Case Study – Intel This is a strategic management case

What drove Intel? Craig Barrett, appointed executive vice president in January 1990, believes that “the world changes and the centre of gravity shifts. We need to shift with it.” . Intel recognises the need for continually analysing and reviewing its strategies in order to meet the changes and challenges that come from the external environments so as to meet the stakeholders’ expectations. Intel strives for business renewal and revitalisation as a way of dealing effectively with the impact of the information society on today’s dynamic industry. Therefore, Intel is an innovation-driven organization that strongly believes that competitive advantage can be achieved by choosing the right option at the right time so as to create value to Intel’s key stakeholders: its customers. To achieve this Intel uses the following key drivers (which are discussed in detail in Question 2):

*Market leadership and Innovation

*Research and Development

*Strategic Alliances

*Good Human Resource Management

*Benchmarking

*Branding

KEY INNOVATIONS

Innovation has always been a key feature in Intel’s history. In this section we summarise the major innovations brought out by Intel:

1969SRAM (bipolar static random access memory);

1971EPROM 1702 (erasable programmable memory device);

Intel launches its first microprocessor (the 4-bit 4004);

1974Intel launches its first general-purpose microprocessor (the 8-bit 8080);

1981The revolutionary 432 32-bit microprocessor is launched;

1985The 32-bit 386 microprocessor is introduced (the 486 will replace the 386 in 1989);

1993The first generation of Pentium processors is introduced;

As one can see, Intel has continually introduced breakthrough market creating products, highlighting the importance of innovation as a key driver to this company.

KEY STRATEGIC INITIATIVES

1984Copyright protection (i.e. lawsuit against NEC) and dramatic changes in the company’s licensing strategy (only IBM was granted a license);

1985Intel exits the DRAM business (and by the end of 1986 also the SRAM business);

Mid 80’sIntel decided to minimise layoffs and instead accelerate product introductions.

With the “386” Intel mainly focused on microprocessors and other business initiatives generating high margins (e.g. supercomputers);

Late 80’sThe SEMATECH alliance did not match expectations and faded away; in 1988 Intel teamed up with Siemens but, once again did not succeed, like many others both before and after.

Structure:As times change, organisational structure to evolve/change (1987-1988);

COMPETITIVE STRENTGHS

Due to its successful early days into the semiconductor industry, Intel established itself as one of the leading brands in the hi-tech sector. Intel managed to create and develop such an established and well recognised brand by being able to launch new products as well as being able to reinvent itself (e.g. moving from semiconductor memories to microprocessors).

In other words, management created a dynamic internal environment where people were encouraged to accept ‘change’ as part of Intel’s corporate culture. This was achieved through designing a matrix structure that favoured and facilitated the flow of information and knowledge across the organisation. Intel managed to create an internal environment that requires employees to deal with challenging corporate goals (i.e. result orientated) and beliefs (i.e. attention to details/quality, professionalism, etc) in a team-based and open-minded workplace.

Given the dynamic industry Intel is operating in, innovation can be obtained through investing heavily in Research and Development (R&D).

All the above-mentioned strengths may only feature in an organisation that has great managerial vision; in other words, Intel’s management was able to analyse the changing patterns of the industry, make choices (see the “buying options”) and implement them quickly (i.e. strategic flexibility) in order to achieve competitiveness. Finally, another major strength may be identified: Intel believes that listening to its customers and working close with its business partners is a pivotal factor in the search for competitive advantage and, indeed, corporate success.

CORPORATE CULTURE

Culture was of great importance to Intel. The 2-in-a-box management philosophy enabled top management to form a complementary and well-balanced team by combining philosophical and pragmatic skills. The 2-in-a-box philosophy reflects Intel’s culture: it requires both strong personalities (egos) and teamwork (a philosophical dichotomy). Intel’s culture is focused on being aggressive and direct, as suggested by Bob Noyce (1988) “people get respected or get ahead because of their abilities, not their position. You can always tell the boss he’s wrong” . Being a knowledge-based organisation, people are valued as Intel’s critical factor in the successful application of such beliefs in its culture. In such a dynamic and ever changing environment, people are required to be good at coping with change. The extent to which an organisation succeeds to adopt a “ready-to-change” type of attitude/culture depends on the structure that is in place. In order to effectively cope with a so-called “action orientated” environment required Intel to adopt a flexible and matrix-type of organisation structure where particular attention needed to be paid to its communication system.

