Business Strategies of Intel - Case Study Example

Intel case study: Intel in early 1990s Back before Santa Clara Valleybecame known as Silicon Valley, Robert Noyce and Gordon Moore started Intel which since then has single handedly set the industry standards for computer, networking and communication products for the past four decades. Intel's rich history has powered the rise of the Information Age, combining innovation with business savvy to quite literally change the world. Having made its mark in the manufacturing of memory chips, Intel faced several challenges in the 1990s due to stiff competition from the Japanese .Intel has been able to not only address but also thrive in the face of competition, due to clever strategies involving diversification, innovation ,mergers and smart investments. In this essay, let us examine some of these policies in early the 1990s that have made Intel the industry leader it is today and the organizational consequences they brought about. 1. Diversification: Due to intense invasion of the Japanese in the memory market, Intel decided to cut its losses and phase out its DRAM product. It shifted its focus to manufacturing of CISC (Complex Instruction Set Computer) processors with renewed vigor and this became Intel's largest source of revenue. It had also lined up secondary products like Flash memory and RISC(Reduced Instruction set Computer) processors. Intel began calling itself "The Microprocessor Company" .By pushing both its CISC and RISC technology, Intel hoped to maintain its dominance in processor market.(Dakota Hatch(October 2004). 2. Innovation: Innovation has always been Intel's ace in the sleeve .By its passionate pursuit of the latest and greatest in technology and futuristic vision, it has carved itself an undeniable place in the history of evolution of technology. The emergence of multimedia in the early 1990s signaled a new era of personal computing. Intel was up for the challenge. The Intel Pentium processor served as the engine of this multimedia revolution by making it easy for users to incorporate speech, sound, handwriting and photographic images. The Internet era of personal computing, debuted roughly halfway through the 1990s, marked by the mainstream deployment of Web browsers. The Intel Pentium II and Pentium III processors powered PCs through this pivotal stage of high tech evolution. (Intel Press Release). The Japanese tended to be the process technology leaders into each new smaller line width process generation. By the early 1990s, however, Intel found itself in the position of needing new processes in advance of the DRAM (Dynamic Random Access Memory) industry's needs or its willingness to invest in such processes. Intel had to learn to be a process technology leader and to develop systems whereby it could continue to improve process technology while accelerating its pace of product development. Intel crafted a brilliant 3DCE strategy that used product/process modularity to reduce significantly the complexity of the company's technical challenge: Throughout the 1990s, the company launched each new microprocessor generation on the "platform" of an old (linewidth) process. Alternately, each new process generation was launched with an "old" product technology. In no time, Intel's process technology was second to none .( Sean Osborne,1993). 3. Creation Of Intel Architecture lab in 1991: During the early 1990s, PC demand was poor because of the obsolescence of PC architecture and the non-willingness of PC industry leaders to advance system hardware along with the software. This lack of platform leadership in the industry had limited the scope of innovation at the system level. This was a serious issue for Intel because the microprocessor was a big growth industry and the fact that many companies had a say in PC design indicated that no single supplier could change the system by itself. To tackle the PC platform obsolescence problem and also to address the essential challenge of increasing the demand for PCs, Intel established its own Intel Architecture Lab (IAL) in 1991. The goal of IAL was to move the PC platform forward by expanding its scope to more than simply trying to redefine the technical architecture of the PC. The creation of IAL coincided with the moment that platform leadership' became an explicit goal at Intel. The role of IAL was defined as spreading out the market for Intel's high-end microprocessors and to act as a catalyst for innovation in the industry. Intel, through IAL was successful in driving innovation activities at other firms that manufactured complementary products to its microprocessors. IAL also tried to create new uses for PCs and in turn generate demand for new computers, most of which would use Intel's microprocessors. The development of Peripheral Component Interconnect (PCI), and enabling the whole industry to use this was a major achievement for Intel. Thus Intel was able to maintain its leadership in platforms by implementing a three prong strategy-sponsoring innovations in PC architecture, stimulating external innovations on complements, and finally, coordinating industrial innovation. Intel had the desire to act as a catalyst in the industry innovation. For this, it devised a two-way strategy: One was to stimulate complementary innovations, which would enhance the PC, and the second, to define the parameters of compatibility among complementary products made at other firms. The second dimension involved playing a coordinating role to stimulate innovation in other firms. These strategies were implemented with the help of IAL, which helped Intel to raise the barriers to entry for any firm that wanted to compete directly with the Intel-sponsored (and industry-backed) PC architecture. Intel adopted the following strategies to maintain a sophisticated approach to manage external relationships: - Building momentum around interfaces - Relinquishing royalties on intellectual property - Using public fora to generate momentum and also to refine standards - Organizing compliance workshops called the plug fests' - Creating and distributing enabling tools - Strong marketing campaigns to enhance its brand image. .