Intel's turnaround: Where fear becomes motivation

Intel President Andy Grove was a dynamic individual and he had true stories of hard work. He was a refugee from Hungary who had fled the Soviets and the Nazis. Timidity and discipline were his main mantras in running a business. In his famous book 'Only the Paranoid Survive', he wrote: "Fear of competition, fear of bankruptcy, and fear of failure - these are powerful motivators for people to move forward."

Grove faced a colossal crisis in the early 1980s. Intel's main product was memory chips. But companies from Japan were capturing the memory chip market. Their chips were of better quality and much cheaper. Intel, the inventor of the memory chip, was losing control over the market speedily. So giving up their main product meant erasing their identity. Grove and Intel co-founder Gordon Moore spent hours in the office trying to find a way out. They hoped that one day the market would turn around. But Intel did not succeed.

However, Intel still had a small but promising opportunity - the microprocessor. In 1980, IBM gave Intel a small contract to make chips for its new personal computer (PC). At the same time, IBM assigned the young programmer Bill Gates to create software for this computer. In August 1981, IBM announced its new PC worth $1,565 with a small Intel chip inside it at a New York hotel.

At that time, betting on microprocessors alone was very risky. Memory chips were the main business of the semiconductor industry. Microprocessors were a negligible sector in comparison. Grove then looked at Intel co-founder Gordon Moore and asked: "If we were fired and a new CEO was brought in, what would he do?" Without a moment's hesitation, Moore said: "He's going to get out of the memory chip business." With that, Grove's decision was final - Intel would abandon memory chips and focus solely on microprocessors.

Many people thought that Intel was losing its identity with this decision. But Grove was adamant in his decision. His first step was to lay off 25% of the workforce. All factories in Silicon Valley, Oregon, Barbados, and Puerto Rico were closed. The second step was to make a major change in production. Intel's memory chip quality control was weak. Grove and another executive, Craig Barrett, forced the company to follow the Japanese method. Their motto was, "Copy exactly." This meant that the method that worked well in one factory should be introduced to all other factories without changing it at all. Engineers who once prided themselves on their creativity were told to simply follow the system. This was a major blow to Intel's culture. But the results were not long in coming. Production increased, costs fell, and factories became more efficient than ever before.

Another global factor helped Intel at the time. Between 1985 and 1988, the Japanese yen nearly doubled in value against the dollar. This made Japanese goods more expensive, and American goods cheaper. At the same time, interest rates in the United States fell, further reducing Intel's costs. On the other hand, the PC market was booming. Compaq, a small company in Texas, challenged IBM by making a cheaper computer. They used Intel chips and Microsoft software. Many other companies then entered the market and began making "IBM clones." These clones soon outsold IBM. Computer prices began to fall, and PCs gradually entered offices and homes. Almost all PCs, except Apple, ran on Intel processors and Windows software. Intel had a virtual monopoly on the microprocessor market.

Grove's approach to Intel was the complete opposite of the loose culture of Silicon Valley. He started work at 8 am sharp; being late meant being publicly reprimanded. He believed in "constructive confrontation." This strict discipline gave Intel a new lease of life. By the late 1980s, Intel had taken over the entire PC chip market. Every year or two, it introduced new, faster processors. Intel's brand had become so powerful that PC makers began to advertise "Intel Inside" in their advertisements with pride.

Andy Grove transformed Intel from a memory chip maker into the world's most powerful microprocessor company. It was one of the boldest strategic decisions in corporate history. The famous Harvard professor Clayton Christensen had said that new technology would one day push the old out of the way. Andy Grove made that a reality by breaking up his own company. Fear, or "paranoia," was a key survival tactic for him. More than innovation or luck, Grove's constant fear of failure was the key to Intel's success.

[Adapted and abridged from Chapter 22 (Disrupting Intel) of Chris Miller's groundbreaking book 'Chip Wars']

Author: Mahmud Hossain, a BUET graduate, has over three decades of leadership experience in Bangladesh’s telecom and ICT sectors. He played a key role in introducing mobile technologies in the country. He now serves as a Commissioner at BTRC, following senior leadership roles in several national and multinational industry-leading companies.