Andrew Grove, “Exploiting the Crisis Points: Challenging Every Company and Career" - MIT Sloan Industry Leaders Lecture

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URBAN: I'm Glen Urban, Dean of the MIT Sloan School of Management. And it's my privilege to welcome you to this fifth lecture in our industry leaders in technology management series. This is co-sponsored by the School of Management and the School of Engineering. We bring to campus here the world's leading CEOs to give us their guidance and wisdom. You may have been here last week when Jack Smith was here from GM. You probably also remember our earlier speakers Alex Troutman from Ford and Gordon Binder from Amgen.

Today it gives me great pleasure to introduce an equally eminent speaker, Dr. Andy Grove, who is the president and CEO of Intel Corporation. Dr. Grove's life really shows graphically the opportunities in America. He came here from Hungary in 1957, enrolled in City College and got a bachelor's degree in chemical engineering in 1960. Went on to get a PhD the University of California in 1963. And in 1968, teamed up with Gordon Moore and Bob Noyce, then at Fairchild Semiconductor, and they formed some little startup company called Intel, which has been the home for Andy for 30 years, at this point.

Tremendous career. A tremendous company. He's been one of the driving forces behind making this successful. You may recall that five years ago, or so, various people were predicting that the US IC industry would be out of business. Well, in the last years, 1990 to 95, under Andy's leadership the sales at Intel have gone from $4 billion to $16 billion, the profits from $650 million to $3.5 billion, and the stock price on average from $10 to over $65. So it's hard to find a more successful track record for company leadership.

Dr. Grove is going to speak to us today on exploiting the crisis points challenging every company and career. And you don't have to take too many notes because he's just written a new book that describes many of these ideas. Only the paranoid survive. And if you happen to see the latest Forbes magazine, Forbes says that, "this is probably the best book written on business by a business person since Alfred Sloan's My Years at General Motors."

So, welcome home and you're in good company here. Please welcome me in joining with Dr. Grove for this [INAUDIBLE]. [APPLAUSE]

GROVE: First of all, is the mic working?

AUDIENCE: Yes.

GROVE: Good. What I would like to do is, first of all stay nearby here if that's OK with your protocol. And use this overhead projector to walk you through some of the observations that are in fact, the kernel of that book, and have been based on my experience and laboratory tested, beta tested if you wish, on the competitive business school whose name shall remain unnamed. But it's on the west coast near where I live.

[LAUGHTER]

How many of you are business school students here? How many are engineers? Now, how many of you are business school students who-- how many of you have an undergraduate degree in engineering? That's pretty good. OK.

The reason I'm asking is because I want to tell you what the real title of this book was intended to be, and I didn't want to miss my mark. I wanted to call this book, strategic inflection points. And it's meant for general purpose audiences, and my publisher wouldn't hear of it. And to make a long story short, a long and short of it, it got a catchier title. But that is what the book is about.

Strategic inflection point is my way of visualizing and describing a fundamental change in the well-being of a business. Fundamental change in the well-being of an industry. It's a curve more or less going like this, which I don't know, can the overflow people see this? There is a video set up for it? OK.

The hardest time we all have at business is not a break point in a curve, if the curve represents the well-being of the flow of a business. It is exactly at that subtle point where the curvature changes, we're going from convex to concave, or the other way around. I never could figure that out. And it's exactly at that point that the nature of the business around us is changing. And it's changing in a subtle way, but changing in a profound and lasting fashion. And those people in a business who do not make the adjustment to the new curvature go into decline. That's kind of the graphical representation of what I'm talking about.

And another way to look at this is to look at the conditions under which the businesses undergo, or businesses in general, undergo strategic inflection points. And I trust the business school students among you have studied, in one form or another, camouflaged as it might have been, Porter's competitive strategy concept. Probably called five forces diagram or something to take the brand name of it. Is that right? Yes. OK. That's what they do at the other named school. Anyway.

Porter made a real contribution by basically graphically depicting competitive forces. And I redrew it a little bit because I amended it with another contribution that actually came from a couple of professors, one at Harvard one at Yale. The six forces to broaden it, that affect a business: customers power, competitive forces, intra-industry competitive forces, supplier power, forces of substitution, and adding to that complementors. People who are crucial in adding additional value to the value of the product in question.