FUTURE CHALLENGES

Intel began its core business in memory, Intel then moved from semiconductors to the microprocessor business. The company was able to change its core business but not without difficulties (the so-called “semiconductor bloodbath”). The rise of the Internet and the growing ties between the entertainment and telecommunication industries represents the future for the hi-tech sector. For instance, Microsoft is no longer focused on software alone; thanks to its experience and knowledge base, Microsoft has challenged Sony’s PlayStation with its X-Box in the gaming industry. Microsoft is also planning to enter the mobile phone market (Microsoft has teamed up with Motorola and developed smart phones and other wireless devices). The widening application of internet-related technologies and digital technologies will definitely play a big part in Intel’s future. In fact, Intel will soon launch “the next generation of Intel® XScale technology based processors to be used in mobile phones, PDAs and other wireless devices” . More particularly, those new developments will enable mobile phones to dramatically improve the way cell phone and PC users gain access to the Internet and avail of mobile phone-related applications (i.e. digital pictures and video clips). Therefore, the focus is now on wireless mobility products that combine communication itself, technology and entertainment.

Intel’s history was one of pursuing alternative technologies, including microprocessors, other chips, flash memories and personal computers. Intel became pioneers of both old and new industries through revamping products and creating new product sectors. The result being that Intel for many early years held the advantage above all competitors. This and other factors lead to more than thirty-five years of success, which even saw a ten-year period of 30% per annum compound growth. A major factor for this success was their ability to identify the core competences that reside within the company and utilise them in the most effective way.

Due to the fact that companies in a similar market all share common resources it is vital that each company deploy their resources correctly in order to achieve competences that will enhance their business. Even more important is being able to identify and apply Core Competences (activities or processes that critically underpin an organisation’s competitive advantage). These create and sustain the ability to meet the critical success factors of particular customer groups better than other providers in ways that are difficult to imitate. Essentially, it is the factors that allow a company to reach its goals.

It is very easy for a company to assess the ability or outcome of their final product, they assess and predict customer’s reactions to that product, but what can be difficult is identifying what drivers or factors made the success of the product possible. It is thus essential for the company to analyse itself in order to identify the key drivers to its own success. The following are the major key drivers that are apparent from the article to the success of Intel and its products;

With the aid of the Top-Down approach, which begins with customer analysis and moves inwards to the organisation, as seen in Chapter one of Ambrosini. I have identified the core competences that undoubtedly have contributed to the success story of Intel.

1.Market Leadership and Innovation.

Intel were persistently updating their products on offer to the customer, for example they introduced the 1103 which became universally preferred to the magnetic core memories and soon became industry standard. Intel also had a focus on self-reliance, which forced them to continuously sharpen their capabilities, ensuring constant investment in R&D. This allowed them to stay completely focused on delivering the most powerful, technically advanced product available on the market anywhere.

2.Research And Development.

Due to the fact that Intel constantly updated products, (like for instance the 256-bit MOS SRAM was replaced by the 1K chip 1103 DRAM.) it meant that competitors found it initially difficult to imitate their products. To maintain their market position and share Intel needed to be the first to develop and release new products, over the years Intel’s investment in R&D grew substantially, so much so that the figure was predicted to be 1 billion for the year 1999. Intel’s ability to be innovative comes from the work and investment they put into their R&D.

3.Strategic Alliances.

