Only the Paranoid Survive

Learn how one of the most successful companies in the world survived moments of crisis.

Andrew Grove, Intel’s CEO, has helped the company assure its existence in the coming years through the ‘Only the Paranoid Survive’ strategic model that was derived from his personal experiences. Through such model, the company would have the strategies to exploit and thrive through critical changes. He also used SIPs or Strategic Inflection Points to at hand useful advice to make the most of the sink-or-swim moments in the company.

In this article, you’ll learn why secrets within the company do not always contribute to success, and how open communication from the outside world would be beneficial. You’ll also learn why emotional attachment and decision-making do not always work well together.

“Strategic inflection points”: Whenever there’s a change in the market, companies have to reevaluate their strategies.

Any company would face a critical moment wherein its strategies would have to be questioned or known as the strategic inflection points (SIPs) But the question really is—what causes these moments of crisis?

In a company’s ‘competitive well-being’, there are six forces that govern the strategic points to which the company relies. These are the strengths of the following:

  • Competitors
  • Suppliers
  • Existing customers
  • Potential customers
  • Complementors
  • Different possibilities to run the company

These forces have to be in harmonious balance, which means any disorder to such equilibrium can cause some effect in the company’s business strategy and environment.

IBM, a computer company, was once significantly affected by a major shift in its business ruling when the consumers were able to combine microchips, hard drive, and software produced by other individual PC companies. With this consumer ability to assemble their own PC with their chosen individual parts, IBM faced a challenge to stay afloat.

The company chose to continue designing and producing pre-built PCs, but to no avail.

This results to IBM losing its sales of pre-built PCs to separate components sold by other individual PC companies.

With these six forces working together to keep the company balance in order to secure success; major changes sometimes are hard case to crack even for big companies.

For example, technological changes are usually the easiest to spot, because inventions directly affecting the production or business process are rather evident, the strength relating to the competitors would be much harder to identify.

Being aware that these six forces would differ in the way changes can be observed in a short span of time, companies must be always paranoid for any changes that can easily and suddenly affect their business.

Employees must react to strategic inflection points - not only in their company, but also in the wider market.

CEOs are not the only pillars of the companies that SIPs are directly related to. Every single employee is being impacted by SIPs at every level.

Thus, all employees at every level must be prepared for grave circumstances, because jobs are frequently endangered during such moment. In worst case scenarios, SIPs could even result in a total shut down of a business—a nightmare to not just CEOs but even to the lowest positions. If the company manages to stay afloat, it could require reforming that could result to lay-offs. While in other cases, new skills have to be forcedly developed to embrace unfamiliar business environments to which every employee must adapt.

SIP affects every employee in the way they operate individually. To cite an example, when the first ‘talkie’ movies were out in the open, actors faced a dilemma as to whether adapt to new way of acting with sound mandatory or stick with the soundless movies. Some failed to adapt to the new way of acting. Some halfheartedly submitted to the need of adjusting. Charlie Chaplin, a bitter opponent to ‘the coming of sound’, yet he was forced to produce his own ‘talkie’ movie, The Great Dictator.

SIPs can even bring some types of jobs to extinction if not carefully prepared for it. This has been proven true in the case of major technological changes.

In the beginning of industrialization, conventional craftsmanship was endangered to become out of date since factories were then able to produce the very same products in a much cheaper and faster manner. With their skills no longer in high demand, most craftsmen found themselves quitting their businesses to join the factories. Those thrived were the ones with skills specialized in higher-quality production, thus making their business still necessary.

This goes to show that SIPs affect not only companies and employees but even individuals. By properly evaluating the circumstances and gaining new skills, individuals can learn to weather SIPs.

Strategic inflection points can lead a company either to catastrophe or a new chance for success.

Intel, a former memory chip company, was not able to elude the effect of SIPs despite it being a massive company. When a Japanese development of memory-chip had stormed the industry, Intel couldn’t match the cheap prices that the Japanese were able to sell chips for.

To aid the situation, Intel greatly invested in the development of chips, but was not successful.

As a result, the company faced an existential dilemma, which then forced Intel to change everything that had been essential to their triumphs by far. Knowing it would affect every established department and proven success strategies, the management and employees were deeply dismayed.

Intel did not have much of a choice when faced with an SIP that could further lead the company to chaos if the management would not act quickly.