Easiest way to look at it, Microsoft is our complementor. Microsoft software makes Intel microprocessors more valuable. Intel is Microsoft's complementor. Microsoft software, without Intel microprocessors, would clearly not be as valuable as it is with. This is sort of the general analysis of describing how a business operates and this is not what I was going to talk about.

What we are going to look at and what we are going to examine here is what happens when one of those forces becomes very, very much larger than the others. And I want to call it an order of magnitude in order to-- order of magnitude is not exactly a trade publication term. I called it a 10x force. A 10 for 10 force, 10 times increase relative to the other forces. What happens when there is such, one of the forces that determine the well-being of a business really grows out of bound and so big that it can distort the picture.

And what tends to happen at times like that is that the very nature of the industry changes. Not the business, not the competitive well-being of the business alone, but the whole business model changes. And I give you an example that comes right from our own industry on this one. And on the left of the diagram you would have maybe the business model of the computing industry as it used to be performed in the '60s, '70s, '80s. Computers were sold as vertically integrated devices, proprietary platforms, proprietary operating systems, applications developed for that propriety operating system, and a whole stack of things sold by Salesforce that was unique to that enterprise.

Then came the personal computer, which was in fact a genuine almost quantitatively correctly describable 10x force in that its cost effectiveness relative to mainframes or mini computers was about 10-fold right from the inception on. And it was clearly a toy. And it was clearly unreliable. And it couldn't do the software that was pertinent to business processes. But it was so cost effective that is represented a 10x force.

And in front of our eyes in the course of the decade of the '80s, the entire structure of the industry changed from the vertical towers of computer products competing with each other to a completely horizontal industry in which microprocessors compete with other microprocessors, operating systems compete with other operating systems, applications software in a packet form like a bunch of commodity goods, like a bunch of detergents, compete for deck shelf space with other application software. And direct sales goes out as a means of distribution.

Distribution becomes all indirect. In terms of your experience it's very difficult to imagine how ridiculous the whole concept of selling computers through a telephone and through mail would have sounded to somebody who was steeped in the computer industry of the left side of the diagram. I mean it was, it wasn't even laughable. People wouldn't even engage that idea. So that's how much it changed.

So the business model changed under this part of this 10x force from a particular way of doing computing to a completely different view in computing. And the time period that I'm interested in talking about, and I'm interested in considering, is what happens in between those two by two diagrams. I call it the valley of death. That's one way to describe it. Another way to describe it is, picture some kind of a graphical figure being morphed into another graphical figure. A phase being morphed into another phase. And it's in-between when the bits are all distorted and all jumbled up, when you can't make heads and tails out of the diagram, there's no shape to things.

That is when managing an enterprise, and for that matter managing a career, are the trickiest tasks. And that's what we are talking about.

Let me give you a couple more examples to bring some reality to this. And the 10x force can come in a variety of ways. I described in the case of the computer industry, it came through technology. Higher power technology brought a great deal of cost effectiveness. In the case of the Porter diagram, it caused substitution in a very large scale. It can come in various other ways.

If you are a retailer in a small or medium town someplace in America, the strategic inflection point arrives in the form of a bunch of surveyors who come and start surveying the property in one of the most highly traveled intersections in town. And then a sign goes up, future home of Walmart. Now you say, what's the difference? There never was just one retail store in this town. There were always a bunch of them. Any owner of a retail store would say I always had competition. I have competition now. So one more, what the hell is the difference?

And this is the 10x force. Walmart is not just one more competitor. It is the largest retailer in the world tuned, tuned, genetically tuned, to operate at thin margins, very high volumes, using information technology, satellite technologies, transportation technologies, all fine tuned to do that to a precision. That small town retailer cannot conduct their business, its business, in the same fashion just thinking that it's another competitor, or else they're going to go downhill on that curve.

