This chapter is from the book
This chapter is from the book
This chapter is from the book
Leadership Lessons
About Schmidt: Telling the Truth
Schmidt captivated Grove as a teacher from the very first lecture. As Grove remembers, Schmidt came to the class and wrote a problem on the board. "It seemed very complicated, though in retrospect it was very simple," he says. "He tortured us with it. After making it more and more complicated, he showed us how to solve it with one long line of conversions. At the end of that class, Professor Schmidt said, 'Our statistics show that 60% of you will be unable to finish this course, and that is alright with me. The rest of you will approach problems in the fashion I just showed you.' I was just blown away."
Schmidt soon was to help Grove in another way. When he learned the young man's scholarship was about to run out, Schmidt called Grove to his office. He asked how much money Grove would need, pulled out a long slide rule, did some calculations, and offered Grove a job at $1.79 an hour—estimating that by working 20 hours a week he could make as much money as the scholarship paid. Almost speechless with surprise, Grove agreed. As he later said, "So I ended up working for crusty Professor Schmidt, running his copies and his errands, typing with two fingers, filing, whatever—and supported myself through my remaining years of college that way."
The years that Grove worked for Schmidt helped shape his style as a leader. Schmidt was "down to earth, had no airs, said what he had on his mind, took no nonsense from anyone, did what he said he would do." Almost everyone who encountered Schmidt was terrified of him (except for his secretary, who terrorized the formidable professor). Grove, too, was a resolute truth-teller. Years later, in a book that offered management advice, he was to write: "Be straight with everyone. I hate it when people are not honest with me, and I would hate myself if I weren't straight with them. This isn't an easy principle to stick to. There are always many reasons (better to call them excuses) to compromise a little here or there. We may reason that people are not ready to hear the truth or the bad news, that the time isn't right, or whatever. Giving in to those tempting rationalizations usually leads to conduct that can be ethically wrong and will backfire every time."
Grove and Moore: Teamwork at the Top
After finishing his Ph.D. at the University of Berkeley, Grove joined Fairchild Semiconductor, where he encountered the second person who helped him mold his leadership style. Gordon Moore, the legendary chemist who headed research operations at Fairchild, is now widely known for "Moore's Law," which predicted that the number of transistors placed on a computer chip would double every two years—the phenomenon that has made it possible for the computer industry to produce increasingly powerful computers at declining prices. Moore took Grove under his wing. "He guided me from a freshly minted Ph.D. to a reasonably knowledgeable technologist in the semiconductor industry," says Grove.
Soon Grove left Fairchild with Moore and Robert Noyce, the highly respected scientist who had invented the integrated circuit in 1959, to co-found Intel. Grove's leadership qualities, already evident as Moore's deputy at Fairchild, now gained freer rein. Moore, who became Intel's chairman and CEO, was very different from Schmidt. Despite Moore's brilliance, "if I had relied on his leadership style, I would have been in deep trouble because Gordon is not an activist," says Grove. "My role was to be exactly the opposite of Gordon."
One example sharply reveals the difference between Moore and Grove. One time, Grove went to Moore to discuss an issue related to plastic packaging. Moore delivered a lecture on the history of plastic packaging, the various problems that had been encountered in its evolution, and the solutions that were implemented. Grove took notes. By the time Moore had finished, it was as if Grove had taken a course on plastic packaging. "Moore has encyclopedic knowledge of the technologies that are relevant to our business," says Grove. "But he was not an activist. That was not his thing to do." As a consequence, acting on knowledge he gained from Moore to achieve objectives became Grove's "thing to do." He did what it took to get results.
Moore was once asked what Intel would have been like without Grove. Moore's response, says Grove, was, "It would have been a much more pleasant place and a whole lot smaller." The corollary question might be what Intel would have been like without Moore. Says Grove, "The answer is: It would have been an Intel without Andy Grove. Gordon came to the conclusion in the first half-hour that I interviewed with him at Fairchild that I would be the person to succeed him there. In a minor detail, that turned out to be wrong, but I did become the person to succeed him at Intel." Grove says Moore first told him in 1971 (when Grove was just 33) that he had him in mind to run Intel. "It was a compliment that I didn't take literally at all," says Grove. "But he acted on what he said. He brought me along and tutored me. If he hadn't been there, I would have been a happy, productive engineer and I might have done pretty well, but I don't think I would have ended up running the company."