Intel are essentially producing products to go into other companies products and as such their reliance on partnerships is very high. In the early years Intel granted licences to many firms to use their chips, but this was later changed and IBM accounted for the majority of their business, at one point IBM owned a $250 million share hold in Intel. The computer company put Intel’s 8088 microprocessor in every PC it produced. This helped Intel achieve a large market share, and got the company through the tough recession and the “semi-conductor bloodbath”. Along with 13 other American chipmakers, Intel entered a consortium to challenge the threat of their Japanese counterparts, however this wasn’t as successful as was anticipated, however it brought companies together that had been competitors for years, and made the Japanese threat a major objective for all.

4.Good Human Resource Management.

They were constantly inventive with their management structure, such as the two in a box idea where two differently qualified experts worked closely together with one objective. They operated in a very flexible manner using matrices that allowed for permeable membranes, essential in this competitive industry. They paid special attention to the staff, constantly motivating them with bonus incentives and sabbatical opportunities, while constantly encouraging innovation. The early informal human management structure was replaced by a more formal one, which constantly worked at getting the best from the staff. When job cuts were being made across the industry, Intel devised the “125%” plan where staff worked an extra 10 hours a week for no extra pay and thus all jobs were saved.

5.Benchmarking

They used benchmarking techniques to identify where they were in the market and how they could improve. They observed Japanese companies who were much further down the experience curve to see how they could follow their lead and try to reduce their own costs and thus prices. This also helped them understand the market standards and the demands of the ever more informed market.

6.Branding

To combat the threat of imitation they developed a brand image. Intel Inside. The logo for this was placed on various computers so customers knew they were purchasing something from Intel. This developed brand loyalty as customers constantly sought after their microprocessors. It was a very clever marketing ploy that worked for them by targeting the end customer who then stimulated Intel’s primary customer, the computer companies.

With the key drivers identified it is easier to analyse the core competencies. There has been a constant common factor running through all of Intel’s actions and that is one of flexibility. Intel have the unique ability to meet adapt and overcome practically all obstacles to its growth and development. Through the information we are given in the Intel case study we can see much evidence for this core competency, Intel showed their ability to enter and create new markets at ease and also to respond to new challenges in those markets. Intel’s move from semi conductors to microprocessors highlights this.

The basis for this flexibility comes from their huge R&D developments, the R&D is the foundation on which Intel deals and adapts to each situation. The management must also take credit for this flexibility because they have created an environment of experiment and idea development for their staff. A great example is the Semi-conductor bloodbath that the company was part of, Intel had the facilities to deal with these threats and then in years to come conduct their operation crush with Motorola. As long as Intel can remain flexible they will have a competitive advantage over their competitors.

Another of Intel’s core competencies is the culture it has built up through its staff. Starting as a small company, the firm’s people played a very large role in its development; the investment pumped into R&D was essentially being pumped into the staff and their creative abilities. Projects such as two in a box and product champions were used to spur the staff on in their idea development. The use of incentive and reward schemes was also used well be management to encourage staff. In the times of trouble Intel brought in measures which meant job cuts were not needed, the “125%” and the “90%” were measures that had staff working 10 extra hours a week for no extra pay, and also had staff taking 10% pay cuts. This staff/company loyalty was and is very unique to Intel.

Probably Intel’s greatest core competency is its ability to constantly produce innovative products when they are needed. The company was created on the strength of a technological innovation, replacing magnetic-core computer memory with semi-conductor memories. The products Intel were producing had a relatively short shelf life in so far as, once released competitors had access to the new technology and it wasn’t long before similar competitor products were available. In an industry such as this, to have the ability to be consistently innovative is a core competency, and Intel for a spell of close on 35 years now, has that advantage.

1. The inherent organisational culture in Intel provided that there was a flexibility and a willingness to transform itself in the face of a consistently varying competitive landscape, through the knowledge and training of it’s employees and their transferable skills and talents. This allowed Intel to move from the research and development stage, through production and market success for many of its innovations. What is certain is that Intel was the leading organisation in innovation at a number of various stages throughout the 70s, 80s and into the 90s with its products often setting the industry standard. The products introduced by Intel, including the SRAM, which was followed closely by the highly successful DRAM, showed Intel to be an organisation which would shape the development of the industry. The history of Intel’s movements into and out of some markets was in some cases under forced conditions of intense pressure from competitors, e.g. their 1985 exit from the DRAM market.

