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WITH MALCOLM NETBURN




Stay Paranoid:
Top Survival Insights from Intel’s Andrew Grove, Part 2




                Malcolm Netburn
                Chairman and CEO of CDS Global
FORWARD: with Malcolm Netburn                                                                     February 2013



Stay Paranoid:
Top Survival Insights from Intel’s Andrew Grove, Part 2
Intel’s former CEO Andrew Grove is one of business’s most eminent leaders. Grove’s highly
celebrated business book, Only the Paranoid Survive, offers an intimate account of Intel’s darkest
hour. It was the mid-‘90s when Intel was forced to innovate or perish. The once rapidly successful
semiconductor startup faced unexpected, overwhelming competition, a severely disrupted market
and a team of bewildered, disheartened employees in desperate need of clear direction.

Grove sat at the fore of Intel during its passage through the “valley of death” and, remarkably,
managed to transform Intel into the famed microprocessor manufacturer it is known as today. In
this two-part guide, key quotes from Only the Paranoid Survive are arranged to deliver Grove’s most
crucial lessons for dealing with disruption, innovation and change management.

In Part 1, Grove’s insights for detecting strategic inflection points where highlighted. Part 2
goes beyond identifying impending changes, sharing Grove’s lessons on implementing the
transformations necessary for survival.

       1.	 Planning to Pivot

       2.	 Change Management

       3.	 Horizontal Industry: Three Rules for Success




© 2013 CDS Global. All rights reserved.                                                                      2
FORWARD: with Malcolm Netburn                                                                       February 2013




1. Planning to Pivot
You’ve identified a 10X change placing your organization at a major inflection point (Part 1).
You know it’s time to take action. But where do you begin? Grove’s insights below will help you
plan your organizational pivot.

         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.

         We must invite comments even from people whose job it is to constantly evaluate and critique
         us, such as journalists and members of the financial community. 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 more complex the issues are, the more levels of management should be involved because
         people from different levels of management bring completely different points of view and
         expertise to the table, as well as different genetic makeups. The debate should involve people
         outside the company, customers and partners who not only have different areas of expertise
         but also have different interests.

         When dealing with emerging trends, you may very well have to go against rational
         extrapolation of data and rely instead on anecdotal observations and your instincts.

         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.

         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.

         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 chances of climbing out of the
         valley of death.

         For us senior managers, it took the crisis of an economic cycle and the sight of unrelenting red
         ink before we could summon up the gumption needed to execute a dramatic departure from
         our past.




© 2013 CDS Global. All rights reserved.                                                                        3
FORWARD: with Malcolm Netburn                                                                             February 2013




2. Change Management
It has been said time and again that it’s not the adoption of new technology that creates the
greatest friction within a company looking to shift its strategic direction – it’s in leading the people
of your organization to accept and adjust to new changes. It is a delicate and difficult process, and
one worth making a, if not the, top priority, as people will always be your most precious resource.
Below, Grove offers insights into what to expect and how to manage human change.

         Ideas about the right direction will split people on the same team. After a while, everyone
         will understand that the stakes are enormously high. There will be a growing ferocity,
         determination and seriousness surrounding the views the various participants hold. People
         will dig in. These divergent views will be held equally strongly, almost like religious tenets. In
         a workplace that used to function collegially and constructively, holy wars will erupt, pitting
         coworkers against coworkers, long-term friends against long-term friends.

         The arguments in the midst of an inflection point can be ferocious.

         When an industry goes through a strategic inflection point, the practitioners of the old art
         may have trouble. On the other hand, the new landscape provides an opportunity for people,
         some of whom may not even be participants in the industry in question, to join and become
         part of the action.

         It is truly difficult for a successful industry participant to adapt to a completely different
         industry structure.

         When a strategic inflection point sweeps through an 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.

         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.

         I can’t stress this issue strongly enough. It takes many years of consistent conduct to eliminate
         fear of punishment as an inhibitor of strategic discussion.




© 2013 CDS Global. All rights reserved.                                                                              4
FORWARD: with Malcolm Netburn                                                                       February 2013




3. Horizontal Industry: Three Rules for Success
Often times, strategic inflection points present the opportunity to rapidly tap into markets that would
have never been considered, or that were non-existent, previously. The competition in a horizontal
industry will be fierce and will require an entirely new approach, but the potential for growth will be
high. Grove offers three rules for entering a horizontal market.

