Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company - by Andrew S. Grove
Date read: 2018-10-23How strongly I recommend it: 9/10
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Great advice on how to handle pivitol moments in a company or in your career, using examples from Intel's shift from memory to processors and other tech companies. Some information is slightly outdated, but the principles are still sound.
Contents:
My Notes
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.
Middle managers—especially those who deal with the outside world, like people in sales—are often the first to realize that what worked before doesn’t quite work anymore; that the rules are changing. They usually don’t have an easy time explaining it to senior management, so the senior management in a company is sometimes late to realize that the world is changing on them—and the leader is often the last of all to know.
The lesson is, we all need to expose ourselves to the winds of change. We need to expose ourselves to our customers, both the ones who are staying with us as well as those that we may lose by sticking to the past. We need to expose ourselves to lower-level employees, who, when encouraged, will tell us a lot that we need to know. We must invite comments even from people whose job it is to constantly evaluate and critique us, such as journalists and members of the financial community. Turn the tables and ask them some questions: about competitors, trends in the industry and what they think we should be most concerned with.
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.
When a strategic inflection point sweeps through the industry, the more successful a participant was in the old industry structure, the more threatened it is by change and the more reluctant it is to adapt to it.
Whereas the cost to enter a given industry in the face of well-entrenched participants can be very high, when the structure breaks, the cost to enter may become trivially small, giving rise to Compaqs, Dells and Novells, each of which emerged from practically nothing to become major corporations
Don’t differentiate without a difference. Don’t introduce improvements whose only purpose is to give you an advantage over your competitor without giving your customer a substantial advantage.
In this hypercompetitive horizontal world, opportunity knocks when a technology break or other fundamental change comes your way. Grab it. The first mover and only the first mover, the company that acts while the others dither, has a true opportunity to gain time over its competitors—and time advantage, in this business, is the surest way to gain market share.
Price for what the market will bear, price for volume, then work like the devil on your costs so that you can make money at that price. This will lead you to achieve economies of scale in which the large investments that are necessary can be effective and productive and will make sense because, by being a large-volume supplier, you can spread and recoup those costs. By contrast, cost-based pricing will often lead you into a niche position, which in a mass-production-based industry is not very lucrative.
People who have no emotional stake in a decision can see what needs to be done sooner.
So how do you know whether a change signals a strategic inflection point? Ask these questions to attempt to distinguish signal from noise:
- Is your key competitor about to change? First, figure out who your key competitor is by asking a hypothetical question that I call the “silver bullet” test. It works like this: if you had just one bullet in a figurative pistol, whom among your many competitors would you save it for? Asked point-blank, this question usually provokes a visceral response and I find that people can normally give an answer without much hesitation. When the answer to this question stops being as crystal clear as it used to be and some of your people direct the silver bullet to competitors who didn’t merit this kind of attention previously, it’s time to sit up and pay special attention.
- In an analogous fashion, you should ask, is your key complementer about to change? Does the company that in past years mattered the most to you and your business seem less important today? Does it look like another company is about to eclipse them? If so, it may be a sign of shifting industry dynamics.
- Do people seem to be “losing it” around you? Does it seem that people who for years had been very competent have suddenly gotten decoupled from what really matters?
Peter Drucker quotes a definition of an entrepreneur as someone who moves resources from areas of lower productivity and yield to areas of higher productivity and yield. That’s what a properly motivated and intelligent middle manager will do with resources under his or her command.
Debates are like the process through which a photographer sharpens the contrast when developing a print. The clearer images that result permit management to make a more informed—and more likely correct—call.
strategic inflection points are rarely clear. Well-informed and well-intentioned people will look at the same picture and assign dramatically different interpretations to it. So it is extraordinarily important to bring the intellectual power of all relevant parties to this sharpening process.
Occasionally, when I stand in front of such a group and field questions, I find it awkward to attempt to defend the position of the corporation in the face of some specific questions and comments that come from people who are wise to their world and their environment. Often these questions come in the form of follow-up questions after I have been asked about our specific strategy regarding a particular product, customer or technology. After I have given my well-practiced answer, the follow-up question may start with “But what about…”or “Does it mean that…” Such questions usually represent sharp probing for the true intent behind the general answer I’ve just given. To be sure, they may be triggered by my not having been clear enough. But, on the other hand, they might be caused by a growing dissonance between my well-worn answer and a diverging reality. If it’s the latter case, this may be the first sign of a strategic dissonance and prompts me to say to myself, “Grove, listen up, something is not quite right here.”
To make it through the valley of death successfully, your first task is to form a mental image of what the company should look like when you get to the other side. This image not only needs to be clear enough for you to visualize but it also has to be crisp enough so you can communicate it simply to your tired, demoralized and confused staff.
Management writers use the word “vision” for this. That’s too lofty for my taste. What you’re trying to do is capture the essence of the company and the focus of its business. You are trying to define what the company will be, yet that can only be done if you also undertake to define what the company will not be.
Strategic transformation requires discipline and redeployment of all resources; without them, it turns out to be nothing more than an empty cliché.
If you’re in a leadership position, how you spend your time has enormous symbolic value. It will communicate what’s important or what isn’t far more powerfully than all the speeches you can give. Strategic change doesn’t just start at the top. It starts with your calendar.
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.
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.
You can’t change a company without changing its management. I’m not saying they have to pack up their desks and be replaced. I’m saying that they themselves, every one of them, needs to change to be more in tune with the mandates of the new environment. They may need to go back to school, they may need a new assignment, they may need to spend some years in a foreign post. They need to adapt. If they can’t or won’t, however, they will need to be replaced with others who are more in tune with the new world the company is heading to.
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:
- It tolerates and even encourages debate. These debates are vigorous, devoted to exploring issues, indifferent to rank and include individuals of varied backgrounds.
- It is capable of making and accepting clear decisions, with the entire organization then supporting the decision.
Be a little paranoid about your career.
Put yourself in the shoes of the CEO of a large company. You must open up your mind to outside views and stimuli. Read the newspapers. Attend industry conferences. Network with your colleagues in other companies. You may hear anecdotal descriptions of changes that may be relevant to you before they add up to a cogent trend. Listen to chatter from colleagues and friends.
Get into the habit of conducting an internal debate about your work environment with yourself.
Picture yourself in different roles. Read about these roles. Talk to people who are in them. Ask yourself questions about them. Conduct a dialogue with yourself about how you suit those roles. Train your brain in preparation for the big change.
What do you think the nature of your industry is going to be in two or three years? Is this an industry you want to be a part of? Is your employer in a good position to succeed in this industry? What skills do you need to progress in your career in this new landscape? Do you have a role model of the person who has the career today that you want to achieve?