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Best of the Best: Inside Andy Grove's Leadership at Intel

From the book Lasting Leadership: What You Can Learn from the Top 25 Business People of our Times, this chapter describes Andy Grove, the Intel CEO who forged the company through fire and setbacks into the powerhouse that it is today.
This chapter is from the book

When Andrew S. Grove was a student of engineering at New York's City College in the mid-1950s, he faced a problem. The one-year scholarship he received as a Hungarian refugee was about to run out, and to speed up his graduation, he needed to take courses in the chemical engineering department. The chairman, Professor Al Xavier Schmidt, taught a crucial course—Chem E 128. Unable to schedule an appointment with Schmidt, Grove, then a young man of 20, waited outside the classroom one day and seized his chance to present his case to the formidable professor.

As Grove spoke, Schmidt, a short man with a fierce moustache, fixed his eyes on the nervous student and subjected him to an interrogation. "He cross-examined me on the spot," Grove recalls. "He asked me about my courses, who I took them from, and my grades." Schmidt apparently liked Grove's replies—he had failed one exam in physics but got an A in the subject the next time—and admitted him to his course. "He was testing me, testing my background," says Grove.

That incident was an early example of a pattern that appears frequently in Grove's life—converting a negative situation into a positive one through resourcefulness. As chairman and former CEO of Intel, a company he co-founded in 1968, Grove has repeatedly faced setbacks during the past 35 years but found ways to turn them into stepping stones. In the process, with Grove at its helm, Intel has grown into the world's largest chipmaker, with 78,000 employees and more than $30 billion in annual revenues in 2003.

That, in itself, is not unusual. Many companies and leaders profiled in this book have seen remarkable success during the past 25 years. Still, Intel occupies a special place among them. As the company that introduced the world's first microprocessor in 1971, Intel has played a seminal role in the evolution of modern computing. It is impossible to conceive of today's global, networked economy without Intel, or to imagine Intel without Andy Grove. As this chapter shows, Grove's life and career consistently reveal his imagination, resolution, and integrity. That is why his leadership has lasted as long as it has.

This book argues that lasting leadership results from individuals possessing—and cultivating—certain qualities and combinations of attributes. While all the leaders featured here have some of these attributes, Grove stands out because he has personified so many of them in specific ways over a span of nearly 50 years.

Inspired by Schmidt, Grove developed a leadership style based on truth-telling. At a time when Intel was facing a crisis of mammoth proportions—triggered by Japanese inroads into the company's core market of memory chips in the mid 1980s—he discovered an underserved market and rejuvenated the business. A decade later, confronted by another severe disaster involving a flaw in its Pentium microprocessors, Grove was forced to recognize how market conditions had changed. He was able to build the Intel brand (through the famous "Intel Inside" campaign) and used his savvy in managing risk to steer the company clear of antitrust regulators. Above all, Grove espoused and upheld values that have given Intel its unique corporate culture, or what he calls its "very strong immune system."

A business leader who combines all these attributes and deploys them consistently over his or her life is not just rare; he or she is unique. That is why Wharton and Nightly Business Report named Andy Grove "most influential" among the Top 25 leaders profiled in this book. The attributes that make him special, however, are not unique; they are available to everyone. Learning how to nurture these qualities in yourself will not turn you into Andy Grove. It may, however, make you a better leader.

Andrew S. Grove

The Challenge: Dealing with the Pentium Flaw Debacle

Ask Andy Grove, chairman of Intel, about his toughest business challenge, and a pensive look appears in his piercing blue eyes. Two situations vie for the position. One is the time when Intel almost went under during the mid-1980s as a result of fierce competition from Japanese chipmakers. The second crisis—which is highlighted in this section—came a decade later, when the company was slammed by its customers and the media for a flaw in its Pentium microprocessors. The flaw eventually led to large-scale product replacements and ended with Intel taking a $475 million write-off. "The net present value of the pain involved is hard to compare," Grove says in his precise voice. "They both tore me up. It seems that the more recent one tore me up more, but that may be because it is more recent."

