Strategic Approaches Which Intel Can Take To Overcome the Challenges - Coursework Example

?Executive Summary Good organizations often learn from their external environment because it affects them most. All the strategy making process therefore takes into account the impact of the changes in the external environment and how the same can influence the organization. This report discussed how the external environment may affect Intel- the leading chip manufacturing firm in the world and how Intel can actually design its strategies to cope with the changing external environment. The report discussed the history of Intel and how it made a shift from a RAM manufacturing firm to a computer chip manufacturing company owing to tough competition from Japanese and other competitors. Report also discussed as to how Intel captured the personal computer processor market and completely revolutionized it. However, the emerging trends on mobile computing suggest that the Intel may be lagging behind in this segment of the business. Extensive competition in the chip business for the smart phones and tablet computers has resulted into the vanishing of Intel’s traditional competitive advantage in the market. Trends suggest that the manufacturing of personal computers- a segment where Intel is market leader despite the fact that it’s getting tough competition from AMD- is shrinking. This reduction into the personal computer manufacturing therefore could result into the loss of market share for Intel. The final section of the report discusses some of the strategic approaches which Intel can take to overcome the challenges posed by external environment. Introduction External business environment plays a key role in shaping the current and future strategies of a firm. Learning organizations therefore always attempt to understand and explore their business environment and subsequently adjust and develop their business strategies in such a manner which can offer them competitive advantage in that business environment. The business environment of a firm can include different factors such as political, legal, industry dynamics and their overall power and ability to shape the competition, social and economic factors besides the environmental factors. These factors often pose significant challenges to the firms and force them to account for the changes happening at different level. (Kew, & Stredwick, 2005, p14). Intel is the leading semiconductor chip maker in the world and is based in California, US. Intel works in an industry where technology rapidly changes and the overall pace of change is quite rapid. Such an environment therefore requires the firms like Intel to continue to develop and invest heavily in research and development. Further, the trends are shifting towards mobile computing and more and more new products are being introduced in the market almost providing the same functionalities like a computer but they are more mobile and light in nature. These trends therefore suggest that the semiconductor chip manufacturing industry may go through a radical shift. How these factors can affect Intel in future and how Intel should respond to them is what will be discussed in this report. This report will focus on identifying key priority issues faced by Intel and how these issues can affect Intel in short term. Intel Corporation Intel Corporation started its operations in 1968 from California, US as a computer chip manufacturer. It mainly manufacturers the microprocessors used in most of the personal computers however, it also manufactures motherboards for the personal computers, network interfaces, portable flash memory chips, integrated circuits and other technologies which are used in the communication technology. (Argyris, 1999) Intel started to manufacture memory chips initially however; it shifted its focus during 1981 when it started to produce computer microprocessors. Intel is therefore also credited with the invention of silicon based microprocessor which has completely revolutionized the personal computer industry by offering it the speed and accuracy to perform complex tasks at relative ease. Intel’s decision to focus exclusively on the microprocessors market was the result of the tough competition which it faced from the Chinese and Japanese manufacturers who were producing much cheaper memory chips to be used in the personal computers. As such, from early 1980s, Intel completely focused on the commercial production of microprocessors for personal computers and was quite successful in it due to its superior quality and better design capabilities. (Argyris, 1999) Intel was also the dominating supplier in the market of microprocessors during 1980s and 1990s however, it also started to lose against other manufacturers specially AMD. Intel lost the ground to AMD in the low and mid range market however, AMD has also started to overtake the high range market also due to its superior quality. It was because of this competitive challenge from AMD that Intel went through significant restructuring and reorganization in order to recapture the lost market. Business Environment of Intel Intel operates mostly in the microprocessor industry which is dominated by two top manufacturers i.e. Intel and AMD. AMD is a German firm offering microprocessors for the personal computers and is considered as the direct competitor of Intel in this market. A closer analysis of the business environment of Intel would suggest following issues of priority: Competition Intel is losing its market in the microprocessor business to competitors like AMD and ARM who are making significant progress in the market. Microsoft has recently announced that it will build its future operating systems which will run optimally on the microprocessors produced by ARM thus giving a significant blow to Intel in terms of its market share.( Arthur, 2011). Since most of the personal computers in the world are run on the Microsoft’s operating system of Windows therefore it seems that the demand for Intel’s microprocessors will gradually decrease because of the overall dominance of Microsoft on the operating system market of the world. The overall nature and degree of competition therefore indicates that Intel is facing multiple players in the market and therefore need to ensure that it fares well in an industry where one player is potentially dependent on other player to successfully develop and market the products. Further, the competition in the motherboard chips is also heating with new producers such as ASUS gradually taking the market. Mobile Computing Trends also suggest that tablet computers and mobile computing will dominate the future technology market. With the success of the smartphones and the tablets like Apple IPAD, it has been speculated that the future trends in the industry will shift towards the use of tablet computers. (Shane, 2010). Intel is not so much involved in this segment of the business and the rapid expansion of this technology would suggest that Intel might be left behind if it does not catch up with the change which is in the air. Mobile computing and mobile chips market is relatively new and growing segment of the business which is effectively been dominated by the firms which are exclusively focusing on the development of products which are more suitable for the mobile computing. Though Intel has its atom processor and other varieties however, it is still catching up and could not give the kind of competition to relatively new and growing firms. (Malik, 2010). There are also talks about the