How Intel Israel’s David Perlmutter turned failure into success

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Israel endured a colossal, costly failure on October 7, 2023. Thanks to the courage and dedication of its defense forces, and those who kept the home fires burning, it has bounced back. The Mideast today has changed its face, for the better.

Yet our political leaders continue to resist launching an impartial, objective process for learning from this failure, lest they be held culpable.

In a previous column, I wrote about how the Israeli Air Force conducts an efficient debrief of every flight, long or short, and how we should embrace its method. (“How to Debrief October 7,” Oct. 21 issue).

In this column, I present a failure-to-success account from Intel Israel, led by David (Dadi) Perlmutter, who went on to become Intel’s global executive vice president. True, political leadership is categorically different from hi-tech innovation. But there are many similarities. In many ways, leadership is leadership, whatever the context.

Perlmutter spoke to our Technion Entrepreneurship students in November and shared his experiences with the rapt students. For this column, I will use his words drawn from Chapter Five of his Hebrew book Molichim Le’Hatzlacha (“Superconductors to Success”), structured as an interview.

Intel’s David Perlmutter. (credit: PINI HEMO)

Do you have examples of failure-to-success from the business world?

‘He who doesn’t try, doesn’t fail,’ my father would tell me, then scratch his head and continue: ‘That’s not true, either because if you never did anything and didn’t try, you actually failed by definition.’

I reflected on this sentence, which was assimilated into my DNA over the years, and I realized that it is not a cliché. Every failure is preceded by an experience, and if I went back and learned something from the experience, then I already produced much more benefit than doing nothing and failing.

A few years ago I was in Australia, at a time when in the land of the kangaroos they dreamed of moving their economy from focusing on mines, agriculture, and financial services to focusing on advanced technologies. In one of the interviews there, I was asked by the interviewer: ‘What is the most important thing that needs to be done in order to succeed in Australia’s transition?’

I thought for a moment, and answered: ‘To fail. People who are afraid of failure don’t try hard enough and don’t dream enough, and therefore don’t succeed, either.’ The interviewer almost fell off her chair.

In the early 1980s, Coca-Cola decided to go for a new branding, the New Coke, they called it. The failure was so resounding that it almost crushed one of the most stable companies in the world. The first to pay the price was the marketing manager who came up with the idea.

Ten years passed, and the same CEO of Coca-Cola rehired that marketing director.

‘Are you crazy?’ he was asked in an interview. ‘He almost buried the company and you!

‘I didn’t go crazy,’ replied the CEO. ‘The guy failed, but I followed him for 10 years, I saw what he did, I saw that he learned all the lessons. I’d rather have someone who failed and rebuilt himself than someone who never failed. This decision proved itself.’

What have you yourself learned from failure at Intel?

For us at Intel Israel, one of the greatest successes was born out of hard, painful failure. And now the story in detail: The personal computer was a dramatic revolution that changed the world. As with every revolution, the stagnation phase came. In the second half of the 1990s, as more competitors entered, prices began to drop and profits were cut. We at Intel Israel were then contacted by Intel management with a mission: Find a way to reduce the cost of the product and its price because our microprocessor competitors were already selling cheaper products.

We started working, a team of 300 people, for three whole years, at a cost of more than $250 million. At the end of the process, we managed to cut the cost and the price of the microprocessor significantly. But in order to further reduce the cost, we chose a third-party memory technology, which did not meet the goals and caused an additional cost that canceled out all the costs we saved.

The bottom line? We incurred such a big and resounding failure that our employees feared mass layoffs and the closing of the Israeli operation.

At this stage, most people face failure by fleeing from it. We too could have admitted failure, try to find fault, convince the management that everything is fine, and move on.

Instead of crying over our fate, we decided to stop and analyze the path we followed until failure. We realized that if we don’t understand what happened, we would continue to fail – both in the technological choices and in the management decisions.

Initially, one of our employees – an F-15 pilot in the IDF reserves – brought his commanders from the Air Force to teach us how to conduct a debrief. Then we sat down and did an in-depth analysis, step by step.

Pretty quickly, we realized all the failures, and we discovered one more detail: In all the strenuous work to reduce costs, we caused another phenomenon that we hadn’t planned in the first place – the reduction of electricity consumption by almost half. A good investigation not only looks for what was not done well but also what can be produced positively.

At the end of the investigation, we, the management of Intel Israel, gathered all the employees. We stood there in front of them and explained: ‘We take responsibility. ‘Now,’ we added, ‘we found something. Let’s sit together and think about what we can do about it.’

We started discussing the discovery in groups, and in one of those discussions the engineers of one of the teams stood up and said. ‘If we know how to make something that consumes less electricity and its battery lifetime is higher, let’s make a laptop out of it. We will introduce wireless communication into it and eliminate the need to connect to electricity with a cord.’

True, the laptop is not cheaper than a desktop computer, even significantly more expensive, but people will want it because people like the possibility of being mobile, working from anywhere. If the computer doesn’t need power, you can work for a long time without electricity, and you can even disconnect from the cables that connect to communication. That is how a computer with wireless communication – Wi-Fi – was born.

