From The Economist print edition
Andrew Grove, the former boss of Intel, believes other fields can learn from the chipmaking industry that he helped bring into being
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EARLIER this year Andrew Grove taught a class at Stanford Business School. As a living legend in Silicon Valley and a former boss of Intel, the world’s leading chipmaker, Dr Grove could have simply used the opportunity to blow his own trumpet. Instead he started by displaying a headline from the Wall Street Journal heralding the recent takeover of General Motors by the American government as the start of “a new era”. He gave a potted history of his own industry’s spectacular rise, pointing out that plenty of venerable firms—with names like Digital, Wang and IBM—were nearly or completely wiped out along the way.
Then, to put a sting in his Schumpeterian tale, he displayed a fabricated headline from that same newspaper, this one supposedly drawn from a couple of decades ago: “Presidential Action Saves Computer Industry”. A fake article beneath it describes government intervention to prop up the ailing mainframe industry. It sounds ridiculous, of course. Computer firms come and go all the time, such is the pace of innovation in the industry. Yet for some reason this healthy attitude towards creative destruction is not shared by other industries. This is just one of the ways in which Dr Grove believes that his business can teach other industries a thing or two. He thinks fields such as energy and health care could be transformed if they were run more like the computer industry—and made greater use of its products.
Dr Grove may be 73 and coping with Parkinson’s disease, but his wit is still barbed and his desire to provoke remains as strong as ever. Rather than slipping off to a gilded retirement of golf or gallivanting, as many other accomplished men of his age do, he is still spoiling for a fight.
His achievements mean that his provocations are worth paying attention to. He has arguably done as much as anyone to usher in the age of cheap, cheerful and ubiquitous personal computing. In part, he did this through technological prowess. He graduated at the top of his engineering class at New York’s City College (one of the few options available to him as a poor Jewish refugee from Communist-controlled Hungary). He then went on to earn a doctorate at the University of California at Berkeley, and wrote a book on semiconductors that remains a standard text.
He joined Fairchild Semiconductor, once a pioneering electronics firm, where he caught the eye of Robert Noyce and Gordon Moore. The former was a co-inventor of the integrated circuit, while the latter coined Moore’s law (which decrees, roughly, that the amount of computing power available at a given price doubles every 18 months). When the two left Fairchild to found Intel in 1968—initially to make memory chips, not microprocessors—they took the young Dr Grove with them. He eventually ended up in charge of the company, becoming chief executive in 1987. He continued in that role until 1998, when he became chairman, holding that post until 2004.
Though his scientific credentials are solid, he will probably be best remembered as a daring and successful businessman. Richard Tedlow, a historian at Harvard Business School, calls him “one of the master managers in the history of American business”. One reason is market success: under his tenure, Intel came to dominate the microprocessor industry and its market capitalisation rocketed (making it, at one point, the world’s most valuable company). A bigger reason, though, lies in how exactly he managed to steer Intel to such spectacular success.
Two particularly risky decisions he took are revealing. In “Only the Paranoid Survive”, Dr Grove’s bestselling book, he argues that every company will face a confluence of internal and external forces, often unanticipated, that will conspire to make an existing business strategy unviable. In Intel’s case, such a “strategic inflection point” arose because its memory-chip business came under heavy assault from new Japanese rivals willing to undercut any price Intel offered.
What could he do? The firm’s roots and most of its profits lay in making memory chips; Intel’s microprocessor group was just a small niche. The firm’s two founders and much of its engineering staff were too emotionally wedded to its past successes to make a break. But Dr Grove decided to bet the future of the company on microprocessors, a move that saved his company and transformed the industry.
 |  Dr Grove thinks pharmaceutical firms should study chipmakers to accelerate learning and innovation. |
The second big decision was Dr Grove’s radical announcement that Intel would market its microchips directly to consumers. Previously, chipmakers had regarded computer-makers such as Dell and Compaq as their customers, and had not bothered with fancy advertising campaigns to end users. But Dr Grove believed that such a relationship allowed these assembly and marketing firms, which did little original research of their own, to capture too much of the value created by his firm’s innovation.
So he launched the “Intel Inside” campaign, which marketed microprocessor chips directly to consumers, starting in 1991. This incensed his rivals and his immediate customers, the computer-makers, but the strong demand for Intel’s new Pentium chip showed that the strategy had worked. True, the firm stumbled when a minor flaw was discovered in the Pentium that affected some mathematical calculations. Rather than rush to correct the problem, Intel tried to downplay it—a strategy that quickly turned into a public-relations disaster. The firm was forced to offer a replacement for all affected chips, at a cost of nearly half a billion dollars.
