Only the Paranoid Survive

by Andrew S. Grove

The things I tend to be paranoid about vary. I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off. And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers. But these worries pale in comparison to how I feel about what I call strategic inflection points.

strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.

A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.

If you run a business, you must recognize that no amount of formal planning can anticipate such changes. Does that mean you shouldn’t plan? Not at all. 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.

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 your boat is crucial to the future of an enterprise.

An inflection point occurs where the old strategic picture dissolves and gives way to the new, allowing the business to ascend to new heights. However, if you don’t navigate your way through an inflection point, you go through a peak and after the peak the business declines. It is around such inflection points that managers puzzle and observe, “Things are different. Something has changed.”

a strategic inflection point is when the balance of forces shifts from the old structure, from the old ways of doing business and the old ways of competing, to the new. Before the strategic inflection point, the industry simply was more like the old. After it, it is more like the new. It is a point where the curve has subtly but profoundly changed, never to change back again.

When you’re caught in the turbulence of a strategic inflection point, the sad fact is that instinct and judgment are all you’ve got to guide you through.

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.

If existing management want to keep their jobs when the basics of the business are undergoing profound change, they must adopt an outsider’s intellectual objectivity. They must do what they need to do to get through the strategic inflection point unfettered by any emotional attachment to the past.

Think of it this way: when spring comes, snow melts first at the periphery, because that’s where it’s most exposed. Factoring in the news from the periphery is an important contribution to the process of sorting out signal from noise.

Constructively debating tough issues and getting somewhere is only possible when people can speak their minds without fear of punishment.

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.

unlike the accepted model of the sequence of emotions associated with grief (i.e., denial, anger, bargaining, depression and, ultimately, acceptance), in the case of a strategic inflection point, the sequence goes more as follows: denial, escape or diversion and, finally, acceptance and pertinent action.

as I look back, I have to wonder if it was an accident that I devoted a significant amount of my time in the years preceding our memory episode, years during which the storm clouds were already very evident, to writing a book. And as I write this, I wonder what storm clouds I might be ducking now. I’ll probably know in a few years.

This is a key point. The replacement of corporate heads is far more motivated by the need to bring in someone who is not invested in the past than to get somebody who is a better manager or a better leader in other ways.

While this dissonance between what the company does and what management says is understandable, it accompanies a terribly unproductive and distressing phase. The growing discomfort associated with strategic dissonance creates confusion and uncertainty even in the best of minds.

Resolution of strategic dissonance does not come in the form of a figurative light bulb going on. It comes through experimentation. Loosen up the level of control that your organization normally is accustomed to. Let people try different techniques, review different products, exploit different sales channels and go after different customers. Much as management has been devoted to making and keeping order in the company, at times like this they must become more tolerant of the new and the different.

In a modern organization, rapid response to market forces depends on the autonomous actions of middle managers. Their ranks include know-how managers, the technical and marketing experts whose command of the fundamentals of the business is vital to the company’s doing the right thing. If senior managers and know-how managers share a common view of the industry, the likelihood of their acknowledging changes in the environment and responding in an appropriate fashion will greatly increase.

Not surprisingly, the transformation implicit in surviving a strategic inflection point involves changing members of management one way or another. I remember a meeting of our executive staff in which we were discussing Intel’s new direction as a “microcomputer company.” Our chairman, Gordon Moore, said, “You know, if we’re really serious about this, half of our executive staff had better become software types in five years’ time.” The implication was that either the people in the room needed to change their areas of knowledge and expertise or the people themselves needed to be changed.

The point is that redeploying resources sounds like such an innocuous term: it implies that you’re putting more attention and energy into something, which is wonderful, positive and encouraging. But the inevitable counterpart is that you’re subtracting from someplace else. You’re taking something away: production resources, managerial resources or your own time. A strategic transformation requires discipline and redeployment of all resources; without them, it turns out to be nothing more than an empty cliché.

Strategic plans are statements of what we intend to do. Strategic actions are steps we have already taken or are taking which suggest our longer-term intent. Strategic plans sound like a political speech. Strategic actions are concrete steps. They vary: They can be the assignment of an up-and-coming player to a new area of responsibility; they can be the opening of sales offices in a portion of the world where we haven’t done business before; they can be a cutback in the development effort that deals with a long-pursued area of our business. All of these are real and suggest directional changes.

in times of change, managers almost always know which direction they should go in, but usually act too late and do too little. Correct for this tendency: Advance the pace of your actions and increase their magnitude. You’ll find that you’re more likely to be close to right.

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.

Communicating strategic change in an interactive, exposed fashion is not easy. But it is absolutely necessary.

It seems that companies that successfully navigate through strategic inflection points have a good dialectic between bottom-up and top-down actions. Bottom-up actions come from the ranks of middle managers, who by the nature of their jobs are exposed to the first whiffs of the winds of change, who are located at the periphery of the action where change is first perceived (remember, snow melts at the periphery) and who therefore catch on early. But, by the nature of their work, they can only affect things locally: The production planners can affect wafer allocation but they can hardly affect marketing strategy. Their actions must meet halfway the actions generated by senior management. While those managers are isolated from the winds of change, once they commit themselves to a new direction, they can affect the strategy of the entire organization. The best results seem to prevail when bottom-up and top-down actions are equally strong.

If the actions are dynamic, if top management is able to alternately let chaos reign and then rein in chaos, such a dialectic can be very productive. When top management lets go a little, the bottom-up actions will drive toward chaos by experimenting, by pursuing different product strategies, by generally pulling the company in a multiplicity of directions. After such creative chaos reigns and a direction becomes clear, it is up to senior management to rein in chaos. A pendulum-like swing between the two types of actions is the best way to work your way through a strategic transformation.

An organization that has a culture that can deal with these two phases—debate (chaos reigns) and a determined march (chaos reined in)—is a powerful, adaptive organization. Such an organization has two attributes: 1. It tolerates and even encourages debate. These debates are vigorous, devoted to exploring issues, indifferent to rank and include individuals of varied backgrounds. 2. It is capable of making and accepting clear decisions, with the entire organization then supporting the decision.

As environmental conditions change, as they inevitably will, the trajectory of this business of one undergoes a familiar curve, reaching a defining point where the action of the CEO, i.e., you, determines whether your career path bounces upward or accelerates into a decline. In other words, you face a career inflection point.

Career inflection points caused by a change in the environment do not distinguish between the qualities of the people that they dislodge by their force.