Book Summary of Peter Drucker’s “The Practice of Management”

Peter Drucker (1909–2005) was the 20th century’s leading thinker on business and management. He was amazingly prolific—he produced 39 volumes on management and leadership and worked right until his death a week before his 96th birthday.

'The Practice of Management' by Peter Drucker (ISBN 0060878975) Drucker’s The Practice of Management (1954) played a pivotal role in the recognition of management as a professional discipline. Even six decades after publication, The Practice of Management remains relevant for its original, profound, and timeless ideas. Drucker’s conception for the organization as an integral part of society, his elucidation of the nature of managerial tasks, his emphasis on good governance, and his prescription for effective leadership have served managers well over the decades.

Here are some prominent insights from The Practice of Management:

  • Drucker accentuated the need for clarity about the meaning of a business. He argued, “‘what is our business’ is the most important question successful management groups have to address.” In corporate strategy, this inquiry has become the underpinning for business analysis and the formulation of mission statements.
  • A business exists to “create a customer.” Therefore, managers need to query who their customers are and what the business must try to do for its customers.
  • The Practice of Management contributed to a rich analysis of the role of business in society. Drucker proposed that a business exists at three constructs that influence each other and thus establish the organization’s performance, mission, and business definition:
    1. as an economic establishment that produces value for its stakeholders and for the society,
    2. as a community that employs people, pays them, develops them, and coordinates their efforts to increase productivity,
    3. as a “social institution that is deeply embedded in society and values and as such is affected by public interest discussion, debate, and values.”
  • “The manager is the dynamic, life-giving element in every business” who defines the organization’s mission, develops and retains productive teams, coordinates various activities, sets goals, and gets things done.
  • Leadership gives the organization meaning and purpose—leadership defines and nurtures the organization’s central values, creates a sense of mission, allocates resources, and builds systems and processes in pursuit of the organization’s goals.
  • Management entails farsighted thinking about the future state of things and taking appropriate risks to capitalize on opportunities. Additionally, “managing a business must be a creative rather than adaptive task. The more a management creates economic conditions or changes them rather than passively adapts to them, the more it manages the business.”
  • The Practice of Management by Peter Drucker Managers inculcate the dominant cultural norm in the organization through their actions. These values become evident in the decisions they make concerning whom they recruit, whom they retain and promote, the goals they pursue, and the ethical parameters with which they frame their decisions.
  • The Practice of Management popularized the concept of management by objectives (MBO) for the successful execution of an organization’s strategic plan. The MBO process ensures delineation of key objectives, prudent allocation of resources, dedication of effort on key goals, use of real-time feedback, and effective communication. MBO helps managers organize and motivate their employees, promote effective communication, develop employees, measure performance, and increase their sense of empowerment.

The Practice of Management is one of those books that his admirers tend to appreciate more with every successive reading. Drucker’s remarkable virtues as the “father of modern management”—viz., clarity, usefulness, and common-sense pragmatism—are all on display in this book.

Recommendation: Read—it’s the best book you’ll find on the responsibilities, tasks, and challenges that managers undertake. The Practice of Management will have a profound effect on your thinking.

Book Summary of “Marissa Mayer and the Fight to Save Yahoo!” by Nicholas Carlson

Over the holidays, I finished reading journalist Nicholas Carlson’s Marissa Mayer and the Fight to Save Yahoo! This interesting book offers an account of Yahoo’s steady slide towards irrelevance and Marissa Mayer’s early tenure as CEO.

“Complex Monstrosity Built Without a Plan”

'Marissa Mayer and the Fight to Save Yahoo!' by Nicholas Carlson (ISBN 1455556610) Carlson devotes the first third of the book to explaining Yahoo’s beleaguered history and how years of mismanagement and strategy negligence got Yahoo into the mess that Mayer inherited as CEO in 2012.

The second third is about Mayer and her brilliant career as employee number twenty at Google. In 2010, her career allegedly stalled because Mayer got sidelined after conflicts with other luminaries within Google. Relying broadly on anonymous sources, Carlson portrays Mayer’s intense nature and her personality contradictions: in public settings, Mayer is brainy, glamorous, confident, articulate, and approachable. However, in one-on-one settings, Mayer is a self-promoting, dismissive, calculating, tardy, inquisitorial individual who avoids eye contact. “There was nothing especially abhorrent or uncommon about Mayer’s behavior as an executive,” Carlson writes. “She was headstrong, confident, dismissive, self-promoting and clueless about how she sometimes hurt other people’s feelings. So were many of the most successful executives in the technology industry.”

The last third is devoted to Mayer’s initial efforts to turn Yahoo around. Within the first year at the helm as CEO, Mayer motivated Yahoo’s beleaguered workforce, launched the redesign of some of Yahoo’s major sites, and made acquisitions to make Yahoo relevant in the mobile, media, and social realms. Carlson also describes Mayer’s bad hiring decisions, habitual tardiness, tendency to micromanage, tone-deaf style of communication, and dogged devotion to establishing the universally-despised practice of tracking goals and stack-ranking employees.

