01 Dec 2006
The Art of Andy Groveby Julia HannaTopics:
Born in Hungary in 1936, András István Gróf survived Nazi and Communist regimes before fleeing to the United States at the age of twenty. In 1997, as chairman and CEO of Intel, Andrew Stephen Grove was named Time magazine’s Man of the Year. In Andy Grove: The Life and Times of an American, HBS professor Richard S. Tedlow draws on hours of in-depth interviews with Grove, other key Intel employees, and numerous high-technology entrepreneurs to craft a revealing, instructive portrait of a man and the company he built into one of Silicon Valley’s biggest success stories. Two excerpts follow.
“The Long and Winding Road”
In 1968, Gordon Moore and Robert Noyce left Fairchild Semiconductor, where Andy Grove was employed as assistant head of R&D, to start their own company. Grove’s response when Moore told him the news? “I’m coming with you!” Hired as employee number three at Intel (short for Integrated Electronics), Grove started as director of operations before rising through the ranks to COO in 1979. For the next two years he presided over an all-out crusade with the fearsome name of Operation CRUSH. Powered by Intel’s sales and marketing team, the campaign’s primary target was competitor Motorola.
At the age of forty-three, Andy Grove was running one of the most important companies in the world. His first year as COO was a resounding success. He was pictured in the Annual Report, full-bearded, next to the clean-shaven Gordon Moore. Andy had arrived.
Had Intel arrived? It had learned as a corporation how to do things that all corporations must do if they are to succeed. Two of these deserve special note. First, Intel had learned how to grow. Second, it had learned how to compete.
In 1971, Intel carried $3.6 million on its balance sheet for property, plant, and equipment. By 1979, that figure had increased by two orders of magnitude to $217.4 million. Fabrication facilities [“fabs”] were expensive. During the 1970s, the semiconductor industry became capital intensive.
Manufacturing at Intel began in Fab 1 in Mountain View. Fab 2 opened up on Intel’s Santa Clara campus in 1971, a campus which today is 115.5 acres. Clean-room standards became stricter. No more putting pizzas on top of diffusion furnaces to keep them warm. But the hair and shoes of people working there were uncovered. The smocks worn were not as clean as they needed to be.
A big step forward was taken with the opening of Fab 3 in Livermore, California, in April 1973. It was here that the now familiar “bunny suit” was introduced. “The bunny suits and the whole routine were a huge joke around the company for years,” according to manufacturing manager Gene Flath. “In fact, people used to find excuses to visit Fab 3 just so they could put a bunny suit on.”
Fab 3 was also important because it introduced the “McDonald’s approach” to erecting fabs. They were to be made as similar as possible. In the world of “McIntel,” exact replication would mean that products from each fab would be indistinguishable from one another. Fabs 4 and 5 both came online in 1979, each more efficient and more expensive than their predecessors. From humble beginnings, manufacturing was well on its way to becoming one of Intel’s competitive strengths.
As manufacturing at Intel was growing, so was marketing. The idea of attacking core memory in mainframe computers with the 1103 DRAM proved a winner because, despite this product’s problems, it was far more economical to use than the existing alternative. When Intel turned a profit and went public in 1971, it was successful, but it was still a small company. It “benefited from the benign neglect”1 of other firms.
By the mid-1970s, however, the days of coming in under the industry’s radar were gone. Intel’s growth was well-publicized and was proving “an embarrassment”2 to large semiconductor manufacturers around the world. “The list of competitors poised for attack was more than a little daunting: Texas Instruments, Motorola, National Semiconductor, Phillips, Siemens, Nippon Electric Corporation (NEC), Hitachi, and Fujitsu, among others — the Billion Dollar Club of the semiconductor industry.”3
By late in 1979, Intel “was under full siege.” At stake was the fate of the 8086 [a 16-bit microprocessor], which Bill Davidow [head of Intel’s microcomputer division] labeled, with some hyperbole, “the linchpin of the entire corporation.” The principal attackers were Zilog and Motorola. Motorola was especially problematic. Far larger than Intel, it was a proud company with a rich history. Worst of all, the microprocessor it had positioned against the 8086, its 16-bit 68000, was believed by many to be a technically superior product.
The 8086 sales team at Intel was stricken, its morale “shattered.” “It was demoralizing to have one customer after the next lecture you about your employer’s failures and your competitors’ strengths. Many customers actually relished the opportunity to stick it to the famous Intel.”4 Yesterday’s feisty underdog had, it seems, become today’s oppressor, ripe for a comeuppance.
Field sales was aware of the problem Intel faced, but, according to a sales engineer in the Hauppauge, New York, headquarters of Intel’s Atlantic Region, “the message wasn’t getting through to management on the West Coast.” On November 2, 1979, the manager of the Atlantic Region “fired off” an eight-page telex detailing the difficulties. Coincidentally, an equally impassioned memorandum was sent by a field applications engineer working out of Denver. Intel was in a life-and-death struggle to establish the standard for the 16-bit microprocessor market. The future of the microprocessor business and the collateral sales that business generated was at stake.
