Fast Company

Intel Is Putting Its Chips on the Net

Craig Barrett won't let the slowdown in the semiconductor market stop his company's bid to be the world's number-one e-commerce player. Says the Intel CEO: "We almost couldn't help becoming an Internet company."

Following in the footsteps of a business legend is never easy. It gets even tougher when an economic downturn follows hard on the heels of an economic upswing.

In 1998, when Craig Barrett replaced Andy Grove as CEO of Intel, the company was flying high as the world's number-one microchip maker. A technology-led boom was under way, and Intel prospered by manufacturing the innards for most of the world's PCs, as well as for other computing devices. Inspired in part by the rise of the Internet economy, the company expanded its investments in networking and communications chips, and in devices and services.

Three years later, the PC market has leveled off, and the Internet economy is under siege. Sales at Intel have declined steeply as a result, and the company announced in March that it would eliminate 5,000 jobs, mostly through attrition. Over the past six months, Barrett has rechanneled the company's resources into its core chip business, and he has retrenched on some of his efforts to diversify Intel -- including various Internet-services initiatives.

Yet Barrett has by no means given up on the Internet. Although he has set Intel on a back-to-basics course, he insists that the Net is now a basic part of how work gets done at the company. On his watch, Intel has etched the Internet into its operations with the same obsessive perfectionism that it applies to etching its chips. Today, by at least one reckoning, it is the world's largest e-commerce company, boasting $2 billion or more a month in online sales during 2000. It hosts an estimated 100,000 customized Web connections for external users, and it handles 80% of its direct product-materials expenditures online.

Barrett, 61, combines a rugged sensibility with a savvy outlook on technology. The owner of a 12,000-acre ranch in Montana, he looks as though he'd be more at home roping cows than holding court in a conference room. Indeed, he has the brusque, taciturn manner of a true Montana native, although he was born in San Francisco and raised in the Bay Area. He is a graduate of Stanford University, where he later became an associate professor of materials science and engineering. He joined Intel in 1974, rose through the ranks there, and was named president in 1997, a year before taking over the helm as CEO.

While it may be true that "only the paranoid survive" (in the immortal words of Chairman Grove), Barrett displays a steely-eyed optimism about his company's prospects amid the ups and downs of the Internet economy. "We expect that our networking and communications businesses will grow even faster than our old core business," he says. "It's a huge growth opportunity." He remains equally upbeat about the potential for turning Intel into a "100% e-business."

In an interview with Fast Company, Barrett discussed how Intel has transformed itself into a Net-centric company -- and why every company needs to make that transformation.

What are the features that define a true "Internet company"?

For us, an Internet company was always different from the prototypical dotcom that captured the media spotlight and investors' imaginations. We recognized early on that the business-to-consumer part of e-commerce was just frosting on the cake. The meal itself was going to be the business-to-business part of Internet commerce. That's where 90% of the action is. (Most journalists like to focus on the other 10%.) So for Intel, being an Internet company meant turning ourselves into a 100% e-business from front to back -- not just in terms of selling and buying, but also in terms of information transfer, education, and customer interaction. We wanted to improve our competitiveness and our productivity, to streamline our internal operations, and to save some money. We also wanted to show that we can use the technology that we sell to the rest of the world.

By all of those measures, we're well on the way to meeting our goal: We did more than $31 billion in e-commerce in 2000. Our customer-service analysts now log 40% more orders in the same amount of time, and spend 48% more time on high-value customer relationships, than they did before the Internet came along. And we reduced our order-error rate by 75%. But what makes us an Internet company isn't the fact that we hit those numbers; it's the fact that we live and breathe this stuff now.

Has the shift to being an Internet company changed the culture at Intel?

The Internet hasn't changed us as much as it has amplified some of our strengths as a culture. We're a matrix organization: Everybody has to know what everybody else is doing. Well, clearly, the Internet supports that philosophy by enabling rich, fast communication. So the Internet is totally synergistic with our culture.

We get technology. We make it, and we use it. We produce the basic building blocks for new technology and then wind up using those products almost instantaneously. Eating our own dog food means that we have to stay on the cutting edge of what's out there. We almost couldn't help becoming an Internet company.

