When the Chips are Down

Volume 5 Letter 7

In 1985 Gordon Moore, Intel’s president and Andy Grove, the company’s CEO were discussing the decline of memory chips – then Intel’s core business. Andy Groove asked Gordon Moore “if we get kicked out and a new CEO came in what do you think he would do’? Moore’s reply was that “he would get the company out of memory chips”. Grove replied “Why shouldn’t you and I walk out the door, come back, and do it ourselves?” With that comment Intel re-oriented their organization, turning their backs on memory chips in favor of microchip processors.

In his book, “Only the Paranoid Survive”1, Grove goes on to tell how painful the strategic choice was. Memory Chips had built the company but here was the CEO announcing that his company was getting out of the memory business. He writes “how could we give up our identity? How could we exist as a company that was not in the memory business?”

In addition to the actual about face in strategy, Grove talks about how tough it was to communicate the change to his associates. In one instance he was pressed on his views at a dinner by an Intel colleague. Was Grove really saying he could imagine Intel not being in the chip memory business? When Grove answered yes he states “all hell broke loose”.

Reading Andy Groves’ account of moving Intel into the microchip market and out of the memory chip market reads more like a horror flick than a successful business story. Isn’t it supposed to be ‘brilliant CEO figures out market changes and everyone works together to make new strategy a reality and then everyone lives happily ever after’? But listen to his description “a long tortuous struggle, wandering the valley of death and a crisis of Mammoth proportions”. What is wonderful about his account is the description of the struggle he and Gordon Moore had to move Intel into the future. It is one thing to see the crisis and have the insight to build a strategy to move the company to the future. It is totally a different skill to have the will and fortitude to push the company into that future.

In a survey of senior executives at 197 companies the respondents said they achieved expected results of their strategic plans only 63% of the time. Much of that gap between expectation and performance is a failure to effectively execute the company’s strategy.2

There are many brilliant strategies sitting in the bottom of too many drawers or in the minds of too many bright managers because managers don’t know how to or don’t have the confidence to implement them. Equally there are many good strategies that are not effectively implemented leading to poor business or business unit performance. So why do so many good strategies fail and what did Andy Grove and others like him do to push their strategies through?

  • Plan: Strategic change is difficult because people often perceive they will lose power, and / or resources. The change plan must be thought through with the same discipline as the development of the new strategy.
  • Courage: When you know what to do, one needs courage to push the strategy through (look at Andy Grove’s comments above)
  • Try not to do everything at once: The strategic change plan must set priorities. Too many tasks at once can overwhelm even the believers.
  • Define responsibilities: Assign managers specific change tasks. This gives managers specific objectives to work towards – this helps ensure buy-in as they feel like their input to the change program is essential (which of course it is)
  • Communicate the change properly: Change can be a threat or an exciting journey. One must market to the internal team as much as to the customers.

There are three parts to developing a good strategy. Analyze the market, develop the strategy, and implement the strategy. The toughest step by far is implementation. When the chips are falling make sure they fall the right way!

For further reading

1. Andy Grove, “Only the Paranoid Survive”

2. Survey conducted by management consulting firm Marakon Associates and the Economist Intelligence

3. Making Strategy Work: Leading Effective Execution and Change, Lawrence Hrebiniak, (Wharton School Publishing).

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