It happened in the fall of 1994. At that time Intel, which had $10 billion in annual revenues, was already the world's largest chipmaker. The company was busy preparing for the launch of the Pentium, its latest generation microprocessor—an operation that involved a heavy-duty manufacturing effort and a massive advertising campaign. As optimism about Intel's prospects increased, the company's stock soared. In the last week of November, it traded in the high 60s after a Merrill Lynch analyst predicted a big increase in fourth-quarter sales.

Under the radar screen, however, trouble was brewing. Several weeks earlier, discussions had begun in various Internet newsgroups about a flaw in the Pentium's floating point unit, the part of the chip that handles advanced number-crunching. Intel executives, including Grove, didn't pay much attention. They were aware of the flaw and, after a thorough examination, concluded that it was insignificant. According to Grove, the design error "caused a rounding error in division once every nine billion times." This meant "that an average spreadsheet user would run into the problem only once every 27,000 years of spreadsheet use."

Soon, however, the online discussion caught the attention of trade publications, which started writing about it. Matters came to a boil on November 22, 1994, the Tuesday before Thanksgiving. A CNN crew showed up at Intel's headquarters in Santa Clara, California, and the next day, the cable news channel aired a nasty piece about the Pentium flaw. Soon the story began to appear in other publications in the U.S., and then in other parts of the world. For example, The New York Times ran an article titled, "Flaw Undermines Accuracy of Pentium Chips." Customers, too, were up in arms, because news reports said Intel had already shipped two million computers with Pentium chips. Says Grove, "We had a daily monitor of incoming nasty calls, of customer complaints."

Grove's reaction, as usual, was to set the record straight. On Thanksgiving Day, he wrote a memo and posted it on the Internet, identifying himself as the CEO of Intel, and pointing out that while the floating-point unit did have an error, it would only affect "users of the Pentium processor who are engaged in heavy-duty scientific/floating-point calculations." Much to his amazement, not only did people pooh-pooh his arguments about the Pentium flaw, but they also didn't believe that he had written the memo. "There was a huge amount of discourse on the web claiming that it wasn't I who had written it," Grove says. "I typed the f***ing thing with my own two fingers [but] nobody believed what it said, and nobody believed that I wrote it. Everything I said in it was true, and I wrote it. I was shocked."

Outraged customers began demanding replacement chips for their computers. Sticking to Grove's policy of insisting that the error was minor, Intel initially resisted replacing the chips unless the customers could establish that the chips would be used for advanced math calculations. As Information Week wrote in an article titled, "Intel to Users: 'Humbug!'," "Users, upon reaching Intel's 800 number, apparently go through a lengthy interview process to see if Intel deems them worthy of receiving a corrected chip. If you can't convince Intel that you may encounter the bug in daily life, you just don't make the cut." Soon, jokes ridiculing Intel were making the rounds on the Internet, including a top-ten list of reasons to buy a Pentium machine. "Reason number 10.0000001: Your current computer is too accurate."

By December, the volume of complaints declined a little, and Grove began to feel optimistic that the worst might be over. Unexpectedly, another blow fell. Grove arrived at his office one Monday to find a message with a news flash on his desk. It said, simply, that IBM had stopped shipments of all Pentium-based machines. According to Grove, "All hell broke loose again...The phones started ringing furiously from all quarters. The call volume to our hotline skyrocketed. Our other customers wanted to know what was going on. And their tone, which had been quite constructive the week before, became confused and anxious. We were back on the defensive again in a major way."

Why did Intel respond to the Pentium flaw crisis the way it did, in a manner that one observer called "a textbook example of how not to handle a delicate situation"? In part, it followed from Grove's approach, modeled as it was after his former chemistry professor's tough, no-nonsense style of stating the facts and refusing to bow before pressure. In retrospect, says Grove, he thinks he "mishandled the floating-point debacle about as badly as possible. By the way, Schmidt probably cheered me on as I mishandled that situation. I stuck with the facts and told our customers to get with it." It was apparent, however, that Grove's "Schmidt approach," while it may have worked in previous situations, was not only ineffective during the Pentium flaw crisis but was making matters worse. Eventually, "after a number of days of struggling against the tide of public opinion, of dealing with the phone calls and the abusive editorials, it became clear that we had to make a major change," according to Grove. When this realization sank in, Intel reversed its policy. The company announced it would replace anyone's chip who wanted it replaced. It set up a huge operation to answer customer phone calls—staffing it initially with volunteers who wanted to help cope with the disaster. Ultimately, as Intel replaced hundreds of thousands of chips, the crisis passed. When it ended, Intel had to take a $475 million bath. "It was the equivalent of half a year's R&D budget, or five years' worth of the Pentium processor's advertising spending," says Grove.