Over time, the bond between Grove and Moore grew uncannily deep. Grove recalls a meeting when some 20 Intel executives were sitting around a table, discussing an issue. From the corner of his eye, he saw Moore and noticed a subtle change of expression on his face. Grove knew that Moore would never interrupt or enter a discussion if something bothered him. Grove stopped the discussion at once, and asked, "Gordon, what's the matter?" and then Moore went on to explain what was on his mind. "Gordon produced ideas that he never would have voiced—thoughts that would never have received the hearing they deserved—until he expressed them and I amplified them," says Grove. "I didn't read his mind; I read his body, his face." Later, Moore told Grove, "You're getting to be scary. You know me as well as my wife."
In contrast, Grove and Noyce were essentially friends; Grove didn't regard Noyce either as a guide or role model. Asked how he, Moore, and Noyce worked together at Intel, Grove points to Peter Drucker's 1954 book, The Practice of Management, in which Drucker argues that the activities that make up a chief executive's job are too varied to be performed by a single person but should be divided between three: a "thought man," a "man of action," and a "front man." Grove says that during the 1970s, that description applied to Intel's three co-founders. Moore, with his encyclopedic mind, was the "thought man;" Noyce, a charming man who had enormous standing in the semiconductor industry, was Intel's public persona or the "front man"; and Grove, with his Schmidt-inspired, no-nonsense style, was the "man of action" who got things done.
By the 1990s, Grove increasingly took on the public role that Noyce had played in the 1970s, while Craig Barrett, now Intel's CEO, became the "man of action." In other words, these roles aren't static; they change over time.
From Chips to Microprocessors: Targeting an Underserved Market
Intel's core business, which initially focused on memory chips, also changed over time. The way in which that change came about is now a well-documented part of Intel's history. As Grove tells the story in Only the Paranoid Survive, Intel went through a "crisis of mammoth proportions" as it "got out of the business it was founded on and built a new identity in a totally different business." Grove says that although this experience was unique to Intel, the lessons it teaches are universal.
The episode also offers an excellent instance in which Grove, as Intel's leader, rescued the company from potential extinction by discovering an underserved market and turning the company around by catering to it.
When Moore, Grove, and Noyce first started Intel, their goal was to produce memory chips. Its first product was a chip with a 64-bit memory. Over time, the company developed chips with increasing numbers of transistors packed in closer proximity. Initially, Intel owned 100% of the market because it had invented these products. In the early 1970s, some U.S. competitors, such as Unisem and Mostek, made their appearance. "If you don't recognize the names, it's because these companies are long gone," notes Grove. By the end of the decade, the U.S. had about a dozen memory chip companies that competed with one another, but Intel still was a dominant player in the memory game.
By the time the 1980s came, the nature of the business changed. Japanese chip makers entered the market in a big way—Grove describes it as "overwhelming force"—offering better quality and beating the U.S. chip makers on price. In an effort to beat back this competition, Intel tried to ramp up its manufacturing efforts. "During the 1970s, we were parallel to our competition," says Grove. "In the 1980s, the competition became better than us, but we didn't respond until Craig [Barrett] took charge of it." As Intel kept improving its manufacturing and laboratory operations to keep pace with the competition, Grove adds, it went from being an "okay manufacturer" to a "superb manufacturer, though it didn't happen overnight."
Despite Intel's efforts, the Japanese producers kept gaining ground. "Their principal weapon was the availability of high-quality product priced astonishingly low," Grove wrote. By the mid-1980s, Intel's memory chip business continued to head south, with steadily declining sales and rising inventories. Grove felt that he and his colleagues at Intel had lost their bearings and were floundering for direction.
In the middle of 1985 came a watershed moment. As Grove explains in a frequently quoted passage from Only the Paranoid Survive, he was sitting in his office with Moore, then Intel's chairman and CEO, discussing their situation. "Our mood was downbeat. I looked out the window at the Ferris wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, 'If we got kicked out and the board brought in a new CEO, what do you think he would do?' Gordon answered without hesitation, 'He would get us out of memories.' I stared at him, numb, then said, 'Why shouldn't you and I walk out the door, come back, and do it ourselves?'"
