MODERN PHENOMENA

The decision took place more than half a dozen years ago. But it remains a "textbook example" of how even the brightest executive can make a horrendous decision blunder.

It was autumn 1994. The organization was Intel, the world's largest computer chip maker. And the executive in question was it co-founder and CEO at the time, Andrew Grove. A year earlier, Intel had introduced the powerful Pentium chip. It had quickly become the brains in more than 4 million personal computer.

In late October 1994, a professor in Virginia discovered a flaw in the Pentium chip. In division problems invloving very large numbers, the solution was incorrect. When trade publication wrote an article on the chip's flaw on November 7, Intel admitted that it found the flaw four month earlier and had corrected it. A small but vocal group of customer and computer industry advocates was not happy with that response. They wanted Intel to replace all the flaw chips. Grove and his executive team approached the issue the way they attacked all large challenges - as an engineering problem. They broke it down into smaller parts, analyzed it rationally, and came to a conclusion. The company announced on November 14 that it had decided it would refuse to guarantee replacement chip for all costumer. It would replace faulty Pentium chips, but only if computer owner could demonstrate that they really needed an extra margin of accuracy. The company argued that most users would encounter an inaccurate answer just once in 27,000 years. Grove considered the issue closed.

But the consumer were angry. They didn't want a flawed product. Tens of thousands of people who had bought computer with the Pentium chip wanted a replacement regardless of whether they did complex calculation. Under pressure, Grove again met his senior executive group to analyze the problem. After round-the-clock meetings, they decided to hold their ground. They described the flaw as "minor." Grove insist that the odds were 9 billion to 1 aggainst the Pentium chip causing a mathematical error. But Intel's stance only escalated criticism. Finally, after Intel's marketing director spent the better part of a Sunday afternoon hammering into Grove's head that his decision was wrong, Grove change his ming. On December 21, 1994, Intel abruptly anounced that it would replace all flawed Pentium chip for free, no questions asked. The company spent $475 million replacing those faulty chips. The damage to the company's reputation was undoubtedly a lot greater. Looking back, grove describes his decision not to replace the flawed chips as "an enormous mistake."

How could Grove have made such a blunder? The answer is that he responded to the problem like the engineer he is, he treated the flaw as technical problem, not a consumer problem. From a technical standpoint, logic and reason would argue that there was no need to replace all flawed chips since the flaw affected so few users. What Grove failed to grasp was that people who bought the flawed chip felt taken advantage of. They had paid for a perfect chip and didn't get one. Grove position came across as condescending and arrogant. In this instance, the engineering mentality that Grove so successfully brought to technical problems did him in.