While Grove's "Schmidt-style" response may have aggravated the Pentium flaw crisis, it alone was not responsible for the way he dealt with it. As he explained two years later in his book Only the Paranoid Survive, Intel at that time was going through a "strategic inflection point," or a key turning point, when the rules by which the company did business changed.

The rules changed, ironically, because of the success of another initiative, the "Intel Inside" marketing campaign. During its relatively brief history, Intel had pioneered the development of innovative memory chips and microprocessors. It had set the standards for its products and marketed them to computer makers (rather than computer users). "Whatever problems we had in the past, we used to handle with the computer manufacturers, engineer to engineer, in conference rooms with blackboards, based on data analyses." A few years before the Pentium crisis hit, however, Intel had embarked on an aggressive marketing campaign to build the Intel brand. Its "Intel Inside" slogan was plastered on billboards, appeared in TV commercials, and, in China, even on bicycle reflectors. By the time the campaign ended, Intel had become a world-famous brand with international name recognition.

As a result, when the Pentium crisis hit, the customers who were concerned were not just engineers (who might have understood why a minor design flaw was not a big deal) but millions of non-technical folks who didn't give a hoot about intricate mathematical arguments. They just knew they wanted an accurate chip to replace a flawed one. Grove was still trying to communicate about product standards according to the old rules, without realizing that as a result of its marketing campaign, Intel's customer base had fundamentally changed. Intel was no longer an industrial products company; it had evolved into a mass consumer products company.

Another factor, Grove realized in retrospect, was also at work. He still thought of Intel as an innovative start-up, but the external view of the company was that it had grown into a global IT giant. As such, when thousands of customers thought Intel was not responding to their complaints about the Pentium's flaw, they lambasted it as they might any insensitive big-business mega-corporation. Here, too, Grove's perception of Intel was at odds with that of its customers.

That disconnect was brought home strongly to Grove after Christmas 1994. One Sunday, Grove was speaking to Dennis Carter, Intel's head of marketing, about having survived the crisis. Carter said, "I'm glad you called, because I have drawn completely the opposite conclusion. We may have survived, but it was shocking how little public goodwill there was for us to tap into. It was as if the public was just waiting for us to stumble." Carter argued that "Intel would have to change its approach to business dramatically: It would have to court its public, be sensitive to the needs of vast numbers of customers, and build equity of goodwill."

Grove was livid. "I told him to go f*** himself," he says. "I didn't have the patience to listen to bullshit like this. Again, Schmidt probably cheered me on. We talked for hours. I was standing in front of the kitchen phone. And as usually was the case when Dennis and I fought, Dennis won." Intel had learned its lesson: It implemented several actions to win back the public's trust and confidence. Eventually it won a spot on Fortune magazine's list of most admired companies.

Grove's experience shows that when faced with a challenge of such enormous magnitude, just being a truth teller may not be enough; it is equally important to be a fast learner, recognizing how the rules of the game have changed and adapting to the new realities. Grove, with some help from his colleagues, was able to do just that. "So, did I learn? Yeah," he says. "But did I learn from the incident? Hell, no."

1936: Born in Budapest, Hungary, on September 2 and named Andris Grof. The secular Jewish family is modestly prosperous; his father, George, is a dairyman; his mother, Maria, a book-keeping clerk.

1938: The Grof family moves to the commercially vibrant Pest section of Budapest where George Grof expands the dairy business.

1940: An acute attack of scarlet fever nearly kills four-year-old Andris. The illness leaves him almost completely deaf for years, until surgery finally corrects the problem.