Yahoo: The Fabled Legacy Internet Company on the Slide to Irrelevance

Yahoo: The Fabled Legacy Internet Company on the Slide to Irrelevance

Anybody who follows the internet content industry understands that the principal question regarding the then-37-year-old Mayer’s recruitment as CEO was never whether she could save Yahoo. Rather, the question was whether Yahoo can be saved at all.

Yahoo has been a mess for a long time. For early consumers of the internet, Yahoo’s portal was the internet—from the mid-1990s until the early 2000s, Yahoo was the number-one gateway for early users of the internet who wanted to search, email, or consume news and other information. Then, Yahoo floundered as the likes of Google, Facebook, Apple, Amazon, Twitter, and Microsoft redefined the consumer internet and content consumption. Yahoo’s successive managements struggled to identify Yahoo’s raison d’etre and failed to set it apart from the up-and-coming websites. Yahoo’s management also fumbled on opportunities to harness the popularity of Yahoo Mail, Yahoo Sports, and Yahoo Finance to get advertising revenues growing again.

Mayer’s Arrival Was Too Late for Yahoo

Marissa Mayer could not succeed in reviving YahooMayer came to Yahoo with extraordinary credentials, drive, technical savvy, celebrity, and charisma. Her tenure was centered on answering the single question, “What is Yahoo? What should become of Yahoo?”

The odds of Mayer succeeding to revive Yahoo as an independent internet content company were very bleak right from the beginning, because Mayer took on an increasingly irrelevant business with very little actual or potential operating value—either as an internet content company or as a media company. Carlson appropriately concludes,

Ultimately, Yahoo suffers from the fact that the reason it ever succeeded in the first place was because it solved a global problem that lasted for only a moment. The early Internet was hard to use, and Yahoo made it easier. Yahoo was the Internet. Then the Internet was flooded with capital and infinite solutions for infinite problems, and the need for Yahoo faded. The company hasn’t found its purpose since—the thing it can do that no one else can.

Since the publication of the book in December 2014, Mayer has dedicated her leadership to selling Yahoo’s core internet businesses and its patent portfolio. Yahoo is expected to then convert itself into a shell company for its investments in Alibaba (15.5% economic interest) and Yahoo Japan (35.5%.)

Recommendation: As a fast read, Marissa Mayer and the Fight to Save Yahoo! is great. Beyond Nicholas Carlson’s gossipy narrative and his pejorative depiction of Mayer’s management style, readers of this page-turner will be interested in Yahoo leadership’s strategic and tactical missteps. Particularly fascinating are how Yahoo missed opportunities to buy Google and Facebook when they were mere startups, the rebuffing of an acquisition bid from Microsoft, a lack of strategic focus, the leadership skirmishes with activist investors, the revolving door at the CEO’s office, and an Asian-asset drama.

How Smart Companies Get Smarter: Seek and Solve Systemic Deficiencies

At Toyota, as cars roll off the assembly line, they go through a final inspection station staffed by astute visual and tactile inspectors.

At Toyota, as cars roll off the assembly line, they go through a final inspection station staffed by astute visual and tactile inspectors. If these inspectors spot a paint defect, they don’t just quietly fix the problem merely by touching up the paint to satisfy the customer or their plant manager.

As part of Toyota’s famed kaizen continuous improvement system, floor workers identify the systemic causes that led to the specific defect on the specific car. They then remedy the root cause of the problem so it won’t happen again.

Fostering an atmosphere of continuous improvement and learning

Most companies cherish employees who are watchful of problems and take it upon themselves to detect and solve problems without criticism or complaint. A software company, for example, may treasure a programmer who observes an unforeseen coding mistake, and swiftly develops a patch to keep her project moving forward.

In contrast, companies like Toyota who are obsessive about quality improvement, organizational learning, and developing collective intelligence don’t reward or tolerate such quiet fixers.

Taiichi Ohno - 'Having no problems is the biggest problem of all.' At companies that have adopted the kaizen philosophy, continuous improvement originates from the bottom up through suggestion systems that engage and motivate floor employees to look out for systemic problems, raise quality concerns, and help solve those problems. These companies encourage their employees to actively seek small, simple, and incremental improvements that could result in real cost savings, higher quality, or better productivity. According to Taiichi Ohno, the legendary Japanese industrial engineer identified as the father of the Toyota Production System, “Something is wrong if workers do not look around each day, find things that are tedious or boring, and then rewrite the procedures. Even last month’s manual should be out of date.”

Idea for Impact: To develop collective intelligence and build smarter organizations, discourage employees from heroically patching up recurring problems. Instead, encourage them to find, report, analyze, experiment, and fix systemic problems to prevent their recurrence.

Lessons from Lockheed Martin’s Skunk Works: Autonomy Can Create Innovative Workplaces

Lockheed Skunk Works

Lockheed Corporation's Skunk Works: A top-secret research and production facility In 1943, Lockheed Corporation established a top-secret research and production facility informally called Skunk Works. It was explicitly tasked with developing a high-speed fighter aircraft within 180 days. This new aircraft was to compete with aircraft produced by the German aircraft manufacturing company Messerschmitt.