The move from being a memory producer to a microprocessor supplier involved a full-scale review of Intel’s primary focus and culture and has since ensured the company’s ability to face the challenges of future uncertainty. This strategic flexibility has allowed the company to move into a wide variety of markets and to focus on consistent technical innovation instead of trying to compete with other low-cost manufacturers. Whatever the duration of success of an Intel product, the organisation’s culture is assured that it has the best possibility of survival and future success, through their strength in recognising that all structural “forms are ultimately transitory, and their purpose is to respond to the needs of the time” (Vadasz).

2. Intel’s original entry into the marketplace defined it as a mainly manufacturing enterprise and they continued in this vein for several years to the detriment of downstream expansion. Moore himself admitted that it had been a conscious decision to stay out of the PC business at a time when many of their competitors realised the benefits. This led to a total loss of revenues accruing from the workstationsrevolution. Recently however it has been observed that Intel’s long-range strategy may include moves to come closer to the final customer. This shows in their expansion to offering platform computer systems but will also be dependent on what new innovations and capabilities Intel could develop in venturing downstream. As Intel have yet to become a full vertical organisation providing innovative R&D, while manufacturing and delivering PCs, it is difficult to assess and measure perceived customer benefits but with Intel’s objective of “dominating any market in which they participated”, we could make the assumption that perceived customer benefits will only increase with time and investment.

3.While Intel had established itself as a market leader with regard to innovation and the consistent introduction of superior microprocessors, as early as 1974, Intel began to feel the pressure of competition with its 8 bit 8080, as Motorola and Zilog began launching their own versions. From this point on, Intel became forced to try and keep up with introducing improved versions of existing memory products and microprocessors, as well as continuing research on new innovations. It became a difficult strain with the 1985 exit of the DRAM market and was predominantly due to the superior manufacturing processes of their Japanese competitors. While Intel was a leader in innovation, when it came to manufacturing, it was difficult for them to retain market leadership, as they were unable to compete with their lower cost competitors.

However, Intel’s strength in re-inventing itself across the entire organisation was a great asset in recessionary periods and other hard times. Intel’s philosophy of re-organising its people across the company to fill various corporate needs and not downsizing meant that they retained a key asset – its innovationary capabilities, which had been invested into their staff through training and employee empowerment. By managing their staff and knowledge this way, Intel secured their future technological success by changing their focus as the need arose. This commitment to a continual process of re-learning and re-focusing is not a culture that exists in many companies and such a culture is extremely difficult to imitate. This philosophy has been the difference between success and failure at crucial points in Intel’s history.

REFERENCES

“Intel Unveils New Technologies For Future Cell Phone, PDA Processors Based On Intel® XScale® Technology” (September 17, 2003): http://www.intel.com/pressroom/archive/releases/20030917net.htm?iid=Homepage+Highlight_030917b&

-Hitt, M.A., Keats, B.W., DeMarie, S.M. (1998): “Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century”; Academy of Management Executive, Vol. 12, No. 4; pp. 22-42;

-http://www.intel.com/intel/intelis/museum/research/arc_collect/history_docs/brochures.htm (“25 years”)

-Ambrosini, V. (1998). Exploring Techniques of Analysis and Evaluation in Strategic Management, Prentice Hall Europe.

-DeBlock, D., Fielstein, E., et al. (September 25, 2002): “MOT 310 – Lecture 5 Case Deep Six”; http://www.google.ie/search?q=cache:XxN8U3ZjZ8sJ:mba.vanderbilt.edu/david.dilts/mt310/2002-09-25%2520Case.ppt+INTEL+corporation:+swot+analysis&hl=en&ie=UTF-8

-Carpenter, D. (September 15, 2003): Motorola, Microsoft Team Up on Cell Phone; http://www.kansascity.com/mld/kansascity/business/6773921.htm