Protect yourself against strategic blindness

From 1968 to the early eighties, Intel grew exponentially thanks to its star product, the memory chip. However, by 1985, memory chips had become a commodity and profit margins were plummeting. Fortunately, when this occurred, Intel was generating nearly two-thirds of its revenues on another product with much healthier margins – the micro-processor. Company leaders decided to get out of the memory chip business, thus bolstering profit and enabling Intel to become the well-known success it is today.

At first glance, this seems like mere common sense. Wouldn’t any good leader have done the same thing? The fact is, even when the situation was glaringly apparent, an intense debate raged for an entire year before the very idea of getting out of the memory chip business was even suggested. Indeed, the memory chip was such a core part of Intel’s history and identity that the entire organization was focused on the single burning question of how to regain the company’s footing in this market. As people came up with a succession of desperate-sounding scenarios, Intel’s results continued to fall sharply, from a profit of $200 million in 1984 to breakeven in 1985 and finally to a loss of $175 million in 1986. After spending a year trying to avoid the inevitable, Intel’s leaders finally decided to take a cold look at the facts and accept the painful truth.

This story illustrates a major risk that all businesses face: the tendency to ignore unpleasant realities. This risk – far from being merely theoretical – sent Ford into near-bankruptcy in the forties, gradually drained the lifeblood from the Sears retail chain in the seventies, practically wiped out the U.S. tire industry in the eighties, etc.

Having clearly demonstrated the reality and ubiquity of this kind of blindness, the selected authors propose several recommendations that help businesses protect against it:

– Alert people to the tendency to ignore unpleasant truths.

– Organize the company to stay in touch with reality.

– Regularly challenge the validity of basic strategic assumptions.

– Look at the company’s strategy from an external perspective.