And the fact that we're part of the computer industry -- which has one of the fastest technology-turnover rates of all manufacturing industries -- means that we understand speed. It wasn't much of a stretch for us to embrace a technology that helps us communicate more rapidly. The Internet simply fills a driving need that we've always had to move faster.

In what ways has the Internet changed how people communicate within Intel?

The Internet is an adhesive that bonds employees to each other and that bonds various parts of a corporation together. Nothing supersedes face-to-face contact. But being able to communicate instantaneously certainly makes an organization more cohesive -- and also a lot more productive. As a corporation gets bigger and bigger, you need to do everything that you can to make it seem smaller and smaller. That's a challenge. Many of us joined Intel when it had just 1,000 employees or even just 100 employees. But now we have more than 85,000 people, and many of our divisions are spread across multiple sites. Those people must use the Internet to communicate, or they'll go crazy.

How does being an Internet company affect the way Intel relates to the outside world?

The best deliverable to date has come in the area of customer service. Customers can now access information that's relevant to their company from anywhere and at any time. In fact, about one-fourth of all transactions on our systems are done by customers after business hours. The design engineers who now get their specification documents from us online, rather than through in-person delivery, say that using the Internet has cut one to three weeks off their design cycle. And for us, the Internet has done what it's supposed to do: It has cut error rates, and it has sped up the time between order placement and action in a factory.

Using the Internet has strengthened relationships, because our dialogue with customers and partners is now much deeper, and takes place much faster, than before. And I don't think that it's any less personal. Quite the opposite: E-commerce technology facilitates communication for us in the same way that email helps people stay close in personal relationships.

Have customers and partners embraced what you're doing on the Net?

We thought that some of our Asian customers would be a little slow. But they actually adapted more rapidly than their U.S. counterparts. We had people who went in to educate those Asian customers: "This is how we're going to communicate with you. These are the protocols." And within a few months, some of these customers were suggesting improvements to our user interface! We went to 100% e-business very early on in Asia -- much faster than we did in the United States.

These customers saw the advantages of this tool very quickly, because they live on the edge of this whole industry. They're here today, gone tomorrow. If they don't get orders, they go out of business. Time-to-money is everything for them. Many of them don't have brands. So they tend to value time-to-market and cash flow more than many other companies do.

Can company leaders get away with just dabbling in the Internet?

I don't think that people have any choice about this. People didn't have any choice when the telephone came along -- not if they really wanted to be competitive. Especially in the international marketplace, if you don't have this capability, you're simply not going to be competitive.

Andy Grove has said (and I agree with him) that in five years, there won't be any Internet companies; there will just be companies. We can argue about how many dotcom companies are going to be around in the future. We can argue about when those companies are going to make money. But we're not going to argue about whether Intel -- or Cisco or Dell or GE -- is going to become a 100% e-business. We're simply going to do it and save billions of dollars in the process.

How has the Internet changed your job?

The role of a CEO is to decide which businesses the company will be in, which business plans it will follow, and how it will remain competitive in the market. The Internet can help a CEO make those decisions. But I don't think that it has dramatically changed things. We get information faster today -- that's all. Information used to be available in the newspaper, then it was available by fax, and now it's available online.

And the Internet hasn't cut down the need for travel either. If anything, the fact that the Internet has leveled the economic playing field around the world and that it's driving huge investment in developing areas -- Asia, Eastern Europe, Latin America -- means that you have to travel more. Two-thirds of our business used to be in the North America. Now less than half of our business is in North America, and more than one-third is in Asia.

True, we get data faster than my father did -- but my father would have said that about my grandfather, and my grandfather would have said that about my great-grandfather, and so on. That's an evolutionary change --

Wait a second. You're wearing an email pager, which your father's CEO never did. How many times has that device gone off since we started this interview?

Three. I've resisted looking at my email to see how important it is. I decided to practice patience and to show you that I have the willpower to get through an entire interview without peeking.

Cheryl Dahle (cdahle@fastcompany.com) is a Fast Company senior writer. Visit Intel on the Web (www.intel.com).

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