My name is Jim Aisner and I am Director of Media Relations at Harvard Business School. This is the first in a series of podcasts for the school's Working Knowledge Web site.
With me today is Richard Tedlow, a noted business historian on the HBS faculty and the MBA class of 1949 Professor of Business Administration. His latest book (Andy Grove: The Life and Times of an American) is a biography of Andy Grove, a founding father of Intel, which has gone from startup status in 1968, to a ranking of number 49 on the latest Fortune 500 listing. Anyone with a computer is familiar with the phrase "Intel Inside." With this book, professor Tedlow has taken us inside Andy Grove. Richard, it's great to have you with us today.
Aisner: You've written about giants of enterprise in several of your previous books: the Watsons of IBM, Sam Walton, for example. What led you to focus this time on Andy Grove?
Tedlow: Having looked at CEO's, as you mentioned, in other books, and really having studied the phenomenon of the chief executive officer all my professional life, I just think that Andyï¿½s the most interesting one there is. And so the chance to write about him was an opportunity I didn't want to give up.
Q: HBS is famous for field-based research where faculty members go out into the field and observe a company or workers or whatever. This book involved a lot of travel for you, time spent in Silicon Valley. Tell us a little bit about the preparation that went into this biography.
A: Well, there was a lot of travel. I commuted there for a while and I lived in Silicon Valley for fourteen months. Andy was not involved in this book in the following sense: It is not an authorized biography. He did not read a page of it until it came out in the form in which you see it right here. He was not involved in it financially. I sold it to a publisher myself. However, he was very cooperative. He gave me access to his notebooks, which he had kept from July of 1968, which is when Intel was founded, and which he never thought anybody would read. They were kept strictly for himself.
Q: So these had never been seen before?
A: No, that's correct. And he also gave me access to his Rolodex, which meant that I was able to get literally dozens of interviews with people whom it would have otherwise difficult to get an interview. I also had a cubicle at Intel in Santa Clara for fourteen months, and I also visited some of their sites including their fabrication facilities, which are incredible manufacturing operations.
Q: So you really immersed yourself in Silicon Valley for quite a while.
A: Very much so. I ate it, I breathed it, I literally lived it for the period during which this book was being written.
Q: Andy lives in Silicon Valley but he was born far away from Silicon Valley in Hungary in 1936. He came to this country about fifty years ago. How did he get here? Where did he go? Give us a little bit of background.
A: Andy was born on the wrong side of history. He was born on September 2, 1936 in Budapest. He's of Jewish origin—non-practicing. Nevertheless to be a Jew in Hungary, whether observant or not, the Nazis didn't make those distinctions. And in fact hundreds of thousands of Hungarian Jews died in Auschwitz. His father's mother, for example, as well as some of the relatives of his wife Eva, a Viennese Jew. And they lost a number of other relatives, they're not sure whether it was on the Eastern Front or in a prisoner of war camp or what have you.
So the first almost decade of his life, certainly during the Nazi period, he was literally a hunted child. His mother took him away from Budapest. They hid out in a cellar in a hovel in a suburb of Budapest called Kobanya, where his mother was raped by invading Russian soldiers. He was lucky enough to return to his home on Kiraly Street on the Pest side of Budapest and he then had to endure a Soviet Communist regime from 1945, when the Russians forced the Germans out of Budapest after a lengthy and very destructive siege, until 1956 when the short-lived Hungarian Revolt led to an open border between Austria and Hungary, and he made for the border.
Q: So this was not an easy childhood.
A: It was an extremely difficult childhood although not an unhappy one. It was a close-knit family group. His father and mother loved one another and they loved him and he loved them. He did very well in school and got a great deal of pleasure out of that. It really wasn't, I don't believe, until he finally got to the University of Budapest, which was shortly before he escaped, that he began to make gentile friends, close gentile friends. But no, it was extremely difficult.
What was actually happening in this man's life when he was a child was a life and death matter in the most literal sense. We're not talking about the life and death of a firm. We're talking about the physical survival of a human being and of his parents and of their extended family. That was at risk for a large part of the first two decades of his life.
Q: You spend a lot of time in the book talking about all of this—the impact of these early years on his middle and later years.
A: The child is the father of the man and, you know, Andy Grove is the last CEO who will ever have grown up under both Nazism, Fascism in other words … and Communism. And somehow in this strange brew, you take Nazism, add it to Communism, divide by two and wind up with one of the most important capitalists in American business history. So because of its very distinctiveness, it sets a lot of what it means to be a businessperson in sharp focus, and we're able to see it, illustrate it, through his life.