So that's the example of a competitive force that would be a 10x force. Sometimes these forces come in the form of regulatory changes. An example of that is what happened in 1984 when in the form of the modified final judgment, judge brought about the deregulation of a many decade old, countrywide monopoly that was the AT&T of that time. And the repercussions of that change have been immense. And it impacted the well-being of not one company, but a lot of companies. They certainly impacted the well-being of AT&T, old and new. Impacted the well-being of MCI, Sprint, and untold alternative service providers. Impacted the well-being of the regional operating companies. Impacted the well-being of customers. And most importantly, impacted the well-being of probably 150,000 employees of the old AT&T, who are no longer working for any telephone company.

So this is not a change. This is a cataclysmic change. It was a strategic inflection point. And very few people realized at the time, I was around at the time, I was calling on AT&T because it's one of our customers. They were confused. It was like the bits in the middle of the morphing process. They didn't know what was going to happen. But none of them could foresee the extent it was going to change their well-being and their business processes.

We talked about the computer industry. And the one other thing that I want to say is, which we are in the middle of, the internet. You know, you pick up any trade magazine, any newspaper, any anything, I mean the internet is being beaten to death in the press. But the larger picture is that there is a phenomenon coming here that is likely to affect not just one industry, like all of these examples have, but half a dozen industries. Industries that don't even know that this-- what, how does packet switching have to do with the media industry? What the hell does the internet has to do with the entertainment industry in Hollywood? What does it have to do with the service industries?

And yet, enormous industries that have kind of minded their own business, never even until a few years ago even have heard the phrase, will be morphed. Will be restructured. Will have to undergo over the next several years a valley of death type of transformation. Now exactly how will that shape up? I don't know. In 10 years I could come back if your interested, and I'll tell you exactly how it happened. Just like I can't tell you about the computer industry. But right now, it's a bunch of bits in a confused fashion, and we are just entering the valley of death. It is very confusing in the middle of it.

That's not unusual. That is what it's like because the new business model doesn't take shape very clearly. And a lot of people have different ideas on how it's going to be. And which is why, of course, all the newspapers are filled with very superficial speculation on the shape of the future.

So to sum this, the strategic inflection point happens when there's a major change in the competitive environment. It can be technological, regulation, 10x competition force. And a key element is that it is very often, and I don't know if always, because I haven't made an exhaustive study of it. But very often, the first signs of it, the first recognition of it, does not come from senior management, people like me. But come from people who are in the front lines of the key activities of the corporation.

Salesforce is very likely to realize changing customer preferences much before sales management is. Now, do they understand that it's a change of customer preferences? No, they just understand something that used to work doesn't work anymore. Then they go home and tell that story. And they can't make a coherent story out of it. So they get thrown out. Go away. Just work harder. And the fact of the matter is something changed in them. And because it is so murky, they can't articulate the story.

And the internet is a perfect example. The people who understood those things, that were people who were users of the internet. But they didn't understand how big it was going to be. Or they understood that their little world was suddenly intruded by a bunch of people who had no business being on the internet. And I see a number of nodding heads. And those people probably realize that something is changing in the aggregate a long time before most people in corporate may even had a whiff of it.

What is going to happen when that happens is that individuals like that are going to start turning into being Cassandras. And because mostly this change is not for the better. Mostly the change is something that worked, doesn't work. And our products are no longer [INAUDIBLE] at them.

In our case, when Intel was a semiconductor memory company. We pioneered semiconductor memories. We were the leaders in semiconductor memories. In the mid '80s, the Japanese came and became a 10x force for us in semiconductor memories. And one of the first signs as I look back, I didn't look at it at that time as a sign. I looked at it as a whining sales force. But one of the first signs that I look back that should have tipped us off was our sales force in Japan saying that the customers are not as respectful of them as they used to be.

And that was such a telling story in retrospect. If I look back on the curve, that's when the curve was beginning to enter into the inflection point. There weren't because they knew that their internal capability, the customer's internal capability, the semiconductor sister division was going to run circles around us. They knew that. And that attitude changed toward our sales force. Or sales force told us. Us, being management, ignored it.

We ignored it. When they showed up here, we ignored it as we were starting to lose market share. And the people in our company who realized what was going on was our group of production planners who started adjusting our factory loading away from memories, toward microprocessors. Why? Because we had better business opportunities in microprocessors. We made more money microprocessors.