Painful though that was, Dr Grove now thinks this episode actually benefited the firm in two ways. First, it proved to internal sceptics that Intel really had become a consumer brand. Second, he reckons that it bolstered his efforts to improve the shoddy quality of manufacturing, to protect the firm from future fiascos. In hindsight, his risky decision to turn Intel from a component-maker into a consumer brand was a masterstroke.
Some observers have suggested that it was his family’s escape from the Nazis, and his own experience of the abuses of communism, that shaped Dr Grove’s strict management style. On this view, his demanding but meritocratic approach, rewarding ideas and knowledge over power, was a rejection of the injustices of communism.
Dr Grove, however, insists that it was his experience at City College, where talent and hard work were rewarded and where students challenged their professors without concern for rank, that impressed upon him the value of meritocracy. By contrast, he recalls an elitist, back-stabbing and lax corporate culture at Fairchild. Senior executives would stroll into the office or into meetings as late as they pleased, but blue-collar workers were penalised or even fired if they committed similar offences.
When he took control of Intel Dr Grove imposed a strict arrival time of 8am, with latecomers forced to sign a sheet. He also refused to go along with popular management trends such as flexi-time and teleworking. He was known as a blunt and demanding manager, but he also gained a reputation as a fair-minded boss who rewarded good ideas, no matter where they came from.
Asked today if he regrets imposing his disciplinarian personality on his company, he makes a confession: “You don’t understand—I was never that disciplined myself, and I’m not even a morning person!” He was determined to impose discipline on Intel, he says, for two reasons that ultimately worked to the firm’s advantage. First, he wanted to avoid the outrageous double standards he had experienced at Fairchild. The meritocratic culture he created at Intel then helped it attract the best talent in the industry. Second, he knew that strong discipline would also be necessary to improve his firm’s shoddy manufacturing.
At the time the microchip business was producing such unreliable products that customers insisted that companies like Intel always license new products to a secondary supplier to ensure reliability of supply. His efforts to tighten up quality control led to a commercial coup. When his firm introduced its widely anticipated 386 processor, he stunned the industry by declaring that Intel would not license any secondary manufacturers. This was a huge risk for computer-makers, but such was their appetite for the new chip that they bought it anyway. Intel’s ability to deliver good enough chips in large numbers meant profits no longer had to be shared with secondary manufacturers.
With his reputation for ruthlessness in the marketplace and rigorous discipline inside his firm, Dr Grove has much in common with another American business leader: Lee Raymond, the formidable former chairman of Exxon Mobil. Both men were feared by both rivals and many of their employees. Dr Grove once even spearheaded a sales campaign against a superior chip made by Motorola in an effort dubbed “Operation Crush”. When asked about such bully-boy tactics, Dr Grove remains unrepentant. He even likes the comparison with the unloved oilman: “I never knew Lee Raymond, but he did take Exxon to the top of the Fortune 500—and that’s OK with me.”
Personal admiration aside, however, Dr Grove is convinced that Exxon and its Big Oil brethren are in a sunset industry. He has written and lectured widely on energy and environmental topics in recent years, arguing that oil and cars are heading for a divorce. He regards electricity as the most promising replacement fuel, and thinks battery technology has the potential to produce an Intel-like giant as the industry develops.
Another business he believes to be ripe for disruption is health care. He complains that the industry seems to innovate much too slowly. The lack of proper electronic medical records and smart “clinical decision systems” bothers him, as does the slow-moving, bureaucratic nature of clinical trials. He thinks pharmaceutical firms should study the fast “knowledge turns” achieved by chipmakers, so that the cycles of learning and innovation are accelerated. (A knowledge turn, a term coined by Dr Grove, is the time it takes for an experiment to proceed from hypothesis to results, and then to a new hypothesis—around 18 months in chipmaking, but 10-20 years in medicine.)
And what of chipmaking—is it, too, a sunset industry ripe for disruption? Dr Grove still believes in Moore’s law (with the caveat that it will get ever pricier for chipmakers to uphold) but he has a grave concern. At a recent ceremony honouring his achievements, he shocked the gathered bigwigs by declaring that the industry’s approach to hoarding patents was an abuse of intellectual-property rights and risked undermining its future. Asked to defend that claim, which upset even his own family members, he does not backtrack. He insists that firms must use their patents or lose them: “You can’t just sit on your ass and give everyone the finger.” Even though Dr Grove is no longer running Intel, it seems that his desire to shake things up is undimmed.
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