Strategic Inflection Points: A Case Study

In his book, Only The Paranoid Survive, Andy Grove, former CEO and Chairman of Intel describes a “strategic inflection point”  as being similar to the situation when a hiker on a trail suddenly realizes he is lost. The hiker doesn’t know when he became lost, but something has changed.

The concept of strategic inflection points is perhaps Grove’s most important contribution to high tech management.

In the early 1980’s the Japanese began a coordinated global campaign to displace Intel’s dominance in semiconductor memory.  The Japanese industry effort was coordinated by MITI, the government ministry of industry.  My Intel counterpart in Finland was reporting that the Japanese semiconductor reps were working directly from the Japanese Consulate in Helsinki.  At Intel’s technical center in Tokyo, Intel engineers were besieged with claims of Intel chip performance anomalies, requiring that Intel share complex testing results, known as “schmoo plots,” after the Rube Goldberg cartoon strip. Increasingly this appeared to be a coordinated effort at “reverse engineering.”   The Japanese also appeared to be engaging in an elaborate global pricing scheme designed to confound Intel in markets outside the continental US.

Simultaneously, I became a member of the hand-picked Intel Memory Components Marketing team, just as we relocated the division from California to Oregon.  At the direction of Ed Gelbach, senior Intel Marketing VP, and Andy, we quickly formed into an elite group of Ivy League MBA’s and Intel veterans to attack this Japanese challenge to Intel.  At about the same time, the Japanese challenge so disturbed US government officials that an arranged investment marriage was executed with IBM taking a 15% minority stake in Intel to send a message to the Japanese. The strategic situation was seen as dire.  For a number of years the elite Memory Components Marketing group succeeded in achieving miracles, and confounded the Japanese.  The global Intel Sales organization, repeatedly voted us the #1 marketing group at Intel, though we brought them less commission than other divisions.  Barry Cox, Scott Gibson, Frank Costa (my housemate), Bill Howe, Roy Coppinger, Larry Gordon, Nick Stier, Craig Brooksby, Ray Rund and many others made the difference. I should also give a nod to Tim Sweeney, who is the true “Intel alumni” who preceded those of us who followed him to Intel’s European organization.

Grove has not revealed much about this time, and the internal Intel effort to combat the Japanese, before he and Gordon Moore finally decided to exit the memory business, as a “strategic inflection point.”  NPR recently broadcast an interview with both Gordon and Andy that did not touch on Intel’s efforts to confront the Japanese.

A key factor in this global battle, was the traditional belief that new leading edge semiconductor manufacturing processes needed to be “proved out,”  in high volume memory production, before moving the most advanced microprocessor designs onto the new process.

The first strategic inflection point at Intel occurred when Gordon and Andy famously made the decision to end the memory business. They concluded that high volume memory production was not required to “prove” semiconductor manufacturing processes before putting microprocessors into production, and that Intel could safely exit the memory business, and remain highly competitive.

That is how I remember it.

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