Emotionally attachment to their old business ways was one of the reasons that the Intel managers refused to adapt to the new developments. Intel tried to fight the Japanese memory-chip industry by investing massively in its own chips despite its managers not keen with the idea.

If a company can come up with a successful strategy at the exact right time, then it can succeed through SIPs. In this case, SIPs were used as rather a chance to launch and pilot a completely new market.

In Intel’s case, the Japanese companies’ threat imposed both technological development and fresh tactical positioning of their production. Intel’s strategy to focus their resources into microprocessors and remolding themselves as a microprocessor company has effectively opened a completely new market in which they lead shortly after.

SIPs can both be beneficial or dangerous for companies. With the right action executed at the right time, SIPs can cause massive opportunity for success.

SIPs can confuse a business, so strong leadership is needed to ensure companies remain focused and relevant.

Confusion could be the usual initial reaction to an SIP knocking down walls through a company. A company must decide which direction it should take; choose to make the permanent changes or only temporary ones.

With a leader that embodies the right skills and clear sense of direction, a company can weather SIPs.

The CEO usually has the weight of the world on their shoulders whenever SIPs present themselves, especially in large companies. A CEO must be able to efficiently communicate his vision consistently to avoid any negative consequences.

An example of such negative consequences was when a head of a Japanese company was asked about its business strategy in general, he refused to answer in fear of his competitors to use such information in their advantage. This silence sent negative message to his employees and the public.

Fear of changing the core of the business should not be present in a CEO’s perspective. It is understandable that this action can be hard to implement due to emotional attachment to the old business ways he and his people are already accustomed to.

Remolding business strategies could also mean letting some employees go and be replaced by new competitive ones. In the end, a CEO must face this idea without fear in order to move forward.

Until the memory crisis in 1980s, Intel had been the company leading the market for memory. Its CEO, Andrew Grove, insisted that Intel must be remodeled and thus be known as ‘the microprocessor company’. Despite the resistance, he eventually shared his vision to the rest of the company staff successfully that they have come to appreciate his new vision to bring them ahead once again.

Quick implementation of a new strategy is crucial in overcoming an SIP. To do so, a leader must be able to convey his vision to the significant people then act as a role model for the whole company to commit immediately to the new strategy.

For internal and external employees to follow a new strategy, companies must transmit a clear and simple message.

SIPs can bring confusion so great that it can easily trigger a company’s direction and destroy the morale and unity of a team.

And this effect can be both internal and external. For example, employees would not have any clear agenda to follow while being scared of losing their jobs, and the partners and suppliers of the company might start to worry about the effect on their business as well.

A clearly defined new vision would have to be properly communicated to avoid confusion during such critical moments as it can break the company internally right away.

It means that the organizational structure must be the first to reflect the changes made to save the company. Remodeling might mean new staff or old retrained, or it could require new complementors and suppliers.

Simple, effective, internal and external way of communicating the new vision of the company is the key to succeed over SPIs. It should be able to convince the employees to be on board with it to still be efficient at their jobs. Proper information is necessary for the suppliers and complementors to keep the business running as usual while both parties adjust to the demands that the new vision requires.

Simplicity in delivering the message is the main key to successfully convey it. It should be easily understood and must stick in the employees’ minds as it gives them the sense of security they need to keep working as efficient as possible amidst the changes.

In words and in actions—as long as the employees can look up to a specific role model who believes in the simplicity of the messages and acts up on it, the more convincing the message would be.

Since employees are emotionally attached to their company, leaders must solicit objective opinions from outsiders.

In critical situations, companies often hire a professional consultant to analyze the business and come up with an effective course of action. This brings better chance in analyzing the situation because consultants do not have any bias opinion or emotional attachment to anything within the company.

Unlike professional consultants, employees often have emotional attachments to the work they do and how they do it. Work tends to contribute essentially to a person’s self-image, and bringing change to the equation can put the employee’s work identity in question.

Employees tend to be too comfortable with their team that a resistance could be formed when change is introduced. As an example to this resistance is Intel’s oldest production plants running at a loss during the ‘memory crisis in 1980s. As a result, they had to be shut down and the resources redeployed to other plants.