So we're not making a big fanfare [INAUDIBLE] lots by [INAUDIBLE] lots. They just move the production lots from memories to microprocessors. So by the time those of us who ran the company started facing up to that, that our core business, which were memories, was going away, because of these incremental our actions of our finance people, and production planners, and lower level management, we were much less exposed to the memory business. We had gradually rationalize our factory infrastructure so that we still have to cut back. We still have to shut down factories, but much less than had these Cassandras not taking matters into their own hands.

So spontaneous actions through front line or lower level employees who are much closer to the action is a very key element in causing adjustment in the business structure of a company. That's a key element. What tends to happen is when-- I'm sorry, I took this off too early. What tends to happen is there is, at times like these, there's a growing divergence. A dissonance between the actions of people who are close to the actions and the comprehension and statements of senior management, like myself.

I call that strategic dissonance because a corporation, in its daily action, is beginning to do something deviant from the stated mission, values, competencies, that continues to get articulated in the management. So one of the big telltale signs in a business that it is struggling with a strategic inflection point is this growing and seemingly irreconcilable difference between what the company does and what the company says it's supposed to be doing.

It's not because people involved are dumb, or phony, or hypocritical, or anything like that, but because senior management was responsible for the articulation. It was giving the interview that the employees read in the newspaper. Doesn't know it yet. The employees know it's not real. The senior management doesn't know it's real. That's a terribly strong sign. And I'm not going to name names because it gets you a little closer to present time. But there's very relevant examples of that taking place in the recent past in the information technology industries.

To cope with it, to cope with this process requires fundamental changes in your business outlook. Fundamental changes in the definition of what your business is and what it might be. Fundamental changes in the core competencies, the capabilities, of the corporation. If you've been doing this all along, like in Intel's case. We had been in the microprocessor business for 10 years before this change occurred. We had a lot of capabilities. We had the option of abandoning our traditional business and emphasizing an emerging business.

If we didn't, we would have been up the creek without a paddle. It is very important, for that reason alone, to cultivate additional and corollary supporting competencies so that when shifts take place, you've got places to shift to. More about that in a few minutes. A key issue that we need to deal with is organizations, corporations, individuals dealing with the carriers. Governments are constantly surrounded by indications of monumental changes. And one of the-- they are not all real things.

For every real inflection point causing change that you have to deal with there are 10 items that are really not much more than noise when you look back retrospectively. So, how do you tell one from the other? And I wish I was able to give you a little diskette that you run this program and fill in the blanks and it will tell you. I can't. I have looked at and thought through a variety of examples of this. And some examples may mean something to some of you.

Ten, twelve years ago, there was a big raging trend toward X-ray lithography in our industry. And particularly our Japanese competitors were investing very heavily into it. And some Americans felt that unless we made that change in the language that I'm using today, we're going to go down the hill and decline in a strategic inflection point. We analyzed this seven ways through Sunday and decided it was really a spurious noise. Again, using today's language. And we turned out to be right. X-ray lithography in the last 10 years hasn't gone anywhere. Visible light and ultraviolet light, lithography, doesn't matter what, the conventional techniques could be extended much more. And we were right.

And an interesting question, does that mean that X-ray lithography will never go anywhere? It doesn't. X-ray lithography as a threat may have been a bit of noise ten, twelve years ago. And may become a strategic inflection point a year from now, five years from now, ten years from now. So there is not a general deal that a certain phenomenon is right or wrong. It is or is not a strategic inflection point. It is in the context of the time, context of the state of the business, the context of the evolution of the technology.

Another example that I want to touch on is risk technology, as in microprocessors. That was a late '80s phenomenon and it was taken very seriously by a lot of players as a 10x force, a 10x better way of building microprocessors that could in fact uproot the structure of the business and create a lot of trouble for established players like Intel. And in fact, a lot of people at Intel thought that might be the case. So we had enormous raging debate. And a major development, to hedge our bets of a risk processor whose advocates and whose designers believed it was a 10x force. And we continue to pursue our regular standard architecture, whose designers and developers thought it wasn't.

