In the spring of 2005, Paul Otellini was scheduled to become the new CEO of the successful chip powerhouse Intel—but first, earning the lofty title meant submitting to a humble exercise: hitting the books. As the first Intel chief executive without a degree in science or engineering, the soft-spoken 53-year-old didn’t have the technical expertise that mentors like ex-CEO Craig Barrett and chairman Andy Grove possessed. Which is why Otellini, the company’s then president and COO, crammed in more than 50 tutorials, on everything from next-generation wireless networks to microprocessor design, with many more to come. The training regimen wasn’t some chore handed down by the human resource management department. It was part of a little-known but deliberate philosophy at Intel to grow and groom its own 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 launch in 1968, which suggests that there’s an “Intel inside” aspect to its management formulas as well as its high-performance chips. The first two leaders, Robert Noyce and Gordon Moore, weren’t just founders but legends in their industry. The third was Grove— one of Intel’s original employees and considered one of the best executives of the 20th century. Former CEO Barrett, a renowned 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 board of directors insists on them. “We discuss executive changes 10 years out to identify gaps,” says David Yoffie, an Intel director since 1989 and a professor at Harvard Business School since 1981. 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’s obsession with the future helps foster another crucial element of the system—a gradual shift in duties from one CEO to the next. Moore set the example in the mid-1980s, when he allowed Andy Grove, then his second in command, to gradually assume CEO chores; likewise, in the mid-1990s, Grove steadily ceded his authority to Barrett. In effect, says Les Vadasz, an original employee and former director who has witnessed every CEO hire, “The successor gets the job before 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 to save in 1997. But how many more years will that be possible? Scott McNealy, the outspoken co-founder and ex-CEO of Sun Microsystems,suffered high turnover in his senior ranks in part because 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 encouraging overlapping duties and responsibilities, the thinking goes, Intel managers can better support one another in a crisis. Hence, another aspect of Otellini’s grooming: a 30- year Intel veteran who made his reputation running the company’s flagship microprocessor line, Otellini increasingly took charge of Intel’s worldwide manufacturing operations and its enormous budget for capital projects—including chip factories that typically cost $3 billion apiece. Like any management credo, of course, Intel’s approach has its drawbacks. The most obvious is that 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 its succession plans years in advance, talented, loyal managers who don’t see a path to the top aren’t likely to stick around. In May 2004, one of Intel’s most valued execs— Mike Fister, head of its server processor division—left Intel to take the top job at Cadence Design Systems, a long-time supplier of chip-design software. Dave House, another highly regarded Intel executive who was considered 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.
1. To recruit the CEO from the inside seems to work well for Intel. Do you believe this is a sound policy? Why?
2. How can a nontechnically oriented leader like Paul Otellini succeed as CEO in a technical company such as Intel?
3. Why do some firms fail to plan effectively for executive succession? Sources: Adapted from http://drfd.hbs.edu/fit/public/facultyInfo. do?facInfo=bio&facEmId=dyoffie (accessed on June 10, 2010); Chris Nuttall, “Intel Earnings Beat Wall St Forecasts,” Financial Times , October 14, 2009, p. 19; G. Pascal Zachary, “How Intel Grooms Its Leaders,” Business 2.0 , July 2004, pp. 43–45; Intel Annual Report , 2003; and Paul S. Otellini, “Intel Executive Bio,” Intel Information, 2004.