His experience in Hungary became a how-not-to-do at university. You can look at Intel and Intel culture under Andy Grove as the opposite of a great deal of what he experienced in Hungary. I went back to Budapest myself. He's never gone back to Hungary. I did go to Budapest. I went to his apartment and sent him an e-mail from there because I felt it was important to do so.
Q: One of the most important capitalists of the century, I think you said. And in the book you put him in the company of Steve Jobs and Bill Gates. Why do you think Andy Grove is in that triumvirate?
A: I believe that Steve Jobs, Andy Grove, and Bill Gates are the three people who put a computer on everybody's desk.
Q: We'll segue a little bit into him as a manager. He was a highly trained engineer. First in his class at City College of New York. Ph.D. from Berkeley. But you say in the book that he was also a natural leader. That he was blessed with management skills, which he honed to a very fine point. What were some of the management principles that made him such a success story?
A: Well, let me, if I may, go back to the beginning of your statement and then move on. It's noteworthy that he was educated at public universities. There was no tuition at CCNY, City College of New York.
Q: And he was penniless when he came.
A: He came here with nothing but the shirt on his back. He literally crawled out of Hungary. He left his parents on a street corner. There couldn't be a demonstration of affection because the Russians would think, gee, is this one making for the border? You didn't know whether you were going to get across the border or not. There was no Internet to give you border conditions that day. So by the time he gets here, which is almost fifty years ago to the day, it was December 7, 1956. He starts at City College almost immediately in January of 1957. He had to go to City College because he didn't have any money. Then he went to Berkeley, also a public institution, because they didn't have any money. … That's worth noting. Andy, in his philanthropy, has been very focused on giving back.
As far as his management principles … Intel developed under Andy Grove a set of principles, a culture, which is extremely strong and remains extremely strong to this day [and was] with him certainly during the period in which he was CEO from 1987 to 1998, when its market capitalization increased 4,500 percent from about $4 billion to about $197 billion. The sense of, as they say at Intel, of bleeding blue.
Q: An Intel way.
A: Yes. Oh, very much so, there was an Intel way. They had their own language. They have at Intel something called the TLA. TLA is a three-letter acronym for Three Letter Acronym. If somebody says to you, "That was BKM"—you don't know what that means, do you?
Q: Not at the moment.
A: It means Best Known Method. And fortunately there is a dictionary of TLAs at Intel. There are over 1,150 of them.
Q: A dictionary to get you through.
A: Yes. Like any strong culture, Harvard Business School, for example, strong cultures have their defects and their virtues. But let's talk about their virtues first. Andy, in constructing Intel culture—I don't think he did this purposely or consciously—but it's turning Hungary on its head. For example, one of the tenants of Intel culture is knowledge power, not position power. It's what you know and what you can contribute, not what your title is or where you are in the organization that matters. Contrast that with what, in the old days—you and I are old enough to remember Soviet Communism when Kremlinologists would take a look at who's standing on the Kremlin Wall.
Q: There's a pecking order there.
A: Right. And they would try to decode who has power by literally seeing where they were standing. That didn't matter to him. To him it was a question of what you knew, not who you were. He believed that the heart of a corporation was its middle management, because he felt that there are Darwinian aspects to his beliefs and if you are in top management, that's because you were very good at something 10 years ago or 15 years ago, or 20 years ago. Maybe not today.
Whereas middle management is actually out there on the front lines. It's middle management, especially salespeople, who, if a sale is lost, they feel it in their pocketbook or in their wallet right away. If you listen to those people, you're not buffered by being at the home office.
If you've got bright middle management willing to—and this is another part of Intel culture—constructively confront you and your suppositions and your assumptions and the suppositions and the assumptions of the whole firm, you've got eyes and ears all over the country, all over the world, that give you a competitive edge.
So these are all parts of Intel culture. Disagree and then commit. In other words, we'll listen to you. Let chaos reign and then reign in chaos. In other words, get as many ideas as you can—but once you do, come to a decision and create what Andy the engineer calls a strategy vector. For him it was "The PC is it" in the late 1980s and that's what made Intel, Intel. Get everybody behind it.
Another part of Intel culture: We argue specifically over principles or over proposals or over issues, not over the people who propose them. And therefore you're going to be heard. The issues are going to be heard. But if your side loses, you disagree and then commit. Once again this is very different from Hungary where you're stapled to the idea that you're holding onto, and during the Soviet era, for example, if you're holding onto the wrong idea it's worth your life.