So this debate took place very heavily internally. And it was a very expensive proposition both in terms of double investment streams and in terms of the wear and tear on people in our management, including myself, because I didn't understand the issues involved here at all. This was way outside of my technical competence. And I had to rely on the advice of people, who all of a sudden barely said good morning to each other. They were so emotional on the subject.

Now, we pursued this parallel development up to a point, and then eventually out of all this debate, and debate is in fact one of the most important ways of dealing with this thing, we came to the conclusion it was not a strategic inflection point. That more, almost literally, it was not a 10x improvement, it was a 2 to 3x improvement. And is likely to be less and less as time goes on. Turns out, again in the time frame we were right. But before you were right, half the people who were involved in the risk process have left the company. The relationships that were torn up, for the largest part, never were healed.

So these things are not fun and easy processes. Even inside a company. Even among people who know each other well.

I'm going to switch to a different subject, so we'll have opportunity to do questions. Which is, this is what I dealt with is methods of recognition is a phenomenon of strategic inflection point or not. But let's suppose we are past that stage. That we are entering a strategic inflection point. Dean Urban. Where are you? I see you. Is it proper for a lecturer to remove his jacket? Thank you.

URBAN: The audience [INAUDIBLE]

GROVE: No, I'm not going to get that naked in a school.

So, you are in one of them. You are in that valley of the Death, Valley of death. And the subject I want to talk for a few minutes is what are some of the techniques that you can do to get through it. And the best way to look at that is, this process has two stages. The first half and the second half. The first half, is again keep in mind this morphing metaphor, as you enter it from an orderly to a disorderly state of affairs. From a phase that you recognize to a bunch of mixed up bits. And things are terribly confusing. The people, the Cassandras that come in bring you the stories from the field. From the [INAUDIBLE] don't make any sense. You don't feel comfortable anymore.

So what you need to do is let loose of the reins of it. Let chaos reign in your organization about it. Let experimentation take place. Now, the natural state of organizations is chaos. That applies to all organizations. It's a corollary of the second law of thermodynamics. So ordinarily management is there to fight the dispersion of the forces in the company and bring some cohesion in there.

So this is not a natural act for management, letting chaos reign. Particularly not a natural act when management is getting a little uncomfortable about the state of the business. And I'm sitting there watching these things. I'm not that comfortable. So what is my reaction going to be? I want to pull in the reins, not let go. And in reality, in this stage, we have to constantly, we have to discipline ourselves to letting things go. Because the only way we are going to put some shape and certainty into this ambiguity in our business model is to let a bunch of things go on and to watch them like a hawk.

Now, I'm not going to do the experiments. But I can very easily watch all those experiments and see which one gets traction and which one-- I mean, I don't actually mean technical experiments, although sometimes that might be the answer to the question. But funding development programs that are mutually contradictory. And you're going to get a lot of stuff, backtalk, on this one. How can you give money for this and not give money for that? And you are all confused. You have your head up in the wrong place, et cetera, et cetera et cetera.

But you have to bear with that because at this point you simply are not in a position to know. So this is the phase when I say let chaos reign. Do a lot of experimentation. And one, I'm not covering every item on this force so try not to stay synchronous with the fall there. But what is extremely important, ideally, is to start doing this experimentation at a time when your existing business is strong. It provides a protective bubble over the totality of your business.

Now this is so damn logical it's not funny. The time to start playing with new things, a time to start experimenting, the time to start investing in those new things, to develop those competencies, is when your core business is wrong. And what is real life? Real life is I want to do that. I'm going go to my best guy here and say, OK, you're going to go on this emerging stuff.

And every general manager is going to jump on me, how can you pull him out of the business that pays all of our salaries? He says, OK, no, no, no, I was kidding. I was kidding. It was a bad idea. Bad idea. Let me take him. And he came up way below him, the other guy in the ranking. Let him do the new business. And he is really not very good. We are only keeping him for tradition's sake.

