value and opportunity

Andy Grove was senior manager and CEO at Intel for a very long time and was one of the architects of the spectacular rise of Intel as microprocessor powerhouse. The book was written by Andy grove in 1997, one year before he stepped down as CEO of Intel.

He outlines how he dealt with what he called “inflection points” at Intel. An inflection point is in his definition a point where business changes so profoundly that either the business changes as well or the company will be killed by competitors. For Intel, this was the case when in the 1980ties, the Japanese suddenly were able to produce better and cheaper memory chips which were until then Intel’s main business.

Grove managed then to shut down the memory business and concentrate the efforts on the microprocessor business which was until then only a small part of the business. His first person (CEO) perspective is very interesting to read as change doesn’t come naturally to large and succesful companies.

I also found the book especially interesting because Intel is one of the famous cases for a “size moat” in Bruce Greenwald’s “Competition demystified”. Greenwald there argues that Intel’s success in microprocessors was more or less given because they had such a size advantage compared to AMD, their major competitor. Reading the book, I got the impression that Prof. Greenwald greatly simplified this. There seemed to have been several junctions on the way where Intel easily could have went “of course”, such as the rise of the RISC processors or the question at that time if multimedia will be won by PCs or TV sets. For me, one of the lessons o f the book is that Moats, at least in technology are always “weak moats” as the development is just too dynamic.

The most powerful concept of the book in my opinion is the following concept from Andy Grove: If you see someone coming up with a new idea or a competing product, then you should ask yourself the question: Is this a thread to the business if this gets 10 times bigger or better or faster ? His theory (and paranoia) was that if it is a thread at 10x bigger/better/faster than the probability of this actually happening is very big and you have to do something about it. And fast…

If I use this concept for instance for electrical cars, then as a traditional car manufacturer I should ask the question: What if electrical cars have 10 times better reach, 10 times more charging stations, charge 10 times quicker then now ?. Would I have a problem with this ? The answer would clearly be yes.

Grove also observes that you only have a chance to survive such inflection points if you start early, so when the old stuff is still selling well. Once the company is in real trouble, then change is much much more difficult.

The final chapter in the book deals with how Grove thought about the internet. One should remind that this book was written in 1997, but it is fascinating how Grove already identified industries which would be badly effected by the internet. He already was aware that for instance a lot of ad revenues would flow from print into the internet. One should not forget that this book was written a year before Google was even founded !!!

Another interesting aspect was that at that time Apple was considered by Grove a failed company as they did not change their vertical business model to a “Horizontal” one. Clearly , mobile was not on his radar screen at that time. As a final observation: Without the great run up in the stock price this year, Intel’s stock would have been more or less flat against the time when Grove stepped down as CEO in 1998. So even a great company as intel might not be a great investment at any price….

Anyway, in my opinion this is a truly great book. I think both, investors and managers can profit a lot from this book. I do like “first person perspective” books a lot, especially if you can compare them against articles and theories about the same company written by other people.