SELECTING THE RESPONSE

Finding the appropriate response to a new set of circumstances (or deciding where to place the new platform) requires both ideas and the willingness to take risks. In Ameritech’s case, the response that Weiss, Notebaert, and their team came up with was to enter growth businesses that were new to the company. All of the new businesses capitalized on Ameritech’s history as a communications provider, but they were definitely gambles. Signing up long-distance customers, constructing an electronic commerce network, offering enhanced cable TV services, and buying and running phone companies from Hungary to Australia all could have failed miserably. But Notebaert stuck with simple growth logic and encouraged people to get over their fear of trying something different. A real “home run,” says Notebaert, has been security monitoring. “They all use telephone lines, they use the same wire and basically do the same work that we do. . . . Why should there be two trucks going out doing the same thing?” But he adds, he had to “step outside the box,” and adopt a new mindset, in order to see this opportunity. Looking back to 1991, he says, “We would have growth rates of two and a half percent in telephone lines, for example, and I can remember people saying, ‘Well, we’re in the Rust Belt,’ and then in the southeastern part of the United States, they’d have growth rates of four percent. And we’d say, ‘Well, there’s nothing we can do. . . . They got dealt a better hand.’ In the fourth quarter of 1995, our growth rate was higher than the southern and southeastern United States. I look out my window and I see the same economy. It’s called . . . getting on the ball and not being a victim.” At Intel, Andy Grove has had to respond to new realities several times with equally radical changes in the company’s direction. In the 1970s, Intel had built a great business providing semiconductors, primarily memory chips, to the computer industry. As Grove puts it, the company’s total identity was tied up in memories. “The company had a couple of beliefs that were as strong as religious dogmas. Both of them had to do with the importance of memories as the backbone of our manufacturing and sales activities.” It and a few other companies, including Unisem, Advanced Memory Systems, Advanced Micro Devices, and Mostek, filled nearly all the industry’s memory chip needs. In Santa Clara, California, where

Intel was and is headquartered, life was great. Revenues and profit were both at record levels.

Then, when Intel sat atop the PC revolution making memory chips, unsettling rumblings began to come out of the Far East. While the U.S. memory chip makers enjoyed their expanding market, competitors were approaching from Japan. Steadily they built market share on a simple formula that is by now familiar: deliver quality products at costs beneath those of their American competitors. At Intel, finding the appropriate response involved a long process of trial and error. At first it tried to focus on value added products. Then it tried to focus on narrow segments of the memory market where it thought it had technical advantage. Its engineers worked harder trying to accelerate development of a next generation of products. Production people innovated and wrung cost out of Intel’s system. But the company was overwhelmed. The Japanese could seemingly copy an invention before Intel had even gotten it right. And their pricing was brutal. At one point Intel “got hold of a memo sent to the sales force of a large Japanese company. The key portion of the memo said ‘Win with the 10% rule. . . . Find AMD [another American company] and the Intel sockets. . . . Quote 10% below their price. . . . If they requote, go 10% AGAIN. . . . Don’t quit until you WIN!” By 1984, Intel was in a crisis. The Japanese were continually strengthening when the market coincidentally slumped. Suddenly Intel, no longer the strongest kid on the block, was having to fight for its space in a shrinking, not expanding, sandbox. The memory business was slowly bleeding the company. Finally, Grove describes one day staring out the window of an office at the company’s campus in Santa Clara. The only two people in the room were Grove and Gordon Moore, one of Intel’s founders. Grove knew that everything that they had built was on the line. He asked Moore a very tough question:

“If we got kicked out and the board brought in a new CEO, what do you think he would do?” Moore responded, “He’d probably get us out of memories.” Grove reflected for a moment. And then he said, “Why shouldn’t you and I walk out the door, come back and do it ourselves?” The solution they ultimately reached was to abandon Intel’s biggest business. Memory chips had become a commodity to which they could add little value, so they decided to start out almost entirely anew, designing and building the best microprocessors in the world. It was a painful and gutsy decision that probably saved the company.