Contributed by Chip Heath, Professor, Stanford Graduate, School of Business
Chip and Dan Heath’s
newest book, Decisive
In his memoir, Only the Paranoid Survive, Andy Grove recalled a tough dilemma he faced in 1985 as the president of Intel: whether to kill the company’s line of memory chips. Intel’s business had been founded on memories, and indeed for a time the company was the world’s only source of memory. But by the end of the 1970s, a dozen or so competitors had emerged. Meanwhile, a small team at Intel had developed another product, the microprocessor, and in 1981 that team got a big break when IBM chose Intel’s microprocessor to be the brain of its new personal computer.
At that point, Intel became a company with two products: memory and microprocessors. Memory was still the dominant source of the company’s revenue, but in the early 1980s, the company’s competitive position in the memory business came under threat from Japanese companies. “The quality levels attributed to Japanese memories were beyond what we thought possible,” said Grove. “Our first reaction was denial. We vigorously attacked the data.” But they eventually confirmed the claims, said Grove, “We were clearly behind.”
Between 1978 and 1988, the market share held by Japanese companies doubled from 30% to 60%. A debate raged inside Intel about how to respond. One camp of leaders wanted to leapfrog the Japanese in manufacturing. Another wanted to bet on an avant-garde technology that they thought the Japanese couldn’t match. A third wanted to double down on the company’s strategy of serving specialty markets.
As the debate continued with no resolution, the company began losing more and more money on its memory business. Grove summarized 1984 by saying, “It was a grim and frustrating year.” In the middle of 1985, after more months of fruitless debate, Grove was discussing the memory quandary in his office with Intel’s chairman and CEO, Gordon Moore. They were both fatigued by the internal deliberations. Then Grove had an inspiration:
I looked out the window at the Ferris Wheel of the Great America amusement park revolving in the distance, then I turned back to Gordon and I asked, “If we got kicked out and the board brought in a new CEO, what do you think he would do?” Gordon answered without hesitation, “He would get us out of memories.” I stared at him, numb, then said, “Why shouldn’t you and I walk out the door, come back in, and do it ourselves?”
This “revolving door test” provided a moment of clarity. From the perspective of an outsider, shutting down the memory business was the obvious thing to do. The switch in perspectives—“What would our successors do?”— helped Moore and Grove see the big picture clearly.
Of course, abandoning memory was not easy. Many of Grove’s colleagues were furiously opposed. Some swore that Intel’s sales force could not get customers’ attention without a full range of products—memories as well as microprocessors. After much “gnashing of teeth,” Grove required the sales force tell customers that Intel would no longer be carrying memories. The customers’ reaction was, essentially, a big yawn. One said, “It sure took you a long time.”
Since that decision in 1985, Intel has dominated the microprocessor market. If, on the day of Grove’s insight, you had invested $1,000 in Intel, by 2012 your investment would have been worth $47,000 (compared with $7,600 for the S&P 500). It seems safe to say that he made the right decision.
GROVE’S STORY REVEALS a flaw in the way many experts think about decisions. If you review the research literature on decisions, you’ll find that many decision-making models are basically glorified spreadsheets. If you are shopping for an apartment, for instance, you might be advised to list the eight apartments you found, rank them on a number of key factors (cost, location, size, etc.), assign a weight that reflects the importance of each factor (cost is more important than size, for instance), and then do the math to find the answer (um, move back in with Mom and Dad).
There’s one critical ingredient missing from this kind of analysis: emotion. Grove’s decision wasn’t difficult because he lacked options or information; it was difficult because he felt conflicted. He was anxious about the future and he felt significant loss about abandoning a historical strength, and together these emotions clouded his mind and obscured the long-term need to exit the memory business.
This brings us to one of the four villains of decision-making: short-term emotion. When we’ve got a difficult decision to make, our feelings churn. We agonize about our circumstances. We change our minds from day to day. If our decision were represented on a spreadsheet, none of the numbers would be changing—there’s no new information being added—but in our heads we’ve kicked up so much dust that we can’t see the way forward. In those moments of fear and doubt, we need an infusion of perspective.
The spreadsheet approach tells us to compare our options rigorously. But that’s not synonymous with seeing the bigger picture. No doubt Andy Grove had been compiling his pros-and-cons list about whether to exit the memory business for many years. But the analysis left him paralyzed, and it took seeing things from the perspective of his successor to break the paralysis.
Next time you’re fearful about a decision, get a dose of perspective. Ask, “What would my successor do?” Or for a personal decision, “What would I advise my best friend to do?” You’ll be astonished at how easily a quick dose of detachment can help you rise above short-term emotion.