The technologies we discovered and developed and that led to our failure in the goal set for us led us to the conclusion that we have a revolutionary development in hand. We built a plan and a business model, and approached Intel’s management with a proposal: To shift Intel’s main focus from desktop computers, which accounted for over 80% of the company’s profits, to mobile computers. Through our development, this could be done in a way that would be convenient and functional for customers. The code name chosen for the product, Banias, became the Centrino.

Of course, we were not satisfied with just the chip and the development itself but built business models that relied on low power consumption and included a longer battery life – computers that were much thinner than was common at the time, with better performance than any laptop at the time and wireless communication. We didn’t give up. We dug and found more and more value arising from the failure analysis.

Intel management pondered. Until then, the only value was the computer’s performance. Given that all computers are stationary, what makes a customer choose one computer over another brand is its performance. We at Intel Israel proposed to change the scale of values.

It is difficult to change a winning model that brings huge capital to the company and constitutes most of its income. The damage from failure for the company is huge and the benefits are not so clear, especially that new pushy idea that just failed.

The opposition was dramatic, and in some quarters I was declared an enemy of society. The manager of the desktop group asked to fire one of my employees, who went around the company and pushed the idea. My argument, on the other hand, was that we are only taking a risk in replacing the processor in the desktop computers, which until now was the processor designed for the desktop computers. I decided to keep to myself the belief that the laptop would one day replace the stationary computer.

For a while, it seemed like we had no one to talk to. I was so discouraged that I decided to quit. On September 11, 2001, the Twin Towers collapsed, and the world changed before our eyes. A dramatic meeting was held at Intel during which my boss – who later became the CEO of Intel – decided to take a chance and bet on us, to develop the product.

Later it was also decided to push the product by building a separate brand for the notebook products, something that had not been done at Intel until then.

In retrospect, we realized during the investigation that we could have identified the failure a few months earlier, thereby saving the company significant sums of money. One of the significant lessons was to learn to notice the point where we go from determination and adherence to the task, to suicide.

It’s not easy because the balance is very delicate: we don’t want employees to give up every time they encounter a difficulty. Sticking to a mission is an equally important value when dealing with innovation because the problems and pitfalls pile up every day, and catastrophes are commonplace.

When we act energetically, one of the strongest qualities is the urge to try to solve failures and keep running forward to meet the goal. As managers and leaders, we tend to radiate optimism and confidence in difficult times.

Our job as managers is to recognize when we are trying to solve a problem, that there is a red flag. In our investigation it became clear that as managers, there was enough data to make the decision earlier. In our blindness, we ignored it. Fortunately, we knew how to recover, learn lessons, and start a new path – and, in retrospect, a much better one.

Presumably, I admitted, if the laptop had also failed, I would have been shown the door. In practice, this did not happen. We got an opportunity; and the same group that failed, with the same manager that failed, had a huge success that led Intel to one of its best decades.

Of course, like the example from Coca-Cola, sometimes there is no choice but to fire a manager who fails, but only at the end of the process of drawing conclusions and an in-depth investigation, which clarifies where the failures are.

Does this approach to failure apply to the public sector as well?

In the State of Israel, one of the main problems of the culture, as it is expressed in investigative committees, is the search for culprits. We are, almost without exception, looking for someone who can be blamed. For the most part, someone whose firing won’t shock the system too much.

We as a public have a tendency to demand the head of another person every week. On the other hand, many of our politicians have the tendency to sweep problems under the rug and look for other culprits to point to each time.

Finding culprits to blame, as opposed to understanding processes, is the biggest failure in conducting a proper investigation. Fear naturally causes everyone to cast a positive light on themselves – and thus the problems are blurred, and the path to recovery and improvement runs into a wall. ‘Not to look for culprits’ was one of the significant messages we learned from the [Israeli] Air Force.

Sometimes it is better to give those who fail the opportunity to correct matters. In our case, at Intel, this decision proved itself. Within five years, data communication became common, and today there is no longer any product – computer, mobile phone, etc. – that does not have Wi-Fi. Intel changed its product line, which brought Apple and all Internet and cloud companies to use its processors, and Intel Israel became the leading center for the entire company.

Financially, our failure became a resounding success. Within a few years, Intel took over the market. Of course, I will not claim that every failure is good and useful, but only that a well-managed failure can become an opportunity for change and opening new doors and ways. In this case, we were lucky to fail.

In the era of accelerated changes, the world is moving from a material-based economy to a knowledge- and content-based economy. It is true that money and oil are important and will probably remain so for the foreseeable future, but the change is evident. Ideas, certainly in a huge economic crisis shaking the world, are just as important or even more important than material.

As part of the process, there is no way to avoid failure. It would be more correct to say that many failures are to be expected. The trick is to know how to prepare and learn from them.

Is dealing with failure something we can teach our children? 

The education system is an excellent example. When children prepare a project at school and fail, do we give them a zero? A good educator will grade the experience and direct the students to significant learning about the process that led to failure. So does the system itself. It needs to learn from its failures to date.

To paraphrase Albert Einstein, stupidity is repeating the same action over and over again and expecting a different result. In order to avoid repeating the same action, there is no other way than to go through each step and check what didn’t work. And if something did work, find out why.

We learn from hi-tech that failures are opportunities we must not squander. Charles Darwin is often misquoted, but the quote he never said is truer than ever: ‘It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.’ And, we might add, most adaptable in the wake of failure. ■

The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion. He blogs at www.timnovate.wordpress.com. 

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