This microbook is a summary/original review based on the book: Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company
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ISBN: 0385483821, 978-0385483827
Intel's former CEO and chairman Andy Grove is undoubtedly one of the greatest thinkers on technology market management. He helped Intel survive the gigantic transformations of the computing industry in the last century and established itself as the leader in the microprocessor market. His lessons on how to address these transformations have turned into a book focused on helping leaders in the technology industry survive, adapt, and win in changing and constant contexts of change. In "Only the Paranoid Survive," Grove recounts his experiences presenting a strategic model that can help companies and people navigate those turbulent waters, after all, a little paranoia has never hurt anyone.
In 1994, Intel Pentium processors were affected by a bug. While not a major threat or problem (the bug only occurred once every 27,000 years of processor use), it dramatically affected the company's strategy. Although the company was accustomed to selling direct to PC makers, when the bug went public, surprisingly consumers were looking for Intel directly to deal with this problem. IBM, the then largest customer of the company, had canceled all requests from its processors. Grove found himself at a crossroads. Convince the world that the chip was okay or do the replacement of all existing chips, something that would cost Intel half a billion dollars. This made it clear to Grove that the company had become a big name brand. But unlike companies that sold directly to the end consumer, Intel wasn't ready to support the end consumer. So he took the second decision and chose to replace every chip already made. For the second time in a decade, the company was in danger of being extinct.
"Something has changed, something big, significant, even though it isn't clear what that something is exactly." During the life of a company, its strategy will eventually be challenged by drastic changes in the market.In mathematics, an inflection point occurs when a function that generates a curve changes its direction, for example from a negative value to a positive value.
Strategically, the turning point occurs when the previous strategy dissolves and clears the way for a new one, a business that strikes new peaks.Unfortunately, internally, this point is not marked by a single moment where everything changes but by a long period of discoveries, changes, and chaos comes to dominate, and one must know how to deal with it. Forces change, business dynamics change entirely, and a major 10X scale change can cause a company to lose control of its destiny. To clarify the six main types of strategic turning points:
Change in the dynamics of power and competence of competitors - When they change their focus or considerably increase their financial strength, such as through the capture of new investments.
Change in suppliers' power dynamics and competence - When the supplier landscape changes, you need to assess whether there are enough suppliers if they will be able to serve you, to keep you in business;
Change in the dynamics of consumer power and competence - Big changes in demand, expectations and financial power of your customers also change the game;
Change in the dynamics of power and competence of potential competitors - The company with which you compete can change according to your strategy; The possibility of replacement - Is there another product/service that can replace the use of your product today? This is the most dangerous kind of change, and you have to be aware of it.
Change in the dynamics of complementary products - Cars need gasoline, just as your product needs complementary products or is complementary to another product. Your company's complementary product landscape is also prone to change.
A change of magnitude in any of these items can create a force ten times greater and therefore a strategic inflection point. This defines whether your business will reach new heights or begin to decline. Any disruption in the balance of these forces will transform the business environment of the company. For example, IBM has been greatly affected by a major change in how your company's work can be done. Once all the components (processors, hard drives and software) of the personal computer were sold by different companies, consumers were able to move to buy separate parts and set up their PC. Pre-assembled computers were no longer as popular as before, and this caused a reduction in demand.
Although IBM tried to continue the development of its pre-assembled PCs, it could not compete with the possibilities of the customizable PC. This caused their sales to fall, and the companies that sold components had strong growth. While it is clear that any change in these forces can change the way companies can succeed in a particular market, it is difficult for a company to detect even a major change. Changes in technology are fairly easy to detect because inventions or improvements directly linked to the production process or the business itself are usually very clear, but a change in the strength of a competitor, for example, is much harder to realize. To master the changes, companies must be aware of any changes that may affect them about the six types of inflection points listed by Grove.
The company needs to embrace turning points
Strategic overtones are not only relevant to company executives. They have a great impact on a company at all levels and thus on each of its employees. For this reason, all employees should be prepared for such turnaround situations, as the way of working that has always worked may cease to function. Major strategic turns can even cause layoffs if the company goes into decline, so you need to react fast. Although the company survives and adapts, it is necessary to restructure and re-empower people, as the new models of work tend to undergo major changes. An interesting example: When the first "spoken" films were released, the actors had to choose whether they wanted to continue acting in silent films or adapt to act in movies with sound. While some could not adapt, others succeeded, even reluctantly. Charlie Chaplin, for example, was resistant to the arrival of the films with lines but had to adapt to the new model to continue in the industry. Strategic upheavals tend to lead some types of jobs to extinction, especially in the case of technological upheavals. Therefore, it is necessary that the companies as a whole and their employees are attentive to the great market turns.
A strategic turnaround can trigger a total catastrophe for a company, especially if its management does not recognize the new situation and does not react appropriately. Intel began in 1968, and as early as 1984 its main line of revenue, the sale of RAMs to microcomputers was being attacked by Japanese competitors. This caused Intel to invest heavily in the development of its chips but to no avail. Intel then decided that it would have to change everything that had been crucial to its success so far, from its older factories to its more established departments, and this frustrated its executives and employees, but the company had no choice. One of the reasons that lead executives to ignore the need for change is that they are emotionally attached to the existing way of doing business. The consequence of this is that while a company continues to replicate the same old measures in a different environment, this can result in total failure. Then Intel CEO Gordon Moore and Andy Grove decided that if a new CEO took over, he should get Intel out of the business of selling memories. Andy Grove took over and executed the plan. Quickly, 4 out of 5 factories were already producing microprocessors and resources were being allocated based on the profits of that product. There was a lot of internal turmoil, and the customers were surprised because they didn't expect such a turnaround. The company shifted its focus to its line of 386 processors that quickly became a big hit. When a new CEO takes over, especially in turbulent times, he succeeds not because he is better but because he does not have the same emotional attachment as the old CEO to the old lines of business. Having to reposition a business in a new market that can have positive effects. In the case of Intel, its strategy in front of the Japanese competitors was a combination of technological development and new positioning in the strategy of its business. They have put their focus and resources on microprocessors, redefining themselves as a microprocessor company - and becoming the market leader in this field at high speed. A major turning point requires that someone point in a direction that the company should take and this should come from their leader. The leader must communicate his vision clearly and constantly. When a company's strategy needs to be redefined, the CEO cannot be afraid to change the core of the business. Once a new strategy is presented, it needs to be put into practice immediately.