Skunk Works consisted of Lockheed’s best design engineers and technicians who occupied a rented circus shelter adjacent to a foul-smelling plastic factory (hence the Skunk Works moniker.) More significantly, Skunk Works was isolated from corporate bureaucracy, granted much autonomy over decision-making, and encouraged to disregard standard procedures in the interest of expediency. In a record 143 days, Skunk Works designed, developed, and delivered the Lockheed P-80 Shooting Star aircraft, the first jet fighter operated by the United States Army Air Forces.

The Skunk Works framework of innovation was so successful that Lockheed has continued to operate this division for decades. Clarence “Kelly” Johnson, team leader of the first Lockheed Skunk Works project, codified 14 rules for all Skunk Works projects. Over the years, Lockheed’s Skunk Works designed and developed many aircraft, including the famous U-2 reconnaissance plane.

Disentangled from Bureaucracy and Management Constraints

Other companies borrowed this innovation idea from Lockheed to develop advanced products or discover product/service/business ideas that are entirely new to their parent organizations. Many businesses and engineering companies started their own “skunkworks” divisions consisting of self-directing teams of highly talented individuals who were seconded from their regular work environments. Unconstrained by executive interference, they operated under the radar. They were given a high degree of autonomy, access to R&D funds, and exceptional freedom from the parent organization’s bureaucracy and management constraints. Here are some examples of skunkworks projects.

  • At IBM, a skunkworks project in 1981 pioneered industry standards to adapt personal computers for business needs and released the IBM PC. This helped IBM break away from its lynchpin mainframe business and launch its celebrated personal computers division. IBM has since continued the skunkworks tradition. In the 2000s, IBM established many “emerging-business opportunities” or EBO teams and assigned its best and brightest people in charge of risky startup ideas that could germinate new business lines in five to seven years.
  • At Motorola in the mid-2000s, a team of designers and engineers defied the company’s own rules to develop the best-selling RAZR mobile phone. This skunkworks team was isolated from Motorola’s main R&D facility. Fortune magazine noted that this “tight-knit team repeatedly flouted Motorola’s own rules for developing new products. They kept the project top-secret, even from their colleagues. They used materials and techniques Motorola had never tried before. After contentious internal battles, they threw out accepted models of what a mobile telephone should look and feel like. In short, the team that created the RAZR broke the mold, and in the process rejuvenated the company.”
  • Google's Collaborative Office Spaces Encourage Innovation Google’s famous 20% rule and innovative workspaces lets employees collaborate across the company and work on their dream projects, but bring those projects to the larger collective for further funding and development. Many of Google’s innovative products and features in Gmail, Google News, Google Talk, Google Suggest, Transit Directions, etc. originated as 20% projects.
  • Microsoft’s skunkworks located in Studio B facility on its Redmond campus developed Kinect, Surface tablets and computers, and other recent products.
  • Apple has the most celebrated of skunkworks teams. Apple Chief Design Officer Jonathan Ive’s design laboratory consists of a few handpicked designers who work on “very experimental material that the world is not quite ready for.” Working in an area separate from Apple’s main Cupertino campus, Ive’s team maintains a culture of incredible secrecy.

Skunkworks Innovation Model and Startup Cultures

In the 1960s and 1970s, the skunkworks concept fell out of favor, as many companies started to see skunkworks teams as distractions and as cost centers “with an attitude.” However, with a renewed emphasis on teamwork and a focus on setting up startup-like innovative workplaces where teams can flourish, the skunkworks model of innovation has been renewed and revived in the last two decades.

Inertia, internal politics, bureaucracy, layers upon layers of management questioning risk and rewards, and the fear of failure weigh heavily on many a company’s pursuit of new products and services. The skunkworks innovation model and the startup culture offer frameworks for organizations to pursue growth ideas separate from current lines of business.

In 2013, General Electric instituted a program called FastWorks to mimic Silicon Valley’s startup culture in a company-wide effort to foster innovation and develop products quickly and cost-effectively. Boeing’s Phantom Works, Nike’s Innovation Kitchen and Sports Research Lab, Amazon’s Lab126 and A9 laboratories, Google X, and Walmart Labs are some of today’s prominent skunkworks organizations.

Idea for Impact: Autonomy Fosters a Creative Environment

Employee Autonomy Can Create Innovative Workplaces For managers, the key take-away from the skunkworks concept is that giving autonomy to employees and teams not only engenders a happier and satisfied workforce, but also fosters a creative environment. Some ideas to consider:

  • Give much autonomy to those employees and teams who have demonstrated the promise of being self-directed and maintaining alignment with the larger organizational goals. Direct them, oversee their progress, and follow-up when necessary. Micromanage when you must.
  • Give employees discretion over their tasks and resources. Create a favorable environment in which people are encouraged to discover, use, and grow their unique skills.
  • Don’t second-guess employees’ and teams’ ideas and decisions unless necessary. Judging or criticizing not only undermines their confidence, but also keeps them from sharing their ideas with you in the future.
  • Allow employees and teams to experiment, iterate their ideas, gather data and develop performance metrics, and quickly discard less promising ideas in favor of stronger ones.
  • Support risk-taking and failure. Celebrate failure as it can provide valuable technical and organizational insights. Encourage employees to be confident enough to try to fail and learn lessons without being apprehensive about being rebuked.

