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Writer's pictureQBS Team

Only the Paranoid Survive II

by Ulises Pabon



After a ten-month hiatus, four recent articles in the Wall Street Journal prompted me to sit down and write. The first article was a whack on the side of my head; the second was a kick in the seat of my pants; the third and forth just added insult to injury!


I'll get to the WJS articles shortly. First, let me give you some context.


After graduating from college, I relocated to Dallas to work as an electronics design engineer at Texas Instruments. After a little over two years, I joined Intel Corp. I left Intel around 1983 but returned in 1986 and worked there until 1993.


Texas Instruments and Intel were extraordinary work experiences. Texas Instruments honed my skills as a design engineer; Intel taught me how to manage.


Back then, Intel was led by three giants: Robert Noyce, Andrew Grove, and Gordon Moore. They infused Intel with an explosive mix of strategic foresight, operational intensity, and leading-edge managerial discipline. Their leadership turned Intel into the world's largest chip maker and one of the most admired companies on the planet.


That’s Andy Grove in the image above. It’s a clip from the front cover of his 1996 seminal book on strategic leadership titled Only the Paranoid Survive. In it, Grove shares his successes and mishaps navigating, what he coined in his book as, strategic inflection points.

But that was then, this is now.


The four Wall Street Journal articles that turned my stomach the last couple of weeks were:

  • Qualcomm Approached Intel About a Takeover in Recent Days - September 20, 2024, 5:29 PM

  • How Intel Fell From Global Chip Champion to Takeover Target - September 21, 2024, 10:28 AM:

  • Don’t Count on a Megadeal to Save Intel - September 24, 2024, 6:00 AM

  • Intel’s Foundry Shake-Up Doesn’t Go Far Enough - September 25, 2024, 4:39 PM


Talk about a watershed!


My wife’s words are still echoing in my head. Understand, I met the love of my life in the summer of 1982, of all places, at Intel! We married the following year. The news of a potential takeover by Qualcomm got us reminiscing over dinner about our years at Intel. Her words, “if Qualcomm were to acquire Intel, it would represent the end of an era.”


While it may be premature to declare Intel’s demise, the unfolding events are worrisome. What happened? How did Intel fall from global chip champion to target takeover?


You can mine the details behind Intel’s reversal reading WSJ’s excellent journalism. I found the answer in Andy Grove’s book.


Strategic Inflection Points


In Only the Paranoid Survive, Grove dusts off his calculus book to introduce the idea of a strategic inflection point.

In mathematics, you encounter an inflection point when the rate of change of the slope of a curve (known, in calculus, as the second derivative) changes sign.


Grove uses this concept to introduce the idea of a strategic inflection point. In Chapter 2, he writes,


An inflection point occurs where (when) the old strategic picture dissolves and gives way to the new, allowing the business to ascend to new heights.


In Chapter 3, he shares how computer companies navigated through the inflection point that turned the 1980’s computer industry vertical model (with IBM, DEC, Sperry Univac, and Wang) into the 1990’s emerging horizontal model. Though dated, the example is full of lessons. Here’s a snippet from page 48,


When an industry goes through a strategic inflection point, the practitioners of the old art may have trouble. On the other hand, the new landscape provides an opportunity for people, some of whom may not even be participants in the industry in question, to join and become part of the action.


Later in the chapter, he adds,


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 vey high, when the structure breaks, the cost to enter may be trivially small.


I could go on and on. The book is as insightful today as it was when I first read it, hot off the press.


Rereading it this weekend gave me goosebumps. Grove wrote this book in 1996. He passed away in 2016. Yet, it reads as if he’s lecturing about Intel’s current affairs.


His posthumous “explanation” of Intel’s current ailments is simple: Intel is facing a strategic inflection point. He’s eerily spot on. I would crank it up a notch or two and call it the mother of all strategic inflection points.


Strategic Context


The nature of the industry you operate in should inform your approach to strategy. It doesn’t inform your strategy, it informs your approach to strategy.


For businesses that operate in a highly regulated mature industry, where the industry’s framework is rigid and the rules within the industry’s ecosystem are hard to change, your approach to strategy is understandably linear and programmatic.


Intel operates in a different context. As a designer and manufacturer of the core component behind every computer - the Central Processing Unit or CPU - Intel plays at the leading edge of technological innovation.


The rise of Artificial Intelligence applications has led to a sharp increase in demand for Graphics Processing Units (GPUs). GPUs are well-suited for AI tasks due to their strength in parallel processing. This shift in demand from CPUs to GPUs has posed a significant challenge for Intel, whose business has traditionally focused on CPUs

.

The CPU to GPU shift doesn’t make AI the mother of all inflection points. What makes it so is that this is just one of the hydra’s heads. Learning about Intel’s turn of the tide surely got me to write. But from a grand strategy perspective, I would argue that this story is just the first domino of the cascade.


You may be miles away from the technological frontier Intel operates in. Your industry may fit the highly regulated and mature descriptor I mentioned above. None of that will exempt you from the ripples of change AI will provoke.


While the nature of the industry you operate in does inform your approach to strategy, realize that the nature of the industry you operate in is precisely what a strategic inflection point obliterates.