Nothing personal. Then we put him on the new area. And guess what, the new area is not going to succeed. Now, is it not going to succeed because it was a bad idea in the first place? Or is it not going to succeed because we put our second class people on developing it? That's how it goes in real life. And you know, on the other hand I keep coming back to that, management is not-- you don't get drafted to be a manager. You enlist to be a manager. You like all the various elements of it.

One flip side of it is you have to do things that require self-discipline. It's kind of like dieting and exercise and a bunch of stuff that you don't necessarily want to do, but you do because they're good for you. Making choices like that, you've got to do because it comes with the territory. Having said that, very few people use the business bubble to make their choices. They hang onto the business bubble. They want to extend it. And they under invest in the experimentation with the result that when things happen, their wrong people are in the wrong territory.

I'm not talking about them. I'm talking about me. Literally. In that situation when we were in the DRAM business and the production planners very cleverly over some period of time got us out of DRAM production and ramped up microprocessor production. That was good because the production planners could do it. But only senior management could assign development resources, development laboratories, to do certain lines of work.

So our best laboratory was working on what, microprocessors? No, DRAMs. And they were doing a phenomenal job. They were developing the world's first seamless DRAM faster than anybody else was, including the Japanese manufacturers. And it was completely useless because we didn't have any factories in the works to produce them. We didn't have any real intention to put them into production. In the meanwhile the product that we were starving from development resources for exactly the little exercise that I played out, was the second generation version of the 386, which happened to be the stuff that led to those spectacular results that Dean Urban described in the introduction.

So you know, you don't have to go very far to see examples. And we corrected it. But we corrected it, kind of my universe concept of my own career, every decision that I've ever ended up making that turned out to be a right decision, I made it a minimum of a year late. This one we probably made more like a year and a half to two years late. We took that theme and put them on the second generation 386. And we did and fortunately we were still ahead of the competition so that we did OK with it. But in a more demanding business environment, it would have been too little too late.

Then comes the second phase. The morphing process continues, the bits are beginning to gel, and you begin to see the outlines of the new picture. And at this point, now you can do what you have been wanting to do. Pull in the reins. At this point, it's time to take stock of those experimentation and make order and decide what we are going to do is this and that.

And interestingly, by now your people may have gotten used to chaos, and the kind of like chaos. Like I tell you, organizations like chaos. So this is not exactly a highly popular act either at the time it comes. The only difference is that if you are like most companies, that you're not doing this in the middle of a benign business bubble, but you are doing it where you are in trouble. People will support harsh actions because they want leadership to drag them out of the mess that they are in.

The catch is, you know, the reason I have two hands is so I can do on the one hand on the other hand, constantly. On the other hand on this one, is that you, the leader of that organization, or you, the leader of your own career, are not that sure. You're beginning to see that picture gel as you're moving across the morphing process.

But you're not very sure. But you have to act as if you were. So you have to, you're pulling the reins and commit yourself to of course of action at a time when your knowledge and your certainty lags way behind where you are. It's a very difficult process. A very imperfect process. It's a process that is fraught with dangers because by committing yourself to that, you're committing yourself wrong. You are sunk. But, if you don't commit yourself you are sunk for sure. Because in most of these situations you are living in a competitive environment where there's very little tolerance for error. But if you're not committing yourself, you're not going to commit an error, you simply are giving time to your competition.

And there's kind of a universal law in business. The only thing there is in business is time. You give time to somebody else, you take it away from yourself. That's all you got. So hesitation transfers time to your competition. And that time, it never will come back. So the earliest moment make a work up your courage to commit yourself to the reigning in the chaos is the time to act.

I've talked about a bunch of things here, and some of those things have a very psychobabbly tone to it. And that's how it is. Managers are people. Their employees are people. And work, and living, and their careers, and their long term success is very important to each of these individuals involved. So when things go bad you're going through the same stages as you go through in personal catastrophes.

You have to go through the usual stages of denial, which is very, very strong. That is why you want to shoot the Cassandras, because your denial of this new thing that you don't want to deal with, that you don't know how to deal with, is so strong. You work your way through escapism. I have this deep seeded suspicion that the predominant reason people engage in big time acquisitions is to escape from dealing with a strategic inflection point in their own business. In their own core business.