As Grove discovered, getting Intel out of memory chips was easier said than done. The more difficult question was, when Moore and Grove walked back through the door again, on what market should they focus? Most of Intel's organization—including its manufacturing and R&D facilities—was geared toward producing memory chips. More importantly, the mindset of every Intel employee had long been focused on trying to beat the company's rivals. Turning that around and getting Intel to focus instead on a different line of business was hardly easy. And yet, such an opportunity did exist. It was an underserved market: microprocessors.
Since 1981, Intel had been supplying microprocessors for IBM PCs. As demand for personal computers exploded, demand for Intel microprocessors grew as well. In addition, its next generation microprocessor, the 386, was about to go into production. Grove made the case—resisted at first by employees and then gradually accepted—that Intel should leave the declining memory business and concentrate R&D and manufacturing efforts on producing better microprocessors. As a result, Intel's fortunes gradually swung up again.
Grove's leadership in turning Intel away from memory chips and toward microprocessors helped Intel retain its lead. It might otherwise have gone the way of Mostek, Unisem, and other chipmakers whose names no one now remembers.
Intel Inside: Building a Brand
While Intel continued on its growth path, it faced a unique problem on the branding front. Most of its customers were computer makers, who used Intel's increasingly powerful microprocessors—286, 386, and so on—but the average computer user was no more aware of Intel than an average car driver is of the company that made the engine for his or her automobile. Consumers knew that Compaq or IBM had made their computers, but few were aware of Intel's role in producing the chip inside them.
Intel also faced a related problem: Its products were identified by numbers rather than names. When other chip makers offered products identified by similar numbers, Intel had a difficult time differentiating its products from those of its rivals. For example, other microprocessor manufacturers wanted to produce their own "386" product, and Intel was powerless to stop them because the numbers could not be trademarked. Again, Intel was vulnerable because its brand was not as strong as it could be.
Determined to change this situation, Intel embarked at the end of the 1980s on its Intel Inside campaign. As Grove observes, it "was the biggest campaign the industry had ever seen—in fact, it ranks up there with big-time consumer merchandising campaigns. Its aim was to suggest to the computer user that the microprocessor that's inside his or her computer is the computer."
Intel spent massive amounts of advertising dollars on its campaign, consciously targeting a new customer base. Rather than selling to computer companies, as it had in the past, the messages targeted the emerging mass market of computer users. (As previously noted, this shift in Intel's customer base came back to haunt the company a few years later when it faced the Pentium floatingpoint unit crisis.) In addition, Intel partnered with computer manufacturers to display Intel's logo in their advertising campaigns. This met with some resistance among manufacturers who thought Intel's emerging brand identity might reduce their ability to distinguish their own brands from that of their competitors.
All in all, the campaign was a huge success. Grove believes that by 1994, "our research showed that our logo had become one of the most recognized logos in consumer merchandising, up there with names like Coca-Cola or Nike."
Push, but Mitigate: Managing Risk
As Intel's brand recognition spread, the combination of its higher profile with its growing clout prompted some to wonder whether it might face pressure from antitrust regulators. In many ways, its market dominance resembled that of another IT giant that had prospered with the proliferation of personal computers—Microsoft. To be sure, from time to time Intel did face antitrust inquiries, but these never assumed the enormous proportions faced by Microsoft.
Grove was acutely aware of this potential danger. When the company was getting ready to introduce the 386 microprocessor, executives in Intel's legal department turned to him to say that Intel might potentially be heading into a monopoly situation. As Grove remembers, they asked, "We need to decide how we are going to play this. Do you want to play this aggressively, or would you rather stay on the safe side of the line?"
Grove and his colleagues had two examples before them of the consequences of antitrust actions. "The first example was AT&T—and this was two or three years after the modified final judgment [that mandated the breakup of the company]," says Grove. "The second was IBM, which had been in litigation forever." Grove decided the way Intel would approach the issue was "not pushing it to the line. That meant that even though we may be in trouble, we could avoid going down the AT&T path."
So, where did Grove draw the line? "There are certain rules that you can make combinations of products more attractive," he says. "You can be aggressive about the conditions under which you do that." For example, one reason why Microsoft in 2004 faced antitrust problems in Europe was because of its decision to bundle software for audio and video formats with its Windows operating system. Intel, however, under Grove's direction, resisted going down that path. "We left a lot of money on the table," Grove says. "Generally, we are very conservative in our business philosophy. We never push it to that last ounce. That philosophy continues."