online operating system which will need not to be installed on the personal computers of the users. If this experiment becomes successful and such operating systems are successfully launched and developed, the future for Intel may further become bleak due to the rapid changes which are taking place in the market. It is also important to note that consumers often use Personal computers for checking their emails, surfing internet, watching videos etc. As such these functions are now being performed by smartphones and small tablets therefore the overall shift would occur in the demand for the personal computers and the Microprocessors used in them. Decline in the Sales of Personal Computers Intel dominates PC market and the trends suggest that the PC sales have either became stagnant or on decline since last few years. (Reisinger, 2009). This stagnation and decline in the sales trends of the personal computers therefore would also mean a general decline in the demand for the microprocessors of Intel. These trends therefore can further suggest that the consumers are shying away from the personal computers and seem to be more inclined towards the smartphones and tablets. A general decline in the PC sales would also mean that the Intel would have to look for new markets and new products to serve the rapidly emerging new niches in the same market. Economic Situation Decline in the PC sales has also been a direct result of the economic recession which has hit major developed markets of the world. It is argued that in these recessionary times, businesses are not actually willing to invest into new technologies and hardware in order to keep their costs down. It is also important to note that the economic slow down has also resulted into the decline in the purchasing power of the consumers also. A decline in the purchasing power of the consumers would also mean that the demand for new PCs would be either low or on decline as consumers may not be simply interested in replacing their old PCs with new ones. How these trends may affect Intel? Above issues suggest that Intel might have to change its overall strategy and focus in order to become more successful and remain in the business. History of Intel suggests that it has left the memory chips market due to the strong competition from Japanese and Chinese manufacturers. The changes in the very fundamentals of the information technology industry therefore suggest that Intel may be at the receiving ends for failing to anticipate the changes which have swept the market in recent times. These trends can affect Intel in following manner: Loss of Market Share Intel is successfully challenged by AMD in the microprocessor business and therefore an increasing demand for AMD products would result into the decline of market share for Intel in short run. The declining market share therefore can further result into the drop into the profitability of the firm in the short run which will eventually result into the sharp drop into the stock prices of the Intel. It is also important to note that the declining sales trends of the personal computers coupled with increase demand for the competitors’ products could also result into the substantial decline in the sales of Intel. Though Intel develops and sells multiple products however, its main and core business is still microprocessors therefore a strong competition coupled with declining PC sales would certainly result into the shrinking of the market share for Intel in its microprocessors market segment. Decline in profitability Tough economic conditions and the decreasing purchasing power of the consumers could also result into the decline in the profitability of Intel. Since purchasing power is low therefore in order to sustain the sales level, most likely action of the PC manufacturing firms would be to lower the prices and therefore further forcing Intel to also reduce prices of its processors. Reduction in the prices therefore would further squeeze the profitability of the firm in the short run. Leaving the Microprocessor Business Though this may be very unlikely effect of the above trends however, it may be possible that Intel may altogether decide to leave the microprocessor business for PC and focus on the development of microprocessor chips for mobile computing. Intel has one of the best research and development infrastructure in place and due to its historical technological superiority, it may be able to develop more robust and better smartphone and tablet processors as compared to other manufacturers in the business. Leaving the microprocessor business may also be due to the decision of Microsoft to make its operating systems which will run on Britain base ARM. Since Microsoft still has monopoly over the operating system market and more than 95% computers in the world run on its operating system therefore naturally the computer manufacturers would prefer to use ARM manufactured processors and chips in order to make their PCs compatible with the Windows operating system. If such situation arises, Intel may very likely have to leave this segment of the business. Conclusion Intel is the leading microprocessor chip manufacture in the world with largest market share in this segment of the business. It also manufactures other products such as motherboards, network interfaces and communication technology products however; its main business is still in the microprocessor business. Over the period of time, Intel has been successfully challenged by different competitors in different segments of the business. Intel started as a memory chip manufacture however, due to strong competition from the Japanese and other manufacturers it has to leave that segment of the business and focus exclusively on the microprocessor business. In this segment of the business, it is also being challenged by companies like AMD and ASUS which are producing cheaper and superior quality products. It is also important to note that trends in the personal computing industry indicates that the future will belong to mobile computing where smartphones as well as tablet computers will dominate the market. Unfortunately, Intel is still not a leader in this segment of the business and other producers have already established their position in the market as quality suppliers of the chips for mobile computing. The overall impact of these issues on Intel could result into the decline in its market share as well as the profitability. Considering the rapid changes in the market and Microsoft’s decisions to make its operating systems compatible with ARM processors may also result into Intel leaving the microprocessors business altogether. But this could only be a medium to long term scenario and may not be entirely possible in short term. References 1. Argyris, C (1999). On organizational learning. Illustrated. ed. London: Wiley-Blackwell,. 2. Arthur, C (2011). Arm deal 'will end Microsoft and Intel's dominance' [online]. [Accessed 9 March 2011]. Available from: . 3. Kew, J, & Stredwick, K (2005). Business environment: managing in a strategic context. Illustrated. ed. New York: CIPD Publishing. 4. Malik, O (2010). Why Intel Will Be a Mobile Loser [online]. [Accessed 9 March 2011]. Available from: . 5. Reisinger: D (2009). Declining PC Sales? Blame Lack of Innovation [online]. [Accessed 9 March 2011]. Available from: . 6. Shane, D (2010). Smart processors [online]. [Accessed 9 March 2011]. Available from: http://www.information-age.com/channels/comms-and-networking/perspectives-and-trends/1290213/smart-processors.thtml Read More