Leadership Lessons from the Spectacular Rise and Fall of Avon’s Andrea Jung / Book Summary of “Beauty Queen” by Deborrah Himsel

When companies do well, their CEOs are often heralded as outstanding visionaries and brilliant innovators. In particular, when macroeconomic conditions are favorable, these CEOs are sheltered from scrutiny because the spoils of their success deflect attention from their leadership shortcomings (see my previous article on how success often conceals wickedness.) When the tide turns, however, the leadership deficiencies are exposed for all to see. The CEOs are the first to get the blame, even if they may not merit it.

Deborrah Himsel’s Beauty Queen offers an insightful tale of the spectacular rise to the top and the tumultuous fall from grace of Andrea Jung. Beauty Queen divides Jung’s tenure as the CEO of cosmetics company Avon from 1999 to 2012 into two halves: Jung led six consecutive years of double-digit growth initially and then presided over a series of operational missteps that led to her resignation. Alas, Avon has never since recovered—its numerous restructuring efforts have failed, and its strategic and financial performance has severely deteriorated.

The Rise of Andrea Jung and Avon (1999–2005)

'Beauty Queen: Inside the Reign of Avon's Andrea Jung' by Deborrah Himsel (ISBN 113727882X) Promoted at age 41, Andrea Jung brought glamour, charm, and personal style to her CEO’s role. She quickly reshaped Avon’s image and articulated a powerful purpose for the company. She injected energy into a decaying cosmetics brand and pushed Avon into new profitable markets in China, Russia, and other countries. When Jung became CEO, 60% of Avon’s sales were in the United States; by 2011, only 17% of sales were in the United States and 70% were in developing markets.

Jung’s revival of Avon’s fortune catapulted her fame; she became one of America’s most recognized chief executives. Fortune magazine named her one of the most powerful women in the world. Jack Welch recruited her to General Electric’s board of directors.

Beauty Queen attributes this initial success not only to Jung’s inherent strengths in marketing and branding, but also to her right-hand person Susan Kropf. Kropf was a brilliant operations person, who balanced Jung’s acute lack of skills in running the day-to-day operations of a global company.

The Fall of Andrea Jung and Avon (2005–2012)

Avon’s sales started to slow down in 2005. And, Susan Kropf’s exit in 2006 corresponded with the dawn of Avon’s misfortunes. Andrea Jung never replaced Kropf; Avon was left without a chief operating officer.

As Avon started to struggle, Jung’s inadequate operations experience became a serious liability. A streak of self-inflicted problems resulted in strategic and operational disasters that took a huge financial toll and resulted in a flight of Avon’s top talent. Jung failed to deal effectively with failures of computer systems in Brazil, inadequate inventory and supply-chain management, poor management of working capital, and a staggering bribery scandal in China.

Jung’s lack of expertise to deliver results went up against her bold projections about the business’s future. Straying from Avon’s door-to-door direct selling roots, Jung experimented with a direct-selling channel, but quickly abandoned her strategy of running Avon retail stores. Her attempts to start baby-goods and other new product lines foundered after just two years. Avon’s many acquisitions failed; a silver jewelry company (Silpada) that Jung bought for $650 million had to be sold back to the original owners for $85 million.

Avon never recovered from the blunders that Andrea Jung presided over

Avon Beauty Products After Jung’s several turnaround efforts had failed to take hold, she resigned in 2011. Her replacement, former Johnson & Johnson executive Sheri McCoy, has since struggled to turn the company around.

The bribery scandal in China impaired Avon. In 2014, Avon settled the case with the Justice Department and the SEC for $135 million. To boot, Avon not only spent $350 million on legal fees, but also lost ground in the burgeoning cosmetics market in China.

Avon’s market value fell from $21 billion (1-Mar-2004) at the height of Jung’s success to $1.1 billion (15-Jan-2016). The company’s stock price fell from $44.33 to $2.50.

Lessons from Andrea Jung’s Leadership Style at Avon

Some of the most instructive leadership lessons from Beauty Queen are,

  • “Studying the trajectory of the Avon CEO is a great way to learn leadership. Andrea’s career … offers invaluable lessons about finding the right balance between substance and style.”
  • “Her story is a cautionary tale, one that suggests the critical importance of being aware of your weaknesses and how they can sabotage you.”
  • Leaders should know when to go. “If Andrea had departed in 2008, she would have left with her reputation and halo fully intact … CEOs that are successful early on often err on the side of staying too long.” [See my previous article on why leaders better quit while they’re ahead.]
  • Companies should pair up their leaders with deputies who have complementary skills to offset the Achilles’ heels of the leaders.