1942: George Grof is drafted into a work brigade in the Hungarian army, and he disappears for three years. During World War II, as Jews in Hungary are being rounded up, young Andris and his mother go into hiding, changing their name to Malesevics and moving in with Christian acquaintances.

1950: At age 14, he aspires to become a journalist and is a reporter for the youth newspaper, which is under the influence of the government. After a relative is imprisoned without trial, the newspaper stops publishing Andris's articles. The experience turns him off journalism. "I was crushed as only a slighted adolescent can be," he later writes. "I did not want a profession in which a totally subjective evaluation, easily colored by political considerations, could decide the merits of my work." He turns from journalism to science.

1956: In December, as Soviet tanks crush Hungary's October rebellion, Andris and a friend escape from Hungary, initially crossing the border into Austria and then sailing to the U.S. The International Rescue Committee, a relief organization, helps bring him from Vienna to New York City. Later he Americanizes his name to Andrew Grove.

1956: Enters City College of New York to study engineering. Meets Professor Al Xavier Schmidt, chairman of the Chemical Engineering department, who gives Grove a job and becomes his mentor.

1958: Marries Eva Kaston in New York; he had met her the previous year while working as a busboy at a holiday resort in New Hampshire where she worked as a waitress.

1960: Graduates from the City College of New York with a bachelor's degree in chemical engineering. Knowing that Grove loves America but hates New York, a professor suggests Grove might prefer California.

1963: Completes his Ph.D. at the University of California at Berkeley.

1963: Joins the research and development laboratory of Fairchild Semiconductor. Founded in 1957, the company initially started out making transistors for IBM and other customers, but the company became well known after researcher Robert Noyce co-invented the integrated chip in 1959.

1967: Becomes assistant director of R&D at Fairchild Semiconductor, working under Gordon Moore, one of the top chemists of the century.

1967: Publishes his first book, Physics and Technology of Semiconductor Devices. It is widely used in schools and colleges.

1968: Co-founds Intel—short for Integrated Electronics—with Moore and Noyce. The company initially focuses on making integrated chips.

1971: Researchers at Intel invent a new kind of integrated chip, the microprocessor, which can be programmed to do calculations. This allows microprocessors to become the "brains" of a computer. The 4004, a four-bit silicon chip, packs as much computing power as the ENIAC, the world's first electronic computer—which filled a room—in a chip smaller than a thumbnail.

1972: Intel develops an eight-bit microprocessor, the 8008, with twice the power of the 4004.

1976: Intel researchers create the Multibus, a mechanism that makes it possible to interconnect large numbers of microprocessors. This innovation is used to develop products such as automatic teller machines.

1979: Grove becomes president of Intel.

1983: His book, High Output Management, is published. The book is translated into 11 languages.

1987: Becomes CEO of Intel; G.P. Putnam's Sons publishes One-on-One with Andy Grove. Grove is a "Dear Abby of the Workplace," offering business advice as a columnist for Knight Ridder.

1994: Controversy explodes around Intel as it releases flawed Pentium chips; after initially saying the problem is minor, Intel changes direction and agrees to spend $475 million to replace the flawed chips.

1994: In December, Grove's doctors diagnose cancer of the prostate. He reads all the research he can find on the subject and decides upon his own treatment.

1996: Only the Paranoid Survive: How to Survive the Crisis Points That Threaten Every Company is published by Currency/Doubleday. In this book, Grove explains his concept of strategic inflection points—make-or-break situations that bring about a sea change in an industry—with examples from Intel's experience. Forbes magazine calls it "probably the best book on business written by a business person since Alfred Sloan's My Years with General Motors."

1997: Becomes chairman and CEO of Intel.

1997: Time magazine names Grove "Man of the Year."

1998: Steps down as CEO but remains chairman; named "Distinguished Executive of the Year" by the Academy of Management.

2001: In November, Swimming Across: A Memoir, is published. The book is an account of the first 20 years of Grove's life, beginning with his childhood in Hungary up until his move to California. Grove tells media host Charlie Rose that he did it mainly for his grandchildren.

2004: Grove is named the "most influential" business leader of the past 25 years by Wharton and Nightly Business Report.

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