, but you can’t be sure whether it’s truly the other side or just a mirage. Yet you have to commit yourself to a certain course and a certain pace, otherwise you will run out of water and energy before long.
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.
Earlier I described an executive who retracted a statement about his company’s strategic direction that had already appeared in the newspapers. 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 will take a lot more work later to communicate the right message to correct your mistake.
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 you alternatives, to lead your organization out of the resulting ambiguity and to energize your staff toward a new direction, you must reign 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.
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.
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.
The work leading to the Internet started in the late sixties with government-initiated — and -funded — connection between various big research computers. 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.
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.
There are two things that will help you get through the career valley: clarity and conviction. Clarity refers to a tangible and precise view of where you’re heading with your career: knowing what you’d like your career to be as well as knowing what you’d like your career not to be. Conviction refers to your determination to get across this career valley and emerge on the other side in a position that meets the criteria you have determined.