Senior staffs of those oldest production plants have already developed attachment to the origin of the production that they resisted when the business as they knew it was threatened to change.

Effective leaders must learn how to be emotionally immune to attachments to efficiently adapt to changes with an outsider’s viewpoint. Fresh eyes could see what has to be accomplished without the need to defend any existing business ways, which is why consultants and new employees are often welcome.

At the same level, a good leader that can weather SIP must be open to criticism as this comes naturally with every change introduced to the company. Ego should not play a role in such situations.

To stay current in the market, companies need open communication with employees, outside experts and journalists.

Secrecy regarding a company’s new strategy could mean that the upper management failed to convey the crucial information necessary down to the middle management. It could mean that the goals and strategies were not clear enough.

Open communication plays a huge part and not being able to maintain this without managements can affect the success of the company’s transition. Workers from the middle management often identify the problems within the company right away as they have the front seat to the daily operations and are sensitive to the changes that can threaten their situation. Open communication plays a vital role in conversing about fears and observations from which good business ideas can arise.

When Grove received an email from a sales manager in the Asia-Pacific area discussing about a potential competitor, he initiated a study on the case. If the sales manager chose not to share this information to Grove, their company would not have been aware of the existing competitor.

Effective communication should not be limited to employees and managements alone, business partners and outside experts should be included in the equation as they often have expanded view on the whole market situation.

Since complementors drive the force behind the business, outside experts provide market constellations that only they can share to the management, and journalists can open a new perspective, the company management should stay in touch with them.

A company must stay on the lookout for any threat of changes that can shift the whole business and turn it into a new environment where constant learning is necessary. These changes can come from anywhere.

Companies need to build flexible teams of creative staff who are comfortable with change.

The culture of a company and its ability to adapt and be flexible to major changes despite being accustomed to the current situation of the company are crucial attributes to overcoming threats.

It can break a company if the opposite mindset arises when faced with an SIP. It is absolutely paramount that employees are open to learning to skills and be flexible as a team.

Employees who can acquire new skills are often able to use multiple viewpoints in assessing a business situation. If an employee can think ‘outside of the box’, he can be well-positioned in finding better business solutions.

A team that embraces flexibility creates a nurturing environment in which fresh ideas can flourish. It is important for the teams and employees to have a freedom to search for their own resolutions with comfort in suggesting of new ideas and practices that can help remodel the company when called for.

Another benefit to having such perspective is the increase in the staff morale. Employees would then have much joy in working within an encouraged, creative environment that caters even to individual flexibility.

A positive working environment is the sum of mutual trust and flexibility. It provides a good training ground from which the employee can learn to unite during critical situations.

Business conditions can change in an instant, so companies must be vigilant and prepared for multiple scenarios.

Business situations can change in just a snap. Having said so, only the paranoid survive.

The more a company is prepared and on the watch for the threats that can pound and prey on it like a hungry predator, the higher the chance of the company’s survival.

That said, a company must learn how to channel adequate resources to innovations to somehow establish a chance on being first on the market with a new product should the need for it arise.

Employees who work with development are more updated with technical possibilities and this is an advantage during SIPS. Also, if the outcome of a market situation is unpredictable, every possible outcome must be accounted for.

The possibility of having some resources invested in vain is just right around the corner, but fear should not outweigh the advantage of new skills acquired during the process.

Being prepared in this kind of level could give the company an idea of the possible costs and consequences of implementing a particular technology. A good example is the tug of war between Blu-Ray and HD-DVD for format popularity. Both were promising formats and any company producing DVDs or players would have been wise to develop solutions for both formats despite the fact that the other half investment would eventually be in vain.

Innovation plays a key role in the business continuity after an SIP hits a company. Being able to introduce new product to the market could secure the company’s survival.

Final Summary

SIPs are inevitable moments of crisis that will eventually occur in a company’s life. The more managers and employees are prepared for it, the higher the chances of surviving against these Strategic Inflection Points. Though SIPs and their threats tend to be scary in the business realm, by acting on a few key principles, these could not only be overcome but used for the company’s advantages as well.

Actionable ideas in this book:

Look for an outsider’s unbiased perspective.

Despite the inevitable attachments, an effective leader must learn to be objective in viewing the company’s situation and must not be afraid to seek impartial opinion from outsiders who can help consider all options for a better chance at survival.