Recommendation: Skim through the first six chapters of Beauty Queen for an informative quick read on Andrea Jung’s rise and fall at Avon. Thumb through the next five chapters for an uninteresting discussion of broad leadership lessons and action lists in dry PowerPoint style.

When Should a Leader Pass Blame?

When Should a Leader Pass Blame? A leader is the “captain of the ship.” He is responsible for his organization’s every outcome—good or bad. He is wholly accountable for everything that happens under his authority.

If there is a problem caused by his mistakes or errors within his organization, a leader should not shirk responsibility. He should not abandon his team if things go wrong, nor should he pass the blame or use an employee as a scapegoat.

However, a leader cannot see and touch all his people, especially if his organization is large. He cannot be personally responsible for a rogue employee who steals information, misuses funds, or engages in unethical behavior. In such circumstances, the leader may pass blame.

Although a leader cannot police every action taken by every employee, the leader should be held accountable for not instituting and overseeing a rigorous control system to prevent problems, deter unethical actions, and to identify employees that engage in such behavior.

A leader also sets the tone for all his employees—not only in terms of goals and priorities but also in terms of proper organizational behavior. A legendary case in point are the ethical rules that investor Warren Buffett set in his company after the 1991 bond-rigging scandal at Salomon Brothers: “I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter. If they follow this test, they need not fear my other message to them: Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.” Even now, Buffett includes this statement in his biannual letters to his managers and displays a video of this speech at every Berkshire Hathaway annual meeting.

Success Conceals Wickedness

Biographies of Steve Jobs (by Walter Isaacson,) Jeff Bezos (by Brad Stone,) and Elon Musk (by Ashlee Vance)

Two common themes in the biographies of Steve Jobs (by Walter Isaacson,) Jeff Bezos (by Brad Stone,) and Elon Musk (by Ashley Vance) are these entrepreneurs’ extreme personalities and the costs of their extraordinary successes.

The world mostly regards Musk, Jobs, and Bezos as passionate, inspiring, visionary, and charismatic leaders who’ve transformed their industries. Yet their biographies paint a vivid picture of how ill-mannered these innovators are (or were, in the case of Jobs). They exercise ruthless control over every aspect of their companies’ products but have little tolerance for underperformers. They are extremely demanding of employees and unnecessarily demeaning to people who help them succeed.

  • Steve Jobs was renowned for his cranky, rude, spiteful, and controlling outlook. Biographer Isaacson recalls, “Nasty was not necessary. It hindered him more than it helped him.” Jobs famously drove his Mercedes around without a license and frequently parked in handicapped spots. For years, he denied paternity of his first daughter Lisa and forced her and her mother to live on welfare. He often threw tantrums when he didn’t get his way and publicly humiliated employees.
  • In a 2010 commencement address at Princeton, Jeff Bezos recalled his grandfather counseling, “Jeff, one day you’ll understand that it’s harder to be kind than clever.” Still, according to Brad Stone’s biography, Bezos often imparts insulting rebukes and criticisms to employees: “I’m sorry, did I take my stupid pills today?” “Are you lazy or just incompetent?” “Why are you wasting my life?” and “Do I need to go down and get the certificate that says I’m CEO of the company to get you to stop challenging me on this?”
  • According to Ashlee Vance’s biography, when an executive assistant asked for a raise, Elon Musk asked her to take a two-week vacation while he contemplated her request. When the assistant returned from vacation, Musk fired her.

“Success covers a multitude of blunders”

The great Irish playwright Oscar Wilde once remarked, “No object is so beautiful that, under certain conditions, it will not look ugly.”

The other great Irish playwright George Bernard Shaw wrote, “Success covers a multitude of blunders.”

British politician and historian Lord John Dalberg-Acton famously said, “Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it. That is the point at which … the end learns to justify the means.”

Ethics Violations by NBC News Anchor Brian Williams

Ethics Violations by NBC News Anchor Brian Williams In 2015, NBC suspended prominent news anchor Brian Williams after internal investigations revealed no less than 11 instances where he either embellished facts or bent the truth. Members of his team and NBC staffers who knew about these ethics violations chose to overlook because he was powerful. According to The New York Times,

Mr. Williams has been drawing 9.3 million viewers a night, and his position seemed unassailable. Even as the stature of the nightly newscast faded in the face of real-time digital news, Mr. Williams was one of the most trusted names in America … He was powerful. Williams had the ear of NBC boss Steve Burke. He was a ratings powerhouse. And he spent years overseeing TV’s most watched newscast. He was a winner, for himself, those around him and those above him—until it became clear the man who is supposed be among the most trusted in America had issues with telling the truth.

Power Corrupts the Mind

Brilliant men and women engage in morally wrong conduct simply because they can. They can get away with extreme pride, temper, abuse, and other disruptive behaviors because their spectacular success can and does cover many of their sins, even in the eyes of those at the receiving end of their crudeness.

Our high-achieving culture adores the successful, the powerful, and the rich. And part of this adoration is the exemption we grant these celebrities from the ordinary rules of professional civility.

Idea for Impact: The more people possess power and the more successful they get, the more they focus on their own egocentric perspectives and ignore others’ interests.