To do this, the CEO must first communicate the new positioning to the team and after that act as an example to the rest of the company by turning their actions and attention to the new strategy all the time. By taking the right steps at the right time, strategic turning can become an opportunity for exponential growth.
A scenario of chaos and uncertainty can affect a company dramatically. If employees do not have a clear vision of what to follow, they may be afraid of losing their jobs, just as suppliers and partners may also be worried about the future. Avoiding uncertainty is crucial, and companies must ensure that all their actions are in line with the newly defined vision. The change in positioning is reflected in the changes in its organizational structure. If necessary, you have to make cuts and hiring, ensuring that everyone is already trained and realigned towards the new direction the company needs to follow. A new vision must always be communicated in a simple and direct message. This is essential to convince everyone involved in the new vision and also to maintain productivity. Partners and suppliers need to be informed of the company's new vision so they can adapt. Simple messages are more effective. Andy Grove, for example, communicated Intel's new vision as "the microprocessor company" and this was extremely effective.
Staff and company executives tend to be emotionally involved in the work they perform, and this creates skewed opinions. During the shift that Intel faced, many people, especially the older developers, resisted the new structure proposed by Andy. The CEO must detach himself from these beliefs and ideas to navigate effectively. A good leader must protect himself from such influences by focusing on the more objective analysis and turning to opinions and visions of people outside the company. Leaders must also always be open to criticism that comes with change. Outside people find it easier to see the company from a new point of view, so it is important to look outside and engage with other market participants and bring in new people.
During transformation scenarios, it is common for companies to tend to keep secrets about their new strategic directions. However, an environment of secrecy and confidentiality can confuse the market and the people who participate in the organization, as well as prevent managers from sharing important information with their people. In times of change, open and transparent communication with everyone involved in the company is required. It is necessary to communicate with the base of the company and also to know how to listen to their yearnings, fears, and perceptions. In addition to their employees, companies should extend this clear communication to the press, strategic partners, and suppliers. A company that does not communicate well creates a strategic dissonance, that is, it communicates one thing and executes another. This is an extremely common symptom of companies facing a turnaround in strategy. It is necessary to align everyone in the organization towards a new direction.
Many companies fail because of a lack of capacity to adapt. At this point, the need for a flexible and adaptable culture is called into question. If the company staff conforms to the status quo and has difficulty adapting, it may be at risk, as changes will always occur. People need to be able to reflect on a situation from different points of view and think "out of the box." The box is the direct work field, the routine and the day to day of the professional, and it is necessary to leave this limiting scenario to be able to adapt and change the direction of a company.It also has to create an environment of trust and high morale of the team so that new ideas can be shared without fear and the company is always open to listen to them Creativity only thrives in an environment where people are free to seek their solutions and autonomy is crucial. Employees should feel comfortable in suggesting and experimenting with new ideas and practices.
The world changes at high speed and a company need to be prepared for threats in any of the six directions pointed out by Groove. Strategic turning points will always appear and, in some cases, even in parallel. The company needs to map the various scenarios and be ready to be the very force that disrupts the business. One of the key points to allow this chance change to happen is to invest in research and development, pointing the company towards innovation.
Especially in technology, a substitute product may be able to beat the competition and cause a new possible scenario for growth. Another important aspect is that if the outcome of a new market scenario is not predictable, companies should be prepared for every possible scenario in a paranoid way. Obviously this can cause bad investments and waste, but on the other hand, the skills that people acquire in the process of anticipating these scenarios may come in handy later. Development investments are essential because they give a company the opportunity to react quickly to new situations and also to be the new force that pulls the market in a new direction.
The change is difficult, but at some point, during a strategic turnaround, the leader begins to feel signs of a new direction. It may be that the company is tired, with low morale and unmotivated. But it is necessary to create an image of how the company will be when it reaches the other side and overcomes the barriers of change. One has to figure out what the company will be and what it will not be. That means redistributing resources, attention from the CEO and executive team. Especially the focus of the CEO communicates to the company the direction to which it is pointed, and this represents a great symbolic value. If the competition is attacking (and they always are, that's why only the paranoid survive), you can only win by being faster than them. And to be faster, you need to invest time and resources in this new direction.
The other side of Death Valley is exactly what was difficult to visualize before the transition. Surviving at a strategic turning point means being able to overcome chaos, confusion, experimentation, and maintain focus and commitment to the new direction. If the focus is maintained, after the turbulence, you will get there. A strategic turning point is one of the biggest challenges a company can face, but when it's over, it can take your business to a new level.
You have to be paranoid because the market changes at high speeds and strategic turning points will always happen in every industry. The CEO of a company needs to be able to anticipate (in a paranoid way) the possible changes, adapt and communicate effectively to ensure that the company can win in the competitive landscape. As well as a potential problem, a turning point can be a unique time to take a business to a new level.
How about learning a bit about Intel, mentioned in the book?
Andy Grove (1936-2016) was a Hungarian-born American businessman, engineer, a pioneer in the semiconductor industry, and an author. Considered one of the greatest thinkers in technology market management, Time magazine selected him as “Man of the Year” for 1997. Grove was the... (Read more)
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