Inside Intel. Tim Jackson

new technologies not because it hopes to make money from them directly, but because they can increase overall demand for computers. For instance, Intel developed a piece of software which allowed people to make telephone calls over the Internet – and gave it away, inviting people to download it for free from its web site. No matter that there were other companies trying to sell such software, or that Intel’s new package might threaten an existing line of conferencing products that the company had developed. The point was simply that the new software package gave customers without a PC a new reason to buy one.

      With booming sales and profits, fewer threats on the horizon than for many years, and tens of thousands of employees whose loyalty is assured by the hundreds of thousands of dollars they stand to make from Intel stock options, the company seems almost unassailable. But it has its weaknesses – and they, like its strengths, are intimately tied to the personality of one man. To a greater degree than most outsiders realize, Intel is the personal creation of its chief executive, Andy Grove.

      Andy Grove, a Hungarian refugee who anglicized his name after arriving in the United States by boat in 1956, is one of the most extraordinary figures in American business. He is brilliantly intelligent and articulate, driven, obsessive, neat and disciplined. Intel has been built in his image. The values taught in the company’s private ‘university’ – directness in confronting problems and extreme rationality in approaching management questions – are an extension of Grove’s own personality.

      Andy Grove’s slogan – some have called it ‘Grove’s Law’ – is ‘only the paranoid survive’. Daily life inside Intel follows this maxim to the full. By comparison with Microsoft, the company is almost obsessively secretive. The house joke is that its photocopiers are fed with paper that is already marked ‘Intel Confidential’ at the top of every page. The company also operates a security department whose job is surveillance not only of competitors or thieves that might harm Intel’s interests, but also of the company’s own employees. This department has several times crossed the boundaries of what is considered proper behaviour in US corporate life.

      In a recent book Grove claims to have elevated paranoia to a tool of management. He argues that it helps companies to watch out for dramatic changes in the business environment that faces them – changes that he calls ‘10x forces’ because they are ten times more powerful than the forces normally encountered – and to respond quickly to them. Yet the irony is that Intel’s own record here is patchy at best. The first 10x force facing Intel in its history was the replacement of old-fashioned core memory devices in the computer business with smaller, cheaper, faster integrated circuits. The company responded brilliantly: it recognized the trend, led the change, and grew to become a significant industry player as a reward for its vision.

      Later 10x forces have been recognized more slowly. A case in point is the microprocessor. Although it was Intel that sold the world’s first microprocessor, the company was very slow to see the potential of its creation – only taking it seriously when two of its best engineers left to set up in competition. For years it viewed the device as a component to be used primarily in industrial controls rather than in computers, and it turned down an early suggestion by a team of its own scientists to build the world’s first ‘desktop computer’, and a gift from inventor Gary Kildall of the operating system that could have taken the place of Microsoft’s MS-DOS. But at least the outcome – Intel’s domination of the PC microprocessor business – suggests that little harm was done.

      The same cannot be said for the third 10x force that faced Intel. Towards the end of the 1970s Japanese semiconductor makers started to pose a serious threat to the memory-chip business that had always been Intel’s cash cow. The issue was complicated by roller-coaster market conditions that prompted the Japanese firms to ‘dump’ their products on the American market, selling them not only below the prices they charged in their home market but also well below their manufacturing cost. But the underlying problem, which Grove and Moore refused to face up to, was that Japanese chip companies paid more attention to quality and spent more effort trying to perfect their manufacturing processes than Intel did.

      The result was that the lead that Intel had created in the memory-chip business began to erode – and by the middle of the 1980s the company’s refusal to accept that it needed to go back to school was threatening its very survival. Only when Andy Grove and Gordon Moore asked themselves what they would do if they were a new management brought in to clear up the mess did the solution emerge. Intel pulled out of memory chips, savagely cut back its workforce, and refocused its firepower on microprocessors. This decision, analysed exhaustively in business-school case studies and magazine articles, has been hailed as one of the company’s finest moments. But the praise begs the question of whether Intel could have solved the problem earlier at lower cost. Had Grove responded to the 10x force of Japan more quickly, might Intel today be twice as big and profitable as it is?

      In 1997 it is the Internet that Grove identifies as the most powerful 10x force facing Intel, along with the rest of the computer industry. So far, few fundamental changes to the company and its operations have seemed necessary. While Microsoft has made extensive changes to its applications products and operating systems, basing them on a new vision of working in which almost all information from daily calendars to reports is published and exchanged over computer networks, Intel’s response seems to have been more muted. The company has issued an extension to the instruction set of its processors, called MMX, which allows computers to process sound and pictures more efficiently. It has made some astute venture-capital investments in a number of the more interesting Internet startups. It has helped to push the PC industry towards building computers that cost less and are easier to install and maintain.

      But Intel would look very different in a networked world in which individual users had less computing horsepower and fewer bloated software packages on their desks, relying instead on smaller, simpler and faster pieces of software downloaded across the Internet as needed. In such a world the extensive installed base of software that is compatible with Intel technical standards would be much less of an advantage. Yet the company’s response so far has been to do little more than point out, with some justification, all the shortcomings and flaws in this vision, and to pour cold water on the much-hyped Network Computer promoted by Oracle’s Larry Ellison. It is all too tempting to wonder whether the moment when Intel’s triumph appears sweetest might – like the moment when IBM’s mainframes seemed secure in their domination of the computer business – be the beginning of its downfall.

      As it faces the challenges ahead, Intel has a number of strengths. Its management team, almost entirely developed internally, is extremely strong. Its corporate culture allows the company to set objectives, communicate them swiftly to its workforce, and make a good attempt at achieving them. Its compensation system, which rewards hard work and loyalty with stock options worth millions, but checks underperformance with regular reviews and ‘corrective action’ programmes for laggards, is highly successful in motivating Intel people to give their best. And its lack of hierarchy makes it easier to respond swiftly to change and to make rational decisions.

      But the Intel that Andy Grove has created also has its weaknesses. The company has been plagued by arrogance since its earliest years. It has frequently taken a high-handed approach to its customers, and suffers from the ‘Not Invented Here’ syndrome as badly as many technology companies. Most alarmingly, the company has found it increasingly hard to accept outsiders into its senior ranks. Like transplanted organs, managers brought into Intel from outside have more often been rejected by the patient than absorbed.

      These weaknesses are likely to come into renewed focus when Andy Grove departs from the scene. To many insiders, a post-Grove Intel is still unimaginable. After managing the company’s operations for two decades, and more recently guiding its strategy too, Grove has become almost synonymous with Intel. Yet he passed his sixty-second birthday before this book was published, and had a narrow escape from prostate cancer in 1996.

      In theory, the succession is settled. Craig Barrett, Intel’s chief operating officer, was promoted to the company’s presidency in May 1997. He now officially handles the company’s day-to-day business and is ideally placed to succeed Grove on his retirement. But there must be a question about whether a less forceful, less driven personality than Grove will be able to lead the company with