Let’s go back to Andy Grove, Chapter 7,


The too-little-too-late syndrome is particularly hazardous in a shifting industry environment. Implicit in doing business every day is a mental map of the structure of the industry. This map is composed of an unstated set of rules and relationships, ways and means of doing business, what’s “done” and how it is done and what’s “not done,” who matters and who doesn’t, whose opinion you can count on and whose opinion is usually wrong, and so on. If you’ve been in the industry for a long time, knowing these things has become second nature. You don’t even think about them; you just know that’s the way things are.


But when the structure of the industry changes, all of these elements change too. The mental map that you have been carrying with you all these years and relied upon in charting your company’s course of action suddenly loses its validity.


Hydra might have been a strong and inappropriate metaphor. Artificial Intelligence is not a monster. Perhaps “multifaceted gem” or “complex mosaic” better capture the complexity and multidimensionality of AI. Unfortunately, neither has the wake-up call value of a hydra. If I have to choose between "kick in the seat of the pants" and "sleep them with poetry", for the sake of your business, I'm going for the first.


Metaphors aside, my serious assessment is that Artificial Intelligence is the mother of all strategic inflection points. It may sound like a hyperbole. It’s not.


The canary in the coal mine


During the nineteenth century, coal mining emerged as a critical industry, driven by the proliferation of steam engines and railways. Miners faced increasingly hazardous conditions, often falling prey to explosions and toxic gases. Someone discovered that canaries would exhibit signs of distress in the presence of carbon monoxide (an odorless gas), succumbing long before humans would experience symptoms of poisoning. These birds became a rudimentary but vital early warning system that saved many lives.


So here’s my final call for action. Your business is the miner; the canary is Intel; and the canary is showing signs of distress. What are you going to do?


Closing Advice


I’m going to close with one advice. But before I do, I need to put on my engineer’s hat and share my closing thoughts on Grove’s book.


Chapter 9, the last chapter of the book, is titled The Internet: Signal or Noise? Threat or Promise?


A bit of history is called for before we dive in. I’ll try to be brief.


The ARPANET, the precursor of the internet, was invented in 1969. ARPANET stands for Advanced Research Projects Agency Network. It was developed by the United States Department of Defense’s (DOD) Advanced Research Projects Agency (ARPA), later known as DARPA.


When I joined Texas Instruments, I was hired by the Equipment Group. If the name says nothing to you, that’s what it was designed to do. We were responsible for the design of DOD-related "solutions". By now, the confidential and secret classification of what I worked with has expired, but my "need-to-know" training hasn't, so let's just leave it at that. The point is that DOD and ARPA were acronyms I quickly learned to recognize. But I digress.


ARPANET’s main objective was to connect various academic and research institutions to enable resource sharing and communication. Unlike traditional telephone networks, ARPANET used packet switching, which breaks data into small packets before transmitting it. This method improved efficiency and reliability, allowing the network to continue functioning even if parts of it were damaged or failed.


ARPANET began evolving into the modern internet in the early 1980s, with a critical step occurring in 1983 when the TCP/IP (Transmission Control Protocol/Internet Protocol) suite was adopted as the standard for communication between networks.


Netscape released Netscape Navigator in 1994. Although it wasn’t the first browser, because of its speed, ease of use (and the fact that it came at a time when internet use was beginning to expand beyond academia and into businesses and homes), it quickly became the dominant browser.


Netscape Navigator did to the internet what ChatGPT did to AI. They both gave the general public, albeit, in their respective timelines, access to a technological platform that, until then, flew under the radar for decades. This is a very, very important point that deserves rereading. It explains my astonishment as I read through the fading yellow highlights I had drawn in Chapter 9 twenty-eight years ago!


Netscape went public in 1995. It was one of the most famous initial public offerings in Silicon Valley history. Grove was working on Only the Paranoid Survive (remember, the book was published in 1996) during the IPO and comments about it in Chapter 9.


… the way the stock skyrocketed … just blew me away. I could find no obvious rational explanation for this incredibly rapid stock appreciation. Something was going on…


Andy Grove uses this chapter to lay out his thought process as he struggles to formulate Intel’s strategic direction amid the emergence of a very serious strategic inflection point.


The internet promised to connect all computers. So, the idea of computing power migrating to the network and PCs turning into “internet appliances” was a genuine possibility. “The Network is the Computer” happened to be Sun Microsystems tagline and business thesis. Intel was betting on PCs needing more computing power, not less! We all know the outcome today, but back in 1995, no one had a crystal ball.

Chapter 9 is the book’s pièce de résistance. You need the previous eight chapters to appreciate it; but "listening" to Andy and peering into his thought process is priceless.


The parallels between the internet, circa 1995, and Artificial Intelligence, circa 2024, are mind boggling. I can’t tell you how many times I closed the book to transport Grove’s words to the present. What was eerie (second time I use that word in this essay), was how easy it was to do so.


Today, the internet looks a lot more like a multifaceted gem than a hydra. Note taken. Just don’t forget Blockbuster, Borders, and Encyclopedia Britannica. They have a different opinion. Touché.


I promised to close with one advice. It's this: read Andy's book.


Epilogue


In case you haven't noticed, I’ve purposely dismissed the whole AI versus humanity debate. My focus has been on the survival of businesses, not the survival of our species. I’ll let Yuval Noah Harari, and the like, entertain you with the latter. It’s the former I’ve chosen to write about.


Invite me to a beer and we can talk all night about the future of humanity. I take that back; make it a single malt scotch. Balvenie Doublewood, aged 17 years, would be perfect... Portwood, 21 years, would be superb.



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