(Rama Krishna Neti,2001). 4. "Copy Exactly" Factory strategy: Intel introduced its "Copy Exactly" factory strategy in the mid-1980s and completed its adoption in 1996. Intel can credit "Copy Exactly" with enabling the company to bring factories online quickly with high-volume practices already in place; hence, decreasing time to market and increasing yields. As the strategy evolved, manufacturing became the heart of Intel's turnaround and growth in the 1990s. Productivity increased many times over. In 1997, VLSI Research estimated that revenues per manufacturing employee increased from $114,000 in 1985 to $461,000 in 1995. Meanwhile, the company's revenue increased by three times during those 10 years, while the number of factory workers decreased by 30 percent. "Copy Exactly" provides Intel with greater resources than other companies' fabs because each Intel fab can share technical resources worldwide across the virtual factory network. (Intel Backgrounder). 5. Sound investments in technology worldwide: Intel has invested in established and new technologies that help to develop industry standard solutions, drive global Internet growth, facilitate new usage models, and advance the computing and communications platforms around the globe. In the early 1990s, Intel began with a strategy to seed just a few companies whose products and services filled gaps in its own product line, capabilities, and capacity. But that strategy soon grew and later it formed Intel Capital. This enabled Intel to stay ahead of itself in the ever changing world of technology on a global basis. So whenever there is anything exciting on the horizon, Intel made sure that it already had its hands on it.(About Intel Capital). Organizational Effects of the above high strung strategies: In its efforts to become a platform leader, Intel simultaneously developed many internal organizational capabilities, which would be helpful to achieve platform leadership. It was able to cultivate internally among the engineers, a system mindset', which requires managerial attention, technical expertise and resources at the level of the overall system of platform. The constant pushing for technological excellence, higher and higher expectations from grass root engineers, leads to enormous pressure being mounted on the employees in an attempt to stay ahead of the aggressive competitors. Intel's rigid work culture characterized by strict work hours and ambitious MBOs (Management by objectives)in an attempt to maximize productivity, tends to burn out over worked engineers. Mid level managers are left with the task of boosting employee morale by compensating the hard work with well deserved bonuses , recognition awards and promotions . Training employees in cross-functional areas rather than fostering expertise in a single field is one way of not applying too much pressure on any one engineer. Managers are also responsible for sensible balance of scheduling in such a fast paced environment. With Intel's ruthless policy of laying off the unproductive work force and high employees attrition rate due to burn outs, managers have to constantly open requisitions to bring in and make use of fresh talent. As Intel gained momentum in the technological world, it also started wielding a lot of power. It was natural that the tensions arose between the platform leader and outside firms .Intel formulated strategies to overcome the conflicts of interest with the outside firms. These included establishing trusting relationships with complementors, exerting some restraint over their scope of activities, taking a gradual, low key approach in pushing innovations, keeping the implementation specifications of new interfaces open, and lastly, persuading external firms to accept new standards or innovate ways that would support the latest Intel microprocessor line and also the PC platform. The uniqueness of this strategy was that while trying to persuade the external firms to follow the new standards, Intel did not forget that a platform leader needed to compete with its rivals as well. This made Intel a real platform leader in terms of effectively managing conflicts with external firms. (Rama Krishna Neti,2001). One can summarize by Intel's phenomenal success in the face of decades of technological and economic changes, that it has strategized admirably and skillfully both within the organization and outside, thus making it a powerful force to reckon with in the global high tech business. Works Cited About Intel Capital,Investing in Inoovation,December 2005,< http://www.intel.com/capital/about.htm>. Hatch,Dakota,"Intel:A Strategy for the 90s",October 19,2004,December 2005,< http://web.njit.edu/dch6/portfolio/intel.pdf>. Intel Backgrounder,"Copy Exactly Factory Strategy",December 2005,< http://www.intel.com/pressroom/archive/backgrnd/copy_exactly.htm>. Intel Press Release,"Intel Marks 20th Anniversary Of The IBM Personal Computer",December 2005,< http://www.intel.com/pressroom/archive/releases/20010801corp.htm>. Neti,Rama Krishna, "Platform Leadership How Intel, Microsoft, and Cisco Drive Industry Innovation ",Book Summary,2001,December 2005,< http://www.platformleadership.com/Case%20Folio.htm>. Osborne,Sean,"Clockspeed based strategies for Supply Chain Design",Visions Magazine,1993,December 2005,< http://www.pdma.org/visions/oct00/cover4.html>. Read More