Because nothing is as seductive as teeing up and flying from one place to the other. Staying up all night with your lawyers and your investment bankers and calling a press conference and being on the front page of the newspaper the next day. How does that compare with figuring out which factory to shut down? I mean, which one would you rather do?

And it is so tempting to immerse yourself into stuff like that as a legitimate escape. Not an escape like I go on the golf course or go on a safari to Africa, but a legitimate escape. I'm working real hard to do that. I don't know if this is true. I don't know how to study it. But I do have that suspicion.

But when you get out of this, and the escape didn't work, you move on to the acceptance and pertinent action. And the question here is, do you do it in time enough, or do you wait until you have frittered away your resources? And to a very large extent, this is an issue of human makeup as much as anything else.

The last point I want to make, everything I have said here applies to your careers. And I'm not talking to you as a bunch of CEOs of corporations now. I'm talking to you as a bunch of CEOs of your own little business. Starts at the top of your head and ends at your toes. That's your corporations. You've been investing in it. Heaven knows, I don't know. Probably $30,000 a year. Whatever this outfit charges here. And before, and you're going to continue too. And it's yours to manage.

And we are in a very different era than my generation managed career was in. My generation could assume that when we went to work for an enterprise, that enterprise could provide us with a measure of stability that would guide us through, in a very smooth fashion, the inflection point that always came. That's not new. It was always around. Enterprises are now going through inflection points of their own that doesn't guarantee their own survival.

So enterprises are far more preoccupied with their own survival today than they were a generation ago. And therefore, they are less able physically less able and emotionally and interest wise and concentration wise, less able to deal with the survival of the many little careers, the many little businesses that their employees represent. This subtle favorite cliches of business life today make this problem worse. We love globalization.

Globalization means that the world is our oyster. We can sell a product everywhere from here to Jindong. Globalization also means that every person, every working person of the same general training, same general business occupation in the world competes with you. That they work for companies that compete for your company. In a brief period of 30 years, from the '60s to the '90s, the United States in the aggregate has gone from an almost dominant industrial power to one of the leading industrial powers.

If you look at that as a market analysis, being a dominant industrial power, a dominant power in your industry versus being one of the contenders back into the Porter model dealing with substitution, dealing with new entrants, dealing with intense intra-industry rivalry, life has gotten a lot tougher for the United States economy. Consequently, life has gotten a lot tougher for companies that make up the United States economy. Consequently, those companies are much less able to. It's not that they became venal, not that they became evil. They're simply less able to provide this style of career development and career maintenance that they used to do it.

Now if they don't do it, who's going to do it? And I'm advocating basically doing the same concept of strategic analysis and apply it to your career. And foremost among those is watch for strategic inflection points. Work on separating the signal from the noise. And we complete, conclude that it's signal. Experiment first and then pull in the reins and commit yourself. And discipline yourself to overcome the denial and the various other human foibles that will come in the way in your own career, as well as in your business.

So, that's all I have, and I will take questions from both here and outside.

[APPLAUSE]

AUDIENCE: How does Intel become equally qualified competitors, such as Texas Instruments who produces-- How does Intel keep a company like Texas Instruments, who also produces a very high quality chip, from taking market share?

GROVE: How does Intel keep competitors, like Texas Instruments who also produce high quality chips, from taking market share?

You know, back in the mid '80s when we almost died and went through our strategic inflection point and we came out of it, we came out of it with a very strong and very controversial then, not so controversial today. Like I said, all of these stories are a lot easier, a lot clearer 10 years later. Then, very controversial decision, that we will focus on microprocessors. First, second, and third. We will put him, I was pointing at you, a microprocessor and everybody else we got to put the best development on microprocessors. And we're going to invest in the best microprocessor factories, in the best microprocessor design tools, and this worked for us.

And over time, our expertise has led to reinforcing a positive feedback, if you wish. The better we became, the more we are able to attract the best people, the more we are able to get the attention of people, other companies, who design development tools that are tuned more for our needs than for somebody else's. So, it has become easier. And we have not merged with anyone. We have not bought a Hollywood studio. We have not done any of these things.

