18 July 2012

Intel and a New Management Technology

It's Intel's 44th birthday today. Here's an excerpt from my book, The Fourth Economy, about Intel's importance.

The Invention of the Computer and the Spread of Knowledge

As the world was recovering from World War Two in 1948, Bell Labs announced a product that it thought might “have far-reaching significance in electronics and electrical communication."[1] Three of its employees would eventually share a Nobel Prize for inventing this transistor, a small piece of technology that replaced bulky vacuum tubes and laid the foundation for the world’s most rapid increase in technological ability. Perhaps no single invention did more to overcome the limit of information than the transistor.
Of course, turning information from something that limited the economy into something that the economy seemingly slid atop like dress shoes on ice was to take more than this single invention. Most obviously, this transistor was to become a part of a computer chip, where transistors were bundled into many on-off switches that could be used to represent numbers, letters, and, eventually, even pictures and videos.
Furthermore, this hardware was of little consequence without programming - a means to manipulate the transistors into an encoded array that could be used to represent, store, and process information.
In that same year, 1948, Claude Shannon coined the word “bit” to begin quantifying information as prelude to it being processed by a machine. 
By the 1960s, the transistor was part of a computer chip. The chip was embedded in a sea of information theory that was advancing its design and use in myriad ways. Computer programming was changing how people thought and what it was possible to do with this new chip. And it was this set of technologies – more than typewriters and telephones – that would come to define the information economy for most. Yet even with the advent of this new technology, something was missing. Technological invention alone is rarely enough; to make real gains from the computer chip required social invention, a change in corporate culture.
One of the three co-inventors of the transistor began a company to exploit this new technology. He didn’t just understand the transistor; he had, after all, helped to create it.
William Shockley was co-inventor of the solid-state transistor and literally wrote the book on semiconductors that would be used by the first generation of inventers and engineers to advance this new technology. He had graduated from the best technical schools in the nation (BS from Cal Tech and PhD from MIT), and was the epitome of the modern knowledge worker.
Shockley hired the best and brightest university graduates to staff his Shockley Semiconductor Laboratory. Yet things were not quite right. It wasn’t technology, intelligence, or money that his company was lacking. Something else was missing.
To answer what it was leads us to the question of why information has so much value.
One of the beliefs of pragmatism is that knowledge has meaning only in its consequences. This suggests that information has value only if it is acted upon. Information that is stored in secret has no consequences. By contrast, information that informs action - knowledge or belief, as a pragmatist would see it - needs to be both known and acted upon. This is information that needs to be distributed. Imagine a stock market with lots of information about companies and the economy but only a handful of people who buy and sell stocks. As long as only the elites act upon the information, that information doesn’t have much value to anyone else. Put another way, distributed information has value only when it drives distributed decision making or action.
So, in order for information to become important, it has to inform important actions. Furthermore, the more people who act on this information, the more valuable it will be.
What was missing from Shockley’s approach to this brand new technology was a management style or culture that would make information processing valuable. Shockley was apparently a fairly autocratic manager. He was creating information technology that got more value as it drove more decisions but he was, in style, not the kind of person to give up much control. Largely because of this, it was not Shockley who would become a billionaire from computer chips, but instead, a few of his employees.
The year 1968 was the kind of year that would have made even today’s 24-7 news coverage seem insufficient. Even then it was obvious that it was a historical year. In January, the North Vietnamese launched the Tet offensive, making it all the way to the U.S. Embassy in Saigon; this might have been the first indication that those unbeatable Americans could be beaten. In the United States, civil rights demonstrations that devolved into deadly riots were the backdrop for Lyndon Johnson’s signing of the Civil Rights Act. Martin Luther King, Jr. and Robert Kennedy - iconic figures even in life - were assassinated within months of each other. The musical Hair opened on Broadway and Yale announced that it would begin to admit women. For the first time in history, someone saw the earth from space: astronauts Frank Borman, Jim Lovell, and William Anders became the first humans to see the dark side of the moon and the earth as a whole, an image that dissolved differences of borders and even continents. Any one of these stories could have been enough to change modern society. Yet in the midst of all these incredible events, two entrepreneurs quietly began a company that would transform technology and business, a company that would do as much to define Silicon Valley as any other.
Gordon Moore and Robert Noyce founded Intel in July 1968. Moore gave his name to “Moore’s Law,” a prediction that the power of computer chips would double every eighteen months. Here was something akin to the magic of compound interest applied to technology or, more specifically, information processing.
Moore and Noyce had originally worked for Shockley, but they left his laboratory because they didn’t like his tyrannical management. They then went to work for Fairchild Semiconductor, but left again, because, “Fairchild was steeped in an East Coast, old-fashioned, hierarchical business structure,” Noyce said in a 1988 interview. "I never wanted to be a part of a company like that."[2]
It is worth noting that Moore and Noyce didn’t leave their former employers because of technology or funding issues. They left because of differences in management philosophy.
Once when I was at Intel, one of the employees asked if I wanted to see the CEO’s cubicle. Note that this was an invitation to see his cubicle, not his office. We walked over to a wall that was - like every other wall on the floor - about five feet high, and I was able to look over the wall into an office area complete with pictures of the CEO with important people like President Clinton. In most companies, one can tell pretty quickly who is higher up in the organization than others; the level of deference and the ease of winning arguments are pretty clear indicators of who is where in the organizational chart. By contrast, I’ve never been inside a company where it was more difficult to discern rank than Intel. Depending on the topic, completely different people could be assertive, deferential, or argumentative. One of Intel’s values is something like “constructive confrontation,” and this certainly played out in more than one meeting I attended. When a company makes investments in the billions, it can’t afford to make a mistake simply because people have quaint notions about respect for authority. Intel’s culture seems to do everything to drive facts and reasons ahead of position and formal authority. This might have partly been a reaction of its founders to the management style of their former employer, Shockley.
The first company they left, Shockely’s Labs, no longer exists. The other, Fairchild Semiconductor, lost money last year and has a market cap of less than $2 billion, just a fraction of Intel’s market cap of more than $135 billion[3].  Intel’s net profit in 2010 was over $12 billion, and it employs more than 100,000 people worldwide. Moore and Royce’s open culture seems to have made a difference.
Information technology has little value in a culture that hoards information. Information technology makes sense as a means to store, distribute, and give access to information and has value as tool for problem solving and decision making.
The pioneers of information technology, like Moore and Noyce, understood this and realized - at some level - that it made little or no sense to create hierarchies where information was held and decisions were made at one level and people were merely instructed at another. The knowledge worker needed information technology as a basis for decisions and action. Before 1830, up until the time of the railroad, the information sector of the American workforce was less than 1 percent.[4] By the close of the 20th century, nearly everyone seemed to need technology for storing and processing information.
By paying double typical wages, Henry Ford created a new generation of consumers for his car. Moore and Noyce didn’t just create information technology; they helped to popularize a management culture that distributed information and decision making, helping to create even more demand for their amazing new technology.

[1] James Gleick, The Information (New York: Pantheon Books, 2011), 3.
[2] Daniel Gross, ed., Forbes: Greatest Business Stories of All Time (New York: John Wiley & Sons, 1996), 251.
[3] Based on stock prices as of June 2012.
[4] Beniger, The Control Revolution, 23.

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