Now the message did indeed get through to the West Coast, and “the executive staff meeting the following Tuesday couldn’t have been more unpleasant.” Davidow “either volunteered or [was] asked” by Andy to fix the problem. The result was Operation CRUSH.
Davidow put together a talented team that set an outrageously aggressive goal: 2,000 design wins. The goal, the name, the team — aggression was written all over this effort. Andy Grove was and is a tenacious and pugnacious man. Operation CRUSH was the perfect expression of his conception of business as a contact sport.
The target was Motorola. The 68000 might have been technically superior to the 8086, but Davidow figured out a way to make that undeniably important fact irrelevant. What mattered was not the design of the chip but the total bundle of benefits the customer received. Here, Intel had the edge. According to Davidow, “Intel had great customer service and support. We could assure a customer’s success with our device. By comparison, choosing the Motorola path clearly presented a risk to the customer.” Hovering over the entire effort was Andy. Since “subtlety is not one of Andy’s strengths,” when he said that Operation CRUSH would go on as long as it took to win, the team knew he meant it.
Intel found the winning ground: the total bundle of benefits. The technique was a spectacular success. It surpassed the impossible goal of 2,000 design wins. It achieved 2,500. One of those proved to be more important than the other 2,499 combined.
When you are facing an impossible challenge, you attempt the impossible to meet it. Among Intel’s field sales engineers was a gentleman named Earl Whetstone. Heavily into the “I’ll try anything” mode, he decided to pitch the Intel 8086 to the world’s largest and most sophisticated information processing organization, the International Business Machines Corporation. IBM epitomized the computer industry as it had been for at least two decades: vertically integrated and proprietary. Whetstone was a pip-squeak in the land of the giants. Intel’s market capitalization at the end of 1980 was $1.7 billion. IBM’s was $39.6 billion. IBM manufactured most of its microelectronics in-house. Never in its history had it gone to an outside vendor for such a key ingredient of one of its machines.
Timing is everything. Whetstone knocked on the door of “Big Blue” at precisely the right moment. IBM welcomed him cordially. They were open-minded and also very secretive as he and his team worked with their technical people. At length, Whetstone, with the help of Paul Indigo, made the sale.
No one at Intel and no one at IBM knew the significance of this particular design win. According to [Gordon] Moore, “Any design win at IBM was a big deal, but I certainly didn’t recognize that this was more important than the others. And I don’t think anyone else did either.” Whetstone said that a great design win would result in the sale of ten thousand units a year. But the IBM win grew to tens of millions of units annually.
According to journalist Michael Malone, “With the IBM contract, Intel won the microprocessor wars. And the victory was due to Operation CRUSH.”5 This is a remarkable fact. In 1979, when Operation CRUSH was conceived, no one knew there was a “microprocessor war.” Intel’s top brass understood that Motorola was attacking an important Intel franchise and that they had to fight back. No one dreamt, however, that this contract would be a defining moment in the history not only of Intel and of microprocessors but of the whole information processing industry, arguably the most important industry of the second half of the twentieth century. Intel was “just another component supplier” in the eyes of IBM in 1981. In 1996 this particular component supplier rocketed past IBM by almost $30 billion in market capitalization.
“The Valley of Death”
In 1985, Japanese suppliers overtook the American industry in global share of market for semiconductors. As Intel’s sales slipped, the company clung to its identity in the memory business, struggling to find a new direction before fully embracing the microprocessor, the product that would drive Intel’s growth for years to come.
Two beliefs that Grove said were “as strong as religious dogmas” made it more difficult than it otherwise would have been to get out of a product that any objective outsider could see was a loser for Intel. One of these “dogmas” was that memory was Intel’s “technology driver.” Because memory devices were easier to test than other Intel products, they were traditionally the products that were debugged first. The lessons learned could then be applied to other products. Intel’s identity was rooted in its excellence in technology. In its industry, technology and testosterone were linked. Real men live on the technological edge.
The second dogma dealt with marketing. Intel owed it to its customers and therefore its salesforce to field a full line of products. The customers demanded one-stop shopping, and if Intel could not provide that service, its customers might defect to someone else who would.
At one point in mid-1985, after a year of “aimless wandering,” Grove said to Moore, “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 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?’ ”
This was a real moment of truth in the history of Intel, and it should be part of every management course at our business schools. Grove was able, by self-creating new management, to adopt a different frame for his decision-making. He was no longer the actor. Now he was the audience. The audience was so displeased with the actor that it would give him the “hook” if it could. He was no longer the subject. He was the object. He got outside himself and looked at the situation as a fantasized, rational actor would.
This was a cognitive tour de force. It was made possible by Grove’s capacity to frame issues differently from the way others do.
Grove said that even after this moment of clarity, effective action was inhibited by the intensity of emotion around this product and around the thought that Intel had been beaten at its own game. When he started talking about jettisoning memories, “I had a hard time getting the words out of my mouth without equivocation.”