Q: This is all the overhang from his youth that we were talking about earlier.
A: In my opinion. I'm not trying to be amateur psychiatrist. If you just read about his early life, it slaps you in the face. I don't believe this point's been made elsewhere. But as his biographer I'm telling you something I believe.
This set of principles—constructive confrontation, disagree and then commit, knowledge power not position power, put common sense on a pedestal, let chaos reign and reign in chaos—these are all parts of Intel culture that helped make that company work as well as it has.
Q: You mentioned his three management books, all highly regarded. In Only the Paranoid Survive he has this concept of the strategic inflection point. What is that all about?
A: Let me once again back up for a moment if you'll permit me and say something about his writing. Andy's written dozens and dozens of articles for refereed journals. He was tenurable as a chemical engineer at any major university anywhere in the world in his early thirties. He also wrote a textbook called Physics and Technology of Semiconductor Devices, which was widely adopted and widely praised. Andy has written six books. One of these books is a casebook coauthored with his long-time colleague at the Stanford Graduate School of Business, Robert Burgelman …
As a matter of fact, he's written an enormous amount. I don't think there's another CEO in American business history who has this kind of written output. It's unthinkable that he would have a ghostwriter, and there's only one of these six books that's coauthored and that's the casebook, which is Strategic Dynamics.
High Output Management is a book that's gone through at least two editions. It's a book people still refer to, originally published in '83, republished in '95. Only the Paranoid Survive is his signature phrase, if you will, and a book in which he introduces the idea of strategic inflection points. The basic idea of the strategic inflection point is that companies come to basically a turning point. If you think of their arc, they're going like this. And they can either then go off into the stratosphere…
Q: Or head south.
A: Or head south. It reminds me of the old Civil War hymn: "Once to every man and nation comes the moment to decide, in the strife of truth with falsehood, for the good or evil side." You've got to make the right decision at that moment. And if you do, you're going to go off to the stratosphere. In other words, there do come key strategic inflection points and they're very hard to decode. It's hard to do this right especially in a tech world.
Q: Let me go back to strategic inflection point. He and his colleagues at Intel faced a number of situations where they literally, it seems to me, bet the company, changed its direction to keep it going up. In the mid '80s with the Japanese coming into the market with very cheap memory chips.
A: They were inexpensive … but of high quality.
Q: Very fine point. There were other moments when, as you just said, they decided that the future of the company lay with the PC. There were alliances down the road with IBM and Microsoft. So could you elaborate a little bit on some of those?
A: Well, there were some key moments where they had to make key decisions. They had to get out of the memory business because they couldn't compete against the Japanese. And the device—
Q: This was in the '80s, the mid-'80s.
A: This was in '80 —it took three years … took a long time. And it was very difficult because they were the memory company … If you look at the first ten years of their history as a public company, they did fantastically well. So the thought of no longer being the memory company was extremely difficult for them to take and they were very emotionally caught up in this.
At one memorable moment, a key moment in the history of that company, Andy Grove is talking to his boss, Gordon Moore, and they're looking out the window at the Great America Amusement Park, which you can see from their cubicles on the fifth floor of the Robert Noyce Building in Santa Clara. And Andy looks at Gordon and says, "If the board should kick us out and bring in new management, what do you think the new management would do?" And Gordon answers immediately, "Get us out of memories." Andy then says, "Why don't we walk through the revolving doors, come back in, and do it ourselves?" That's a very important moment.
Why? Because Andy is able to use a device that gets him away from the legacy [in memories]. I believe it was Stephen Dedalus—I could be wrong—in Ulysses who says, "History is a nightmare from which I'm trying to awake." The domestic automobile companies never had this device and they're suffering from that reality as we speak. Legacy costs is all you hear from those folks. Andy was able to abstract himself from this and look at it as if there were no legacy, and also the emotion that came with it. So if you take that out and you look at the reality, it's an easy decision. So he made that decision along with Gordon Moore and they got out of the memory business.
Now another very important decision that was taken at the same time was to sole source the 386. Intel had a series of microprocessors. The microprocessor is the central processing unit. It is the most important piece of hardware in your computer. If it says Intel Inside, that's what's inside that matters. There was an 8086; there was an 8186, which had a very brief history. There was the 8286. IBM, which was the king of the industry, always insisted that there be multiple sources. The excuse for this was that in case something went wrong with your fabrication facilities, we'd be able to source from somebody else. But the real truth behind it was they wanted price competition.
