Change the Right Things, not Everything

October 25, 2011

As Andy Grove: The Life and Times of an American Business Icon relates, at one point in mid-1985 Andy Grove and Gordon Moore determined that Intel should get out of the memory chip business after Grove asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?”

Moore immediately replied, “He would get out of memories!”

The decision wasn’t easy to come by until Grove posed his question. The memory market was Intel’s historical bread and butter, whereas up until 1984, the microprocessor (logic) business wasn’t particularly good for Intel. Making the decision even more drastic for Intel was the fact that this change was a change in identity. “Our priorities,” Grove said, “were formed by our identity; after all, memories were us.”

However, the reality at the time was that there was less demand for Intel’s DRAMS and the Japanese had created a huge challenge by dumping their memory chips on the market at below cost prices. And while some Intel insiders wanted to “go for it” and take on the Japanese, the sentiment was an emotional response to a difficult situation. Grove’s framing of the problem by asking his question settled the issue in his mind.

The challenge for Grove became one of turning Intel’s focus towards microprocessors with a mindset to win while getting out of the memory business, essentially conceding that Intel had been beaten at its own game. Grove did this in stages over the next few years, shutting down factories and letting people go – a painful process for Grove. “It is always easier to start something than to kill something,” he said.

While the decision to shift to microprocessors was calculated, it was not made by guesswork or by pure analysis alone. Intel had prior experience in designing and manufacturing microprocessors – Intel had in effect fired a bullet (as Great by Choice by Jim Collins and Morten T. Hansen refers to it) in the microprocessor arena, gradually building up its capabilities in this space over the years.

As Grove focused Intel exclusively on microprocessors, he didn’t turn the company upside-down in the process, either. Focusing on microprocessors was an important business move, but the move kept Intel in a related field, one that they had expertise in. More importantly, Intel retained the attributes that made it successful. As the book Great by Choice points out, Intel’s “SMaC recipe” remained intact.

“SMaC” is an acronym that stands for Specific, Methodical, and Consistent. According to Collins and Hansen, “A solid SMaC recipe is the operating code for turning strategic concepts into reality, a set of practices more enduring than mere tactics. Tactics change from situation to situation, whereas SMaC practices can last for decades and apply across a wide range of circumstances.”

A consistent approach was vital to Intel’s success in microprocessors. As Collins and Hansen point out, “If Intel had if it had jettisoned Moore’s Law, started cutting R&D, abandoned its pricing model, ruined its practice of constructive confrontation—it would not have become a 10X winner.”

As we all know, Intel became a dominant, profitable producer of microprocessors. In doing so, Intel changed what it needed to change, but it didn’t change everything. As Great by Choice discovered: “In a great twist of irony, those who bring about the most significant change in the world, those who have the largest impact on the economy and society, are themselves enormously consistent in their approach.”