How do you get something like this done? Once you know that you have got to get rid of a product, how do you implement the decision? When I started teaching at Harvard Business School more than a quarter of a century ago, a businessman said to me that if you are going to cut off a dog’s tail, it is best to cut it right at the torso rather than half an inch at a time. The observation struck me as quite uncalled-for and even sadistic. We were talking about business, not the mutilation of animals. The point he was dramatically making was that if you have made a tough decision, you should implement it cleanly, completely, and without hesitation. The pain will only be greater if you move in stages.
Intel moved in stages, as if its executives were working their way through a trance. At one point, Grove, to his own amazement, allowed another executive to persuade him “to continue to do R&D for a [memory] product that he and I both knew we had no plans to sell.”
At last, at long last, Intel got out of the memory business. It had taken three years. A decade later, Grove recalled that the mechanics of getting out of that business were “very hard.” It was a “year-and-a-half-long process of shutting down factories, letting people go, telling customers we are no longer in the business, and facing the employees who all grew up in the memory business, who all prided themselves on their skills, and those skills were no longer appropriate for the direction that we were going to take with microprocessors.” The wounds remained always fresh for Grove. No matter what success Intel achieved, he never ceased to believe that what had happened before could happen again.
Reprinted from Andy Grove: The Life and Times of an American, by Richard S. Tedlow, by arrangement with Portfolio, a member of Penguin Group (USA) Inc. Copyright © Richard S. Tedlow, 2006.
- 1 William H. Davidow, Marketing High Technology: An Insider’s View.
- 2 Ibid.
- 3 Ibid.
- 4 Ibid.
- 5 Michael S. Malone, Infinite Loop: How Apple, the World’s Most Insanely Great Computer Company, Went Insane.
In Search of Andy Grove: A Q&A with Richard Tedlow
What was the most difficult challenge in writing this book?
The toughest thing was the feeling that I wanted to write a book worthy of its subject. That’s difficult when the person has a wide array of interests and knows everyone in the world. Also, doing justice to the management story and the human saga as it was played out against the technological frontier when I’m not an engineer myself. That’s one reason why when I first told Andy a book should be written about him, I said that I didn’t want to be the one to write it. I changed my mind when I realized what a statement this man’s life is, not only about business and technology, but about America.
What did you find most remarkable about Grove?
What fascinated me was how hard he drove himself. He had a constant, real-time anxiety about Intel. He is also completely unafraid of his own ignorance. He is the ultimate autodidact, the self-taught man. I was also deeply impressed by his creation of the Andy Grove persona. In 1995, just a few weeks after he completed treatment for prostate cancer, he gave a speech before a global audience. It was a difficult presentation featuring live demos. But it went so smoothly, you would have thought he didn’t have a care in the world, other than the subject at hand. Grove has mastered the art that conceals art. He has an ability to make things look easy that aren’t.
Why was it important to write about Grove’s childhood in Hungary?
The child is the father of the man. There will never be another CEO who survived both Nazism and Communism. For Grove, Hungary was a how-not-to-do-it university.
What are Grove’s core competencies as a businessman?
The first is his point of view; Grove is able to adopt the perspective of others and abstract himself from a situation. I would also cite his tenacity and pugnacity. Moreover, he understands that bad things can happen to good companies. It is no accident that his signature phrase is, “Only the paranoid survive.”
What business lessons can Grove teach today’s managers?
You should never underestimate your ability to fool yourself. Therefore, you have to challenge your own assumptions constantly to get to the truth. You have to create a culture that not only permits but demands that people argue about issues, not personalities. You have to cultivate a fearless cadre of middle managers — and inspire them to work together, even if they don’t like each other. And last but not least, to use Grove’s own language, “put common sense on a pedestal.”
How did you reconcile your role as a business historian with the fact that your subject is living?
Reconcile is a good word. One asset historians have is perspective. We know how the story winds up. This book begins as history but morphs into journalism. I sacrificed the perspective that time brings but gained immediacy. I could actually ask the subject questions. There are sources that I used that might have been thrown out, and people I interviewed who won’t live forever. So there were trade-offs. For me, they were worth it.
Was it difficult to keep your perspective, given that you spent a number of years with Grove?
Oh yes. As I write in the acknowledgments, I work for a university with the motto Veritas. You try to tell the truth. Nevertheless, when you spend as much time as I did in close proximity to a man like this, you’re going to be swayed. Someone writing the story in one hundred years won’t have the same dilemma — on the other hand, you get a greater sense of urgency and drama, which I hope leads to a more exciting book.
How did you become a business historian?
When I was five years old, my mother gave me a book called History Can Be Fun. The book was right. I came to HBS on a one-year fellowship in 1978 and was asked to stay to teach marketing. Over time, I realized that if we could take our teaching methods from marketing and move them to the realm of history, we could create something unique, that no other business school students get. That’s been the way it’s worked out.
— Julia Hanna