Case Analysis – Intel Prepares Its Top Leaders

Case for Analysis: Intel Prepares Its Top Leaders In the spring of 2005, Paul Otellini was scheduled to become the new CEO of the successful chippowerhouse Intel—but first, earning the lofty title meant submitting to a humble exercise: hittingthe books. As the first Intel chief executive without a degree in science or engineering, the softspoken 53-year-old didn’t have the technical expertise that mentors like ex-CEO Craig Barrettand chairman Andy Grove possessed. Which is why Otellini, the company’s then president andCOO, crammed in more than 50 tutorials, on everything from next-generation wireless networksto microprocessor design, with many more to come.The training regimen wasn’t some chore handed down by the human resource managementdepartment. It was part of a little-known but deliberate philosophy at Intel to grow and groom itsown CEOs and leaders.In an era of corporate headhunters, celebrity CEOs, and management by “creative destruction,”succession at Intel, one of America’s most profitable manufacturers, is a rare model of discipline.The company plans orderly regime changes years in advance, without enervating gossip,infighting, or drama over the identity of the new boss.Otellini was scheduled to become the fifth homegrown CEO to run the company since its launchin 1968, which suggests that there’s an “Intel inside” aspect to its management formulas as wellas its high-performance chips. The first two leaders, Robert Noyce and Gordon Moore, weren’tjust founders but legends in their industry. The third was Grove— one of Intel’s originalemployees and considered one of the best executives of the 20th century. Former CEO Barrett, arenowned manufacturing guru, taught materials science at Stanford before joining Intel in 1974.The long lead times are a hallmark of Intel CEO transitions, mainly because the company’s boardof directors insists on them. “We discuss executive changes 10 years out to identify gaps,” saysDavid Yoffie, an Intel director since 1989 and a professor at Harvard Business School since1981. Every January, he says, the board receives rankings of two dozen or so senior managers.Then it devotes portions of two or three more board meetings to combing through the list.Choosing the CEO, Yoffie says, “is the single most important role of the board.” Intel’s board’sobsession with the future helps foster another crucial element of the system—a gradual shift induties from one CEO to the next. Moore set the example in the mid-1980s, when he allowedAndy Grove, then his second in command, to gradually assume CEO chores; likewise, in themid-1990s, Grove steadily ceded his authority to Barrett. In effect, says Les Vadasz, an originalemployee and former director who has witnessed every CEO hire, “The successor gets the jobbefore he gets the title.”Training successors in a methodical and orderly manner is all but unheard of in Silicon Valley,where founders can hold on too long and where talk of life without the chief is often heretical.Steve Jobs, Apple’s CEO, remains synonymous with the company he founded—and returned tosave in 1997. But how many more years will that be possible? Scott McNealy, the outspoken cofounder and ex-CEO of Sun Microsystems, suffered high turnover in his senior ranks in partbecause he refused to step aside for more than two decades at the top. At Intel, CEOs and their apprentices swap roles to streamline performance where it’s needed.The practice flows out of a wider Intel ideal, known internally as “two in a box.” By encouragingoverlapping duties and responsibilities, the thinking goes, Intel managers can better support oneanother in a crisis.Hence, another aspect of Otellini’s grooming: a 30- year Intel veteran who made his reputationrunning the company’s flagship microprocessor line, Otellini increasingly took charge of Intel’sworldwide manufacturing operations and its enormous budget for capital projects—includingchip factories that typically cost $3 billion apiece.Like any management credo, of course, Intel’s approach has its drawbacks. The most obvious isthat it turns current CEOs into lame ducks sooner than at other companies.Intel struggles with another familiar trade-off of succession. At a company that broadcasts itssuccession plans years in advance, talented, loyal managers who don’t see a path to the top aren’tlikely to stick around. In May 2004, one of Intel’s most valued execs— Mike Fister, head of itsserver processor division—left Intel to take the top job at Cadence Design Systems, a long-timesupplier of chip-design software. Dave House, another highly regarded Intel executive who wasconsidered CEO material, left when he saw himself losing not only to Barrett but also to Otellini,who had the inside track for the next CEO opening. DISCUSSION QUESTIONS1. To recruit the CEO from the inside seems to work well for Intel. Do you believe this is a soundpolicy? Why?2. How can a nontechnically oriented leader like Paul Otellini succeed as CEO in a technicalcompany such as Intel?3. Why do some firms fail to plan effectively for executive succession?

Order Solution Now

Similar Posts