One of the largest moats in the tech sector over the decades has belonged to Intel. Despite operating in a field characterized by changing and improving technologies, the company has posted double-digit returns on assets for the better part of a few of decades. In Only the Paranoid Survive, Intel's 3rd employee, and its CEO from 1987 to 1998, Andy Grove, shares some ideas on how he did it.
The book is centered around the idea that it is how a company reacts to what Grove calls crisis points that determine its success. Crisis points occur when a major change happens to a component of a company's business. Grove borrows from Porter's five forces to help illustrate. For example, if a regulation or the competitive environment has changed in a big way, this is a crisis point.
Too often, companies don't adequately respond to crisis points. One problem is that crises tend to reach top management late. While people close to the action (e.g. sales, tech support) may see the changes first, management may ignore the message or it may not reach them. Second, even if it is known that there is a potential crisis, there is a strong impediment to changing how business is done. After all, managers got to where they are by doing what they know how to do well; so, they keep on doing, even if the environment has changed.
Grove describes a few crisis points Intel went through, the most important of which was its switch from primarily being a memory chip producer to a CPU producer. In its first years, Intel competed in the field of memory which was becoming highly commoditized, particularly as the Japanese benefited from low cost of capital (during its bubble years). Intel was forced to confront the fact that it just couldn't make ends meet in memory. Fortunately for it, it had a thriving, through small, CPU business that was based on similar technology to its memory business. Once it realized this is where it needed to grow, the business thrived.
As this example shows, if you wait until a crisis point to react, you're too late. You need to be constantly experimenting with new potential growth opportunities within the business so that you have options if/when things go poorly in your currently thriving business.
What particularly struck me about Grove is how well he appears to have a handle on his time. Despite being the CEO (and chairman, for a time) of such a large company, he was able to write other books and even teach courses. I feel like a lot of CEO schedules are so jam-packed that they barely get enough sleep. On the other hand, CEOs like Buffett and Grove have time to think. I think they're doing it right.