In “Only the Paranoid Survive,” Andrew Grove, the former CEO of Intel, discusses “strategic inflection points”—times when an industry’s fundamentals change significantly. Many businesses do not survive them. New competitors may surpass the old guard that did not adequately adapt.
Since the book’s publication in 1996, it has remained profoundly relevant. The average life span of companies has decreased, and the pace and pervasiveness of industrial change have increased.
In 1968, Intel manufactured the first 64-bit silicon memory. It revolutionized the market, and Intel went on to develop increasingly higher-capacity chips. Due to burgeoning demand, Intel and the industry grew. By the late 1970s, it was one of about a dozen major competitors in its market.
By the early 1980s, however, Japanese manufacturers had powerfully asserted themselves. Their products’ quality exceeded that of the competing American products. Despite Intel’s best efforts, the market became so commoditized that it could not carve out a niche for itself. By 1984, customers no longer wanted Intel’s memory products.
While losing money and contemplating their predicament, Grove asked Intel’s chairman, Gordon Moore, what new management would do if the board replaced them. The answer was obvious—get out of memories.
To an objective observer, it should have been obvious, but people’s identities and emotions were bound up with the product and in the competition. Some personnel were in denial. Some could not or refused to change.
In retrospect, Grove admits that after deciding to leave the memory business, he should have acted more decisively than he did. After years of foot-dragging and hedging due to internal conflict and lack of focus, Intel became a microprocessor business. That would return the company to prosperity.
Eventually, every industry will experience a strategic inflection point. Your company may go out of business. You may lose your job. You may not realize it, but with regard to your career, you have always been a sole proprietor. You compete with millions of other people.
You must continuously improve and protect your livelihood. Your must act as if your career depends on it—because it does.
Paraphrasing the ideas of Professor Michael Porter, Grove described several market forces that affect businesses. They include the power of existing competitors, potential competitors, suppliers, customers, and complementary businesses. Another force—substitution—is the possibility that a product can be built or delivered differently, perhaps due to new technology.
Many small changes may accumulate causing one of these market forces to become many orders of magnitude larger than what the business is accustomed to. Grove refers to it as a “10X” force. It affects businesses in a manner that they never had to deal with before.
You must use your instinct and judgment to navigate the transition, but the environment has changed. Actions and processes that once led to prior success may no longer work.
It may be obvious that “something has changed,” but people may not be able to articulate how or why. Disagreements about causes and solutions will lead to conflict and infighting. Some people will be in denial. Objective new competitors unencumbered by emotions can surpass companies that resist the inevitable.
Survival requires navigating through a strategic inflection point—however painful it may be. Management must ask personnel about problems and their ideas to address them. They must ask about customer complaints and ideas about new opportunities.
They should try to anticipate needs that customers did not know they had. During the good times, they should experiment with new ideas and products. It is too late to start in the midst of a strategic inflection point. Early movers can become powerful competitors in the new market. If you do not adapt to your customers’ needs, sooner or later, your customers will leave you.
Strategic inflection points are usually vague and confusing. People will disagree about whether one is occurring and what the response should be. Management should foster brainstorming and debate to consider how to capitalize on opportunities, address weaknesses, and respond to threats. Management cannot satisfy everyone, but it should value—not punish—sincerely held disagreement.
Grove helped Intel survive more than one strategic inflection point. Fortunately, he provides important insight into things that we must all think about and do to survive.