Facts Alone Can’t Sell: Lessons from the Intel Pentium Integer Bug Disaster

Facts Alone Can’t Change Minds

In my previous article, I discussed Aristotle’s framework for persuasion and argumentation: to persuade people on a particular point of view, it is necessary to appeal to ethos (credibility,) pathos (emotion,) and logos (logic and reason.) Some people are swayed by logic, others by appeals to emotion, and yet others defer to those who seem to possess authority, expertise, and credibility.

In this article, I give a case study of the “Intel Pentium Integer Bug Disaster” to illustrate that facts (logos) alone sometimes don’t have the power to change minds. Many people are adept at those elements of persuasion that Aristotle characterized as logos: i.e., they are proficient at making their case logically and rationally to their audience. But they may not recognize the need for the pathos aspects of persuasion and may struggle to emotionally connect with their audiences.

Mathematical Errors by the Pentium chip

Intel Pentium Chip Intel endured one of the most painful episodes in its history soon after it launched the Pentium processor. It was ridiculed by customers and the media for a flaw in the Pentium chip. Intel’s handling of the crisis was even worse than the bug itself. The Pentium flaw and its aftermath eventually led Intel to undertake large-scale product replacements that resulted in a $475 million write-off on its balance sheet.

In June 1994, about a year after Intel launched the Pentium microprocessor with much fanfare and a massive advertising campaign, some Internet newsgroups started discussing a flaw in the Pentium’s floating point unit. This error caused occasional mathematical errors in the chip’s advanced number-crunching component.

Intel knew about the problem. Internal investigators had established that the error “caused a rounding error in division once every nine billion times … an average spreadsheet user would run into the problem only once every 27,000 years of spreadsheet use.” Consequently, Intel’s executives concluded that the error was insignificant and didn’t pay much attention.

Much to Intel’s astonishment, some trade publications caught wind of the online discussions. In November 1994, CNN aired a nasty report about the Pentium flaw. Other media outlets pounced on Intel; The New York Times published an article titled “Flaw Undermines Accuracy of Pentium Chips.” As a direct result of all the negative publicity, Intel’s customers were up in arms and flooded Intel’s customer service lines with customer complaints. By then, Intel (through IBM, Compaq, HP, Dell, Gateway, and other computer OEMs) had shipped two million Pentium chips.

Intel Decided Stuck to Its Guns and Refused to Replace All Pentium Chips

Former Intel CEO Andy Grove Throughout this crisis, Intel’s leadership underestimated the scale of customer reaction because they believed that facts were in their favor. Intel’s illustrious CEO Andy Grove decided to set the record straight and issued a memo in which he acknowledged the Pentium fault, but declared that it affected only “users of the Pentium processor who are engaged in heavy-duty scientific/floating-point calculations.”

Back then, microprocessors were not yet a commodity product and consumers had paid a premium to buy computers with Pentium chips instead of those with the discounted previous-generation 486 processors. Justifiably, Intel’s customers were enraged and started demanding that Intel send them replacement chips.

In response, Intel decided to stick to its guns, because management believed in the persuasive ability of their facts. Intel’s leadership declared that they would not replace the chips unless consumers would individually call and establish that their chips would be used for advanced math calculations. At the company’s toll-free customer service line, customers had to endure a protracted interview process for Intel to deem them worthy of receiving a corrected chip. Customers who couldn’t convince Intel that they may encounter the bug in their daily computer-use didn’t make the cut.

In December 1994, all hell broke loose for Intel when IBM stopped shipments of all Pentium-based computers. Grove later recalled, “The phones started ringing furiously from all quarters. The call volume to our hotline skyrocketed. Our other customers wanted to know what was going on. And their tone, which had been quite constructive the week before, became confused and anxious. We were back on the defensive again in a major way.”

Ignoring Customer Sentiment (Pathos) Aggravated the Intel Pentium Crisis

Eventually, Intel caved in. Grove reflected, “After a number of days of struggling against the tide of public opinion, of dealing with the phone calls and the abusive editorials, it became clear that we had to make a major change.” Intel reversed its policy, established a huge customer service operation, and announced that it would replace the Pentium chip for any customer who wanted it replaced. The crisis came to pass only after Intel replaced hundreds of thousands of Pentium chips at a cost of $475 million.

The Intel Pentium Bug is a textbook example of how not to handle a delicate situation and hurt a product’s image. A good deal of this mismanagement could be attributed to an engineering-driven corporate culture within Intel, shaped in part by Grove’s attitude that facts alone could—and should—sell. He believed in the no-nonsense way of doing business: all through the crisis, Intel stuck with the facts, refused to bow before pressure, and told customers to get on with the flawed Pentium processor.

Amazingly, the Pentium Crisis Did Not Affect Intel’s Brand

Intel Inside Marketing Campaign Fortunately, Intel not only survived the Pentium crisis, but its brand recognition increased and Intel even appeared on Fortune magazine’s list of most admired companies. In the two years prior to the Pentium launch, Intel had embarked on an aggressive marketing campaign to build up the Intel brand. The “Intel Inside” slogan was plastered on billboards in all major markets and TV commercials repeatedly blared the renowned “Intel Inside” jingle.