Grove's guarded approach to the antitrust issue explains in part why Intel, while it was blasted in the media during the Pentium crisis, still has generally not faced the kind of hostility that has hounded Microsoft. It also says a lot about Grove's attitude toward managing risk. "I am a very cautious risk taker," Grove says. "And I mitigate. I push, but I mitigate the risk by over-preparation. Push, but mitigate. It's like trust, but verify. I am comfortable with risks that I am prepared for."
Beyond the Signing Sheet: Building Intel's Corporate Culture
As Grove emphasized his values through repeated actions and decisions, these became part of Intel's DNA. The company developed a unique corporate culture. Nowhere is this clearer than in Grove's answer to a question about mistakes he has made during his career. His response: "Every attempt I ever made to hire a senior person for the company failed. No exceptions."
Grove doesn't know if the mistake lay in trying to hire outsiders "because there was a systemic problem: Intel has a very strong immune system, and only autologous transplants work. Or I didn't understand the criteria by which we could identify people who fooled the immune system." A related error, Grove believes, was that he did not fire people sometimes a year or two years after he realized he should get rid of them. "About people I had hired, I was a ridiculous wimp," he says. "I would rationalize and say, 'I haven't tried X.' That is not my general image—but my general image is wrong in this regard. Every single time it caused pain and suffering to the organization. It led to a lot of wasted time on my part. But the same kind of attitude also allowed a lot of people to become successful. It gave them time to find their footing and succeed. So, on balance, it was probably good—but I wish I knew where to cut my losses earlier."
Hard as he found it to fire people he hired, Grove long believed in setting fair standards of discipline at Intel. One of his most unpopular actions was instituting a so-called signing sheet that people had to sign if they were more than five minutes late for work. "It was one of my more controversial management moves," he recalls. "Absolutely nothing was done with those sheets," but the engineers were furious. "It was as if we had seduced their sisters. What really got me going was watching people drift in and out. This was during the 1970s, with hippies and flower children. That was the kind of environment in which we were trying to build an organization. We had Hispanic women who were paid a dollar above minimum wage to work in our factories. If they were five minutes late, they got a tardy mark. If they had three 'tardies' in a month, they faced disciplinary action. These people who made products that paid our salaries had to be at their workstations on time, no matter what the traffic or the situation with their children. But these highly paid engineers could do what they wanted. It seemed the height of unfairness."
Intel's corporate culture also played a role when it came time for Grove to choose his successor as Intel's CEO. Barrett got the job, says Grove, because of his "knowledge, integrity, and leadership." Grove's tongue-in-cheek definition of leadership is someone whom people follow. "I tried teaching leadership," he says. "It is such a hokey bunch of psychobabble. I tried to substitute the psychobabble with something useful—such as the definition of a leader as someone whom people follow. People followed Craig. He always had his act together. Every job he had, he exceeded everyone's expectations."
An important attribute Grove saw in Barrett is that he has the "right kind of ambition." That, Grove explains, is crucial. "An individual's productivity depends on ambition. If you plot productivity on a vertical axis and the degree of ambition on a horizontal axis, the curve goes through a peak. If you have too little ambition, you don't push or work hard. If you have too much ambition, you put yourself ahead of others, elbow them out of your way, people stop trusting you, and your output drops. You need just the right amount of ambition. Craig was always ambitious, but in a healthy fashion. He had ambition for his team to win. He wouldn't put himself ahead of anyone else. He has his head screwed on right; he was never political, never competed with his peers. He's just a very competent, well-put-together guy."
Fifty years from now, how would Grove like people at Intel to remember him? "People will probably remember me for the signing sheet," he says with a laugh. "Inasmuch as I'm remembered, it will be for all the mythical good things—the turkey was big, the popcorn was fresh, the trains ran on time...except for the signing sheet, he was a good guy. That is probably how I will be remembered by people who think they know me."
Then the twinkle in Grove's eyes gives way to a quiet thoughtfulness. "What I would like to be remembered for is helping build an organization that sustains itself long afterward," he says slowly. "A bit like Sloan. He did pretty damn well."