We are a very, very maniacally focused company on microprocessors. That's all. No more to it. We work pretty hard because kind of, like the phrase suggests, we are a pretty paranoid company. We are worried about not any one of them in particular, but in the aggregate we like our business. It's a good business and we intend to sell our product to every socket. And we pursue it like we were a startup fighting for our life. But that's an attitudinal cultural issue.

But in terms of business strategy, the single word is we focus like a laser beam.

URBAN: Just when you have questions, if you could wait for the microphone, then-- there are approximately 150 to 200 people outside this room.

GROVE: Yeah, I was going to take two questions here.

URBAN: Why don't you just have him get the microphone so they can hear the question outside. And then we'll have some questions from outside.

AUDIENCE: I just wanted to ask you about China. And I was wondering if you see that as a strategic inflection point with a number of different things still waiting to evolve with the bids coming around and trying to be a little bit more definite. What do you see as the major challenges in trying to decipher when the noise of China will become a true signal and grow as much as everyone's expecting it to?

GROVE: Do they hear the question outside? OK. With the mic they do. OK.

This is a very complicated issue and I'm going to try to maybe oversimplify it a little bit. But the brief answer to your question is, yes I do. I see China representing a major change in the global business environment. Major change for the industries and commerce in general. Major change for the information technology industry and a major change for Intel. And when you really think about it goes a little bit more, to go a little bit more detail in that. It is not merely that it's 1.2 billion people. It is their population, their market size, their competence, skill and educational level, their ability to focus is awesome.

The influence that China as a country has on Chinese nationals all over the world. The combination of that is an economic force that I think in 10 years time we're going to look back and look at what the exercise that we have had visa vi Japan in the '80s as a fire drill. Outside question.

URBAN: Why don't you take one more here.

GROVE: OK. Who has the mic? OK, we'll take that one. Go ahead.

AUDIENCE: My question is about the new paradigm in the client server business. In a client server paradigm, you don't really need a very powerful microprocessor. And also there is a trend to move towards the lean client, which doesn't necessarily needs a lot of powerful microprocessor, such as the one offered by Intel. My question is, how would you prepare Intel to compete in this kind of new paradigm? Sort of transition, as you say it, from one business core to another?

GROVE: Now the problem I have with questions that state an assumption as an embedded as part of the question, is that I don't know how to answer it except as a hypothetical situation. I do not believe that client server computer, computing, does not require powerful clients. I believe the opposite. I believe furthermore, and the data are plentiful on this, that trends in terms of general competition of trends past, present, or future, put more burden on the clients rather than less burden on the clients.

And just so I don't get trapped in describing a bigger plot or a semi-log plot, terminal emulation, and network connected pieces of today, and network connected pieces with a modern client server application, for instance the stuff that we are using with distributed data entry processes today where most of the execution takes place at the client. But we can extrapolate that and put in distributed objects and the trend on a semi-log plot to our client power just continues on.

So it is the subject we are fairly involved with, but the upshot of it is that I don't see a trend away from that semi-log plot, which is more power to the client at all in the horizon. However, let's take this, suppose that was the case. I would stand on a soapbox and I would get my buddy here and move them into developing thin clients. Because if trends go to our thin clients, I can delay those trends but I can't change them. And the implication would probably be that Intel's business would be a lot less rich, lower margin, et cetera, et cetera. All of those things. But I would want to lead in that lower margin business the same way as I lead in the higher margin business.

URBAN: We'll take one from outside. If Intel is focused on microchips now, what is your bubble of security for the next inflection point and how do you balance focus in a bubble of other directions?

GROVE: Specifically, well you can't question the written. OK.

URBAN: If we had it two way system, we could do this.

GROVE: I can't argue with a written question here. I can't question the written question, so let me tell you my interpretation. What is Intel's next strategic focus going to be given--

URBAN: What's your next inflection point as you see it?

GROVE: We set ourselves-- we kind of drove a stake in the ground in the early part of this decade that the next evolution and development of computing is going to be, I'm looking at Dean Urban as if he had just asked a question, is going to be communication based applications of computing. And we started doing exactly the kind of things that we have talking about. Amassing competencies in that. And it wasn't very clear what the communicating applications were going to be.