Another upshot of this crisis was that the attention Intel and Pentium received brought microprocessor chips bang into the public consciousness. With the August 1995-release of Microsoft’s Windows 95, the “Wintel” partnership between Microsoft and Intel ushered a wave of consumer demand that brought inexpensive personal computing to the masses around the world.

Lessons from the Intel Pentium Disaster: Just Being a Truth Teller May Not Be Enough

'Only the Paranoid Survive' by Andrew S. Grove (ISBN 0385483821) It is fallacious to assume that logic, reason, and facts are all potent and that rationality will triumph over irrationality. During the Pentium crisis, Intel had assumed that an honest appraisal of facts of the Pentium bug would have the strength to change customer’s minds. However, sticking to facts alone backfired.

Following Aristotle’s ethos-pathos-logos framework, Intel had logos right: Intel’s assessment that the Pentium errors would not affect most people’s use of their computers was accurate. As the CEO of Intel, Grove had ethos right: his engineers were the prevalent authorities on microprocessor technology and Intel was the dominant producer of computer chips. But Intel got pathos wrong: by just presenting facts (logos) with authority (ethos) and ignoring customer sentiment (pathos), Intel’s arrogant stance was not only ineffective but also aggravated the whole Pentium crisis.

Idea for Impact: During Argumentation, Ignore Pathos At Your Own Peril

When persuading others of your ideas, don’t assume that logos alone has the power to change their minds. Don’t arm yourself with just bulletproof facts, scientific evidence, logic, and rationality and expect logos to sway others to your point of view. Recent research suggests that emotion plays a significant role even in situations where logic seems to be the dominant driver of decision-making.

Decision-making isn’t just logical, it’s emotional too. Remember, “When the heart pulls, the head tends to follow.”

Persuade Others to See Things Your Way: Use Aristotle’s Ethos, Logos, Pathos, and Timing

During argumentation—i.e. when putting forward a point of view—your goal is to persuade your audience that your thesis is valid, engage them in your favor, change their opinion, and influence them to act as you’d like them to act.

The American literary theorist Kenneth Burke wrote in his Rhetoric of Motives, “Wherever there is persuasion, there is rhetoric. And wherever there is meaning, there is persuasion.” Learning to make effective arguments is helpful in every facet of decision-making and sharing ideas with others—not only in verbal and written discourses, but also in marketing, sales promotion, crisis-management, storytelling, courtship, social etiquette, and education.

Aristotle's Techniques for Persuasion

Some 2400 years ago, the Greek philosopher Aristotle wrote one of the most important works on argumentation. In his treatise Rhetorica, he explained that arguments are more persuasive when applied in three distinct but inseparable dimensions: ethos (credibility,) logos (reason,) and pathos (emotion.) He wrote,

Of the modes of persuasion furnished by the spoken word there are three kinds. The first kind depends on the personal character of the speaker; the second on putting the audience into a certain frame of mind; the third the proof, or apparent proof, provided by the words of the speech itself … The modes of persuasion are the only true constituents of the art: everything else is merely accessory.

There are, then, these three means of effecting persuasion. The man who is to be in command of them must, it is clear, be able (1) to reason logically, (2) to understand human character and goodness in their various forms, and (3) to understand the emotions—that is, to name them and describe them, to know their causes and the way in which they are excited.

Speech by Mahatma Gandhi: Ethos is Aristotle's Techniques for Persuasion #1

Element #1 of Persuasion: Ethos (‘Character’ in Greek)

Aristotle contended that audiences are more likely to be convinced when an argument comes from someone of standing, repute, authority, and legitimacy:

We believe good men more fully and more readily than others: this is generally true whatever the question is, and absolutely true where exact certainty is impossible and opinions are divided … It is not true, as some writers assume in their treatise on rhetoric, that the personal goodness revealed by the speaker contributes nothing to his power of persuasions; on the contrary, his character may almost be called the most effective means of persuasion he possesses.

Your ability to persuade depends on demonstrating that you are a credible authority on a subject. Credibility comes from your academic and professional credentials, social standing, integrity of character, and trustworthiness.

Ethos is also about how you express your expertise. Enhance your ethos by projecting confidence and paying attention to your mannerisms, dress, demeanor, tone, style, posture, body language, and crispness of your message. Appeal to ethos because your audience is likely to be persuaded if they believe you’re likeable and worthy of their respect. If you lack credibility, you must determine how to produce credibility, address your lack of it, or involve somebody credible who can vouch for your ideas.

Speech by Martin Luther King, Jr.: Pathos is Aristotle's Techniques for Persuasion #2

Element #2 of Persuasion: Pathos (‘Suffering’ or ‘Experience’ in Greek)

As the saying goes, when the heart pulls, the head tends to follow.

Aristotle contended that persuasion also depends on making an emotional and imaginative impact on the audience by “putting the hearer into a certain frame of mind” (“ton akroaten diatheinai poos”):

Secondly, persuasion may come through the power of the hearers, when the speech stirs their emotions. Our judgments when we are pleased and friendly are not the same as when we are pained and hostile.