So with the 386 … Andy was convinced that we have a device here that is very special, it took us a lot to develop. He said we're going to sole source it—and that was a bet-the-company decision. He was very worried that IBM wasn't going to adopt it. And if it didn't, they're your biggest customer, they're a million times your size. What's going to happen?
In fact IBM didn't adopt it immediately. But by then [IBM PC] clones were around and Compaq adopted it first. That was the Compaq DeskPro 386. And after Compaq adopted it, IBM had no choice, and that made Intel an independent company. As of that moment IBM lost control of that industry. Basically, the industry from then on was driven by Wintel—the Microsoft-Intel duopoly.
Q: Now, you just mentioned that Andy has this ability to pull back and that helps him make these decisions. But he is human and he has made some mistakes. Probably the most famous one would have been the Pentium chip incident. What went wrong there?
A: What happened was that under certain circumstances, the Pentium did not perform. There was a flaw. There was a floating-point flaw in the Pentium chip.
Q: And when this happened, what did he do that wasn't quite right?
A: Well, Andy allowed himself, in my opinion, to lose that magical ability to say if new management were to come in, what would they do, or what have you. He believed too much in the product. He fell in love with the product and forgot about the customer. Something else very important happened to the company from 1990 on—the Intel Inside program had reached directly out to the consumer.
So Andy, who grew up as an engineer, selling to engineers at IBM, at Compaq … he didn't realize that a brand is co-created. It's not just a company that creates it. It's also the customer. He was not able to look at the world through the customer's eyes. He kept saying this is a problem that's going to recur once every 27,000 times. It's a non-problem. We have specifications for when we have product recalls; this reaches none of them.
That was all irrelevant. He was dealing in the world of perceptions. That's what mattered. And he was dealing in the world of the Internet.
This was one of the earliest times when something took off through the Internet, was out of control of everybody. Andy was finally forced, against his will, to acknowledge that this is a problem and they wound up having to take a very large write-off and promised to replace anybody's Pentium who wanted it replaced. A lot of the story of Andy's success is point of view, and this was one time where he was not able to get outside of himself and adopt a different point of view.
Q: What do you think is his definition of leadership?
A: Andy's very suspicious of the word leadership. The subtitle of the book is The Life and Times of an American, and Andy would not have liked it, I can absolutely guarantee you, if it had been called The Life and Times of an American Leader. The reason that he's suspicious of it is because if you take 1,000 MBA students, for example, and said to those 1,000 MBA students, "Would you rather be a leader or a manager?" they'd all choose leader.
Andy came up the hard way in an industry producing products that were so demanding that the slightest error would throw off a whole batch and cost a fortune… Andy was the one who had to do the managing and he has a great deal of respect for execution.
One of his books is High Output Management. There is no book High Output Leadership. He's more than a little suspicious of charisma, and his view of management and leadership basically is, you're running a company and most of that is management. But when leadership is called for, whatever that may be, there are a million different definitions of it. It's transformational as opposed to transactional, etc., etc. You play the role of leader if that's what the company needs of you.
His own analogy is to a tennis player. A tennis player has a backhand and a forehand. You're a manager when you need to manage. You're a leader when you need to lead. To be a successful business executive at the top, you need both.
Q: This is a good way to segue perhaps into a specific situation. We're talking about charismatic or lack of charismatic leadership. Hewlett-Packard has been in the news lately. Serious problems there with the board and elsewhere. How do you think he might have handled a situation like that?
A: I think it depends on what point in time you're talking about. I don't believe that if Andy had been the chairman of HP five, six years ago, say, the situation would have developed. I don't believe the particular cast of characters that wound up turning the HP board into a train wreck would have been assembled. Now, Andy does have a special talent in getting people who don't like one another very much to work together. But that board was too far gone. The interpersonal conflict was just too great. I think he wouldn't have allowed it to develop.
Q: Finally, Grove is now a senior advisor to Intel, but beyond that, what is he doing?
A: Right now he's a man with a mission in healthcare. He believes that technology can do an enormous amount to cut healthcare costs. He believes there are technological solutions, not to every healthcare problem, but certainly to some of them, that can cut costs.
Q: And his work on prostate cancer is well known from the Fortune magazine article. [Grove's article described his own battle with prostate cancer. -ed.]
A: He's also very concerned with Parkinson's disease, which he in fact does have. But with the healthcare system in general, he believes technology is not the answer to everything … but it can fix a lot. And a lot more can be done than is being done and he's a crusader on that issue.
Q: Well, an amazing man and an insightful book. We appreciate your being here.
A: Well, Jim, thank you very much and I appreciate your having me.