Chapter 5: Prepare the Organization for Drastic Change

Overview

Most companies don't die because they are wrong; most die because they don't commit themselves. They fritter away their momentum and their valuable resources while attempting to make a decision. The greater danger is in standing still.

—ANDY GROVE, cofounder and former CEO, Intel

I submit that all businesses, whether they are bricks origin or clicks origin, are today at a point of choice, such as a strategic inflection point and, depending on their embrace of the two elements.... They'll either write new competitive strategies or they'll be marginalized.

—ANDY GROVE

In the seat of the CEO: You are the CEO of a midsized, publicly traded pharmaceutical maker based in the Midwest. While your firm produces more than 100 different drugs, it has become increasingly dependent on its runaway best-selling product, one of the top cholesterol-reducing drugs in the industry.

The drug, which last year enjoyed a 60 percent market share, is responsible for 80 percent of the company's profits. However, its share has fallen dramatically, as has investor confidence in your firm. The firm's stock price has plummeted approximately 50 percent from its recent highs, and with the stock slide, you have gone from hero to goat. Half a dozen Wall Street analysts have downgraded your stock, and the board is all over you, demanding to know what you intend to do about it.

What's behind the precipitous drop in market share? A supplement manufacturer (a company that was not even on your competitive radar screen) has produced a new supplement that has threatened your hold on the market. The new supplement contains antioxidants, garlic, ginger, and other curative herbs, and it appears to reduce cholesterol in middle-aged men and women without the side effects of drugs. To make matters worse, the retail price of the supplement is less than half the price of your fading star, and it requires no prescription.

Although you had heard talk about the therapeutic effects of herbs in reducing cholesterol, your key researchers advised you not to "concern yourself" with such alternatives. They agreed (as did your key managers) that garlic, supplements, and other such "mumbo jumbo" were nonsense, and would never catch on as viable competitors. The sole dissenting voice in your firm was a junior researcher, but no one took him seriously enough to listen to him, despite his MIT degree.

The judgment of your management team appeared to be correct—until about 6 months ago, that is, when the supplement started to steal market share from your drug. Thanks to a two-page story in a national magazine (as well as Internet chat rooms that talked up the new "medical breakthrough"), the supplement took off. After the competing product reduced your market share by a third, you did some research of your own, and you discovered that, incredibly, there are more than 10,000 web sites devoted to cholesterol and its effect on health (including tips for reducing cholesterol, drug therapy, etc.).

Your new-product pipeline is relatively empty, and there certainly is nothing in it that can replace the lost revenue. Unless you are able to turn things around, you will report the worst financial quarter in the company's history. This will probably mean that the company will have to close plants and lay off thousands of workers. Where did you do wrong? Could this have been prevented? If so, how might it have been? And what do you do now?

What would Andy Grove do?

Few individuals have overcome more adversity than the Hungarian Jew Andras Grof. After nearly dying of scarlet fever and barely escaping the Nazis in World War II, he fled to the United States when the Red Army invaded his homeland. He taught himself English and worked his way through college in the United States, graduating from Berkeley.

In the late 1960s, he cofounded a small high-tech com pany named Intel. In 1997, Time magazine named him Person of the Year for his role in fueling the computer revolution. His personal mantra, "only the paranoid survive," helped him to survive and prosper throughout his career. Ironically, it just might have been Andras Grof's paranoid perspective that gave Andy Grove the foresight that he needed in order to help create an industry.

There is much to be learned from Grove's tumultuous journey toward building what would become the world's largest chipmaker. Along the way, his company confronted several crises of massive proportions. This reinforced and helps to explain his paranoid perspective. He once said, "Success breeds complacency. Complacency breeds failure." During his three-decade-plus career, Grove never had the luxury of complacency.

At least twice during his tenure, Intel faced challenges that could have crippled or destroyed the company. By clearing these hurdles successfully, Grove not only made his organization stronger and more resilient, but also contributed to the body of leadership knowledge, advancing a management construct that showed other managers how to deal with drastic change.