About life in the last third

Thinking Outside the Coffin

There is a famous saying, “think outside the box.” It means not thinking traditionally. Some people (I am one) are described as people who can think outside the box. Generally, it is thought of as a positive trait in the abstract, but it is often discouraged in reality.

I call this kind of thinking “thinking outside of the coffin.” Individuals and organizations tend to lose flexibility over time. Their strengths become their weaknesses. The ways that have worked in the past become ingrained. Things that were tried before and failed are rejected in the future, even though the circumstances that caused their failure may have changed. Success reinforces the current model, which is great until a change is needed because of new technology, competitors, and markets. Then the organization or individual might be too rigid to respond.

I observed this firsthand and up close at Intel when I served as Vice President of Corporate Development. I viewed my task at Intel as being a disrupter. My role was to offer a divergent view of the future, which meant a divergent view of the company’s actions in the present. At this time, Andy Grove, the CEO of Intel, believed it was essential to have someone who looked at things differently. That is why he called me Intel’s Wild Duck, a term I adopted in my book, The Flight of a Wild Duck. But while Andy appreciated the need for someone to think outside of the box, he had difficulty accepting the things I had to say. It was so hard for him to imagine at a point where Intel was one of the most successful companies of all time, that the future would bring it significant challenges.  It is also pretty astonishing that Andy himself warned about this in his excellent book, Only the Paranoid Survive but then later ignored that concept.

One evening, I had a conversation with Andy, although it would probably be more accurate to describe it as an argument. It took place at a social event, a party given by one of the other Intel executives. I told Andy that for years, at such social events, I would hear people boasting about the new personal computer they bought and how fast it was. But now I was hearing people brag about how cheap their new computer was. I also started to see the price and capabilities of computer monitors was increasing and realized that consumers were exchange computer performance for display size and resolution.

Intel’s business model back then was based on the notion that people would spend about $2,000 in total for a new computer system. The most crucial aspect of such a new system was the computer’s power, derived from the microprocessor. But as computer systems became more capable, other factors beyond raw computing power started to play significant roles ever. Having a large screen had more impact than having the processor run faster. Having a fast connection to online services and eventually, the Internet became increasingly desirable. So in this discussion, I told Andy Grove that it was not the semi-conductor company, AMD, that was Intel’s competitor; it was the monitor. People would trade-off processor performance for a better display.

I think Andy did hear me and was disturbed by what I was saying but then rejected the implications. After all, Intel had designed its business by pushing the highest possible performance for its processors. This required significant and continuous investment in process technology, factories, and design. Therefore, the change in consumer behavior I was describing would significantly impact the company’s business model and would require a difficult response.

Years later, Steve Jobs, then the CEO of Apple, approached Paul Otellini, the CEO of Intel. Apple was using Intel processors for their desktop and mobile computers. Jobs was developing the iPhone and wanted Intel to manufacture the microprocessor, which was of Apple’s design. The term for manufacturing someone else design is a ‘foundry’;;;;. Typically foundries work on minimal gross margins. Otellini turned Jobs down. This was one of the worst, if not the worst, decisions that any CEO of Intel would take. But Otellini did not think the mobile phone business would be that important, and if it did become significant, it would be based on Microsoft software and Intel processors. So Apple turned to Taiwan Semi-Conductor to manufacture the processors for the iPhone. 

Intel is not alone in ending up in a coffin. This is the fate of most successful companies. Is the “coffin” preventable? This is a subject for which I have given a great deal of thought.

While I am not a fan of Facebook now being renamed Meta, the name I will use going forward. I think it may be an example of how to cope with these kind of discontinuities.  Meta owns Facebook but also Instagram which it wisely acquired.  The Instagram users tend to be younger and don’t like Facebook.  Meta also owns WhatsApp but its Facebook group has a competing message service.  Meta is able to use a loot of common infrastructure and is getting scale economies but is also able to segment the market.  It could have tried to have one business, Facebook try to have all the features and capture all the market but that would have left a big opening for other competitors.  

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