To appeal to emotion, you must understand and relate to the needs, values, and desires of your audience. Identify and appeal to what motivates the audience to anger and happiness, what irritates them and leads them to fear, what animates them and arouses their empathy. Defense attorneys often use this technique: they try to appeal to a jury or judge’s emotions by invoking sympathy for the accused and swaying them into thinking that the accused has done little or no wrong.

Barack Obama and Mitt Romney Debate: Logos is Aristotle's Techniques for Persuasion #3

Element #3 of Persuasion: Logos (‘Word’ in Greek)

Logos refers to the argument’s clarity and integrity. Aristotle stressed logic and the appeal to reason:

Thirdly, persuasion is effected by the speech itself when we have proved a truth or an apparent truth by means of the persuasive arguments suitable to the case in question.

Appeal to your audience using logical consistency, analytical reasoning, rationale, and supporting evidence. Don’t just persuade your audience from your vantage point. Instead, construct a viewpoint that can assert your audience’s own objectives and goals.

Element #4 of Persuasion: Timing

Aristotle mentioned that timing of delivery is a fourth dimension of successful argumentation. Therefore, even if ethos, pathos, and logos are in place, efforts to persuade may fail if they are deployed at the wrong time.

These three kinds of rhetoric refer to three different kinds of time. The political orator is concerned with the future: it is about things to be done hereafter that he advises, for or against. The party in a case at law is concerned with the past; one man accuses the other, and the other defends himself, with reference to things already done. The ceremonial orator is, properly speaking, concerned with the present, since all men praise or blame in view of the state of things existing at the time, though they often find it useful also to recall the past and to make guesses at the future.

To persuade your audience, know where to focus the conversation—the past, present, or future. As the Greek didactic poet Hesiod emphasized in Works and Days, “observe due measure, for right timing is in all things the most important factor.”

Persuasive Speech - Ronald Reagan

Use Four Vantage Points to Improve Your Abilities in Argumentation and Negotiation

You can be more persuasive if you understand what truly moves your audience. Some people are swayed by logic, others by appeals to emotion, and still others quickly defer to those who seem to possess authority and expertise.

Aristotle’s ethos, pathos, and logos provide a clear, understandable, and easy-to-apply framework for developing argumentation. Although these three elements can be analyzed separately, they often overlap and work together. Often it may not be possible or useful to completely distinguish them.

Recommended Resources

Round up your persuasive skills by combining Aristotle’s technique with these recommended approaches.

  • Robert Cialdini’s best-selling books, Influence The Psychology of Persuasion and Science and Practice, identify six ways to persuade another person. Watch this and this YouTube videos for excellent summaries of these six principles.
    1. reciprocity, when the other acts in expectation that his/her favors will be returned
    2. commitment and consistency, when the other takes actions consistent with his/her self-image
    3. social proof, when the other replicates the actions of others
    4. authority, when the other acquiesces to authority even if the request is questionable
    5. liking, when the other is persuaded by those whom they know, like, respect, and admire
    6. scarcity, when an object becomes more desirable because it is in short supply
  • Simon Sinek’s Start with Why advocates that when pitching a product, service, idea, or proposal to an audience, you must start with answering why they should they care. “People don’t buy what you do, they buy why you do it.” Sinek’s TED talk (this YouTube video) describes his concept of “The Golden Circle”—with the ‘why’ at the core, surrounded by ‘how,’ and the finally the ‘what.’
  • Richard Shell and Mario Moussa’s The Art of Woo recommends that people use relationship-based, emotionally intelligent approaches to persuade others of the value of their ideas to “win them over” rather than to “defeat” them.
  • William Ury’s The Power of a Positive No offers a “yes-no-yes” framework to (1) connect a situation, circumstance or dilemma to your core set of interests and values, (2) communicate your decision assertively and respectfully and yet obtain the most positive outcome for you and for others.
  • Roger Fisher, William Ury, and Bruce Patton’s popular book Getting to Yes offers an step-by-step plan of action for coming to mutually satisfactory agreements to conflict.

Warren Buffett’s Rule of Thumb on Personal Integrity

Warren Buffett, CEO of Berkshire Hathaway On occasion, personal integrity and ethical conduct can be challenging. Greed, selfishness, distrust and other inclinations can result in misrepresentations, deliberate omission of facts to throw a positive spin on things, purposeful oversight, misuse of information and self-interested behavior.

Warren Buffett, one of the world’s most successful investors and CEO of Berkshire Hathaway, directs that all his employees follow this rule of ethics in every undertaking.

“… I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper — to be read by their spouses, children and friends — with the reporting done by an informed and critical reporter.”

The key to personal integrity is to gather all the relevant data, define the “right thing,” exercise prudence and standup for what is right. Good intentions do not necessarily translate to action. Your thoughts and actions define your credibility at work and in the society.

Credit: Warren Buffett’s picture courtesy of user ‘trackrecord’ on flickr.com