Intel’s Andy Grove and the difference between good and bad fear

Be scared, be very scared, advised the late Andy Grove: “Business success contains the seeds of its own destruction. Success breeds complacency. Complacency breeds failure. Only the paranoid survive.”

Grove’s words, recalled worldwide in the wake of his death last month, are interesting to revisit alongside an article analysing Nokia’s decline by Timo Vuori of Aalto University and Quy Huy of Insead. While Grove’s famous paranoia helped him shepherd Intel through the seismic shift from memory chips to microprocessors, the fear wrought by Nokia’s leadership failed to produce a next-generation smartphone in response to Apple’s iPhone.

A distinction that professors Vuori and Huy make between ‘external’ fear and ‘internal’ fear may well explain the difference. While managers at Nokia rightly feared the iPhone, they were more afraid of their shareholders. “If you don’t hit your quarterly targets, you’re going to be a former executive very fast,” said one senior executive. They knew Nokia needed a better operating system to match Apple’s but they also recognised that it would take years to develop it. So they pressed middle managers to perform faster without revealing to them the severity of the external threat.

Middle managers, in turn, feared their bosses, and each other. Jorma Ollila, Nokia’s former chairman and CEO, was known for shouting at people ‘at the top of his lungs’, said an interviewee quoted in the research. Failure to agree to a relentless timetable despite mounting technical challenges would label you ‘a loser’, said another.

When middle managers asked questions about the competition, superiors told them to shut up and focus on implementation. Forced to rely on middle managers’ progress reports because they lacked technical competence, the company’s leaders were insulated from negative information and developed an overly optimistic view of Nokia’s capacity.

While recent obituaries recall how Grove ‘wanted everyone at Intel running scared’, a closer look at his philosophy, as laid out in his 1995 book, prosaically entitled High Output Management, reveals a different sort of ‘tough boss’ from those who ran Nokia into the ground.

Grove’s notion of ‘constructive confrontation’, for example, meant that decisions were debated fiercely and loudly. True, he loved nothing better than a good shouting match but managers at all levels knew they were expected to speak their mind to superiors and arguments were won and lost with data. ‘Knowledge power’ trumped ‘position power’.

A scientist by training, Grove made it his business to understand human, not technical systems. For example, he relied on one-on-one meetings to avoid losing touch. Without one-on-one meetings, the paranoid Grove believed, leaders can’t understand what is really happening in their organisations, and fall prey more easily to political dynamics such as those behind Nokia’s fall.

Ultimately, bad fear is internally focused. It motivates protection from the discomfort of change in the status quo. Good fear, in turn, is always focused externally, on the imminent threat outside. Excessive internal focus, conclude professors Vuori and Huy, reduced the attention that Nokia employees devoted to processing external threats, generating a mortal combination of high internal fear and low external fear.

Ben Horowitz, co-founder of venture capital firm Andreessen Horowitz and long-time admirer of Grove, described him as one of the greatest of ‘wartime CEOs’. A peacetime CEO, he wrote in a widely circulated 2011 blog post, leads in times of market growth and significant advantage relative to the competition. A wartime CEO is fending off an imminent existential threat — which, as Grove pointed out in Only the Paranoid Survive (1996), can come from competitors, suppliers, changes in macroeconomics, customer preferences, technology and regulation or any combination of the above.

Leading in ‘wartime’, concludes Mr Horowitz, requires a different skill set from leading in ‘peacetime’. For the many of today’s leaders who can stand to take a page from Grove’s playbook, yes, absolutely, be very scared. But, also be afraid of what kind of fear you may sow.