          I.	 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.

          II.	 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.

          III.	 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.




© 2013 CDS Global. All rights reserved.                                                                         5

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Stay Paranoid – Top Survival Insights from Intel’s Andrew Grove, Part 2

  • 1. WITH MALCOLM NETBURN Stay Paranoid: Top Survival Insights from Intel’s Andrew Grove, Part 2 Malcolm Netburn Chairman and CEO of CDS Global
  • 2. FORWARD: with Malcolm Netburn February 2013 Stay Paranoid: Top Survival Insights from Intel’s Andrew Grove, Part 2 Intel’s former CEO Andrew Grove is one of business’s most eminent leaders. Grove’s highly celebrated business book, Only the Paranoid Survive, offers an intimate account of Intel’s darkest hour. It was the mid-‘90s when Intel was forced to innovate or perish. The once rapidly successful semiconductor startup faced unexpected, overwhelming competition, a severely disrupted market and a team of bewildered, disheartened employees in desperate need of clear direction. Grove sat at the fore of Intel during its passage through the “valley of death” and, remarkably, managed to transform Intel into the famed microprocessor manufacturer it is known as today. In this two-part guide, key quotes from Only the Paranoid Survive are arranged to deliver Grove’s most crucial lessons for dealing with disruption, innovation and change management. In Part 1, Grove’s insights for detecting strategic inflection points where highlighted. Part 2 goes beyond identifying impending changes, sharing Grove’s lessons on implementing the transformations necessary for survival. 1. Planning to Pivot 2. Change Management 3. Horizontal Industry: Three Rules for Success © 2013 CDS Global. All rights reserved. 2
  • 3. FORWARD: with Malcolm Netburn February 2013 1. Planning to Pivot You’ve identified a 10X change placing your organization at a major inflection point (Part 1). You know it’s time to take action. But where do you begin? Grove’s insights below will help you plan your organizational pivot. 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. We must invite comments even from people whose job it is to constantly evaluate and critique us, such as journalists and members of the financial community. 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 more complex the issues are, the more levels of management should be involved because people from different levels of management bring completely different points of view and expertise to the table, as well as different genetic makeups. The debate should involve people outside the company, customers and partners who not only have different areas of expertise but also have different interests. When dealing with emerging trends, you may very well have to go against rational extrapolation of data and rely instead on anecdotal observations and your instincts. 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. 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. 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 chances of climbing out of the valley of death. For us senior managers, it took the crisis of an economic cycle and the sight of unrelenting red ink before we could summon up the gumption needed to execute a dramatic departure from our past. © 2013 CDS Global. All rights reserved. 3
  • 4. FORWARD: with Malcolm Netburn February 2013 2. Change Management It has been said time and again that it’s not the adoption of new technology that creates the greatest friction within a company looking to shift its strategic direction – it’s in leading the people of your organization to accept and adjust to new changes. It is a delicate and difficult process, and one worth making a, if not the, top priority, as people will always be your most precious resource. Below, Grove offers insights into what to expect and how to manage human change. Ideas about the right direction will split people on the same team. After a while, everyone will understand that the stakes are enormously high. There will be a growing ferocity, determination and seriousness surrounding the views the various participants hold. People will dig in. These divergent views will be held equally strongly, almost like religious tenets. In a workplace that used to function collegially and constructively, holy wars will erupt, pitting coworkers against coworkers, long-term friends against long-term friends. The arguments in the midst of an inflection point can be ferocious. When an industry goes through a strategic inflection point, the practitioners of the old art may have trouble. On the other hand, the new landscape provides an opportunity for people, some of whom may not even be participants in the industry in question, to join and become part of the action. It is truly difficult for a successful industry participant to adapt to a completely different industry structure. When a strategic inflection point sweeps through an 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. 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. I can’t stress this issue strongly enough. It takes many years of consistent conduct to eliminate fear of punishment as an inhibitor of strategic discussion. © 2013 CDS Global. All rights reserved. 4
  • 5. FORWARD: with Malcolm Netburn February 2013 3. Horizontal Industry: Three Rules for Success Often times, strategic inflection points present the opportunity to rapidly tap into markets that would have never been considered, or that were non-existent, previously. The competition in a horizontal industry will be fierce and will require an entirely new approach, but the potential for growth will be high. Grove offers three rules for entering a horizontal market. I. 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. II. 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. III. 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. © 2013 CDS Global. All rights reserved. 5