INTEL CORPORATION
Introduction
Since 1992, Intel Corporation has been the largest semiconductor manufacturer in the world when ranked on the basis of sales, achieving this position in less than twenty-five years (Moore, 1996). In this paper, we will examine the environment that surrounds the business of Intel to the world.
A brief history of Intel Corporation will be discussed first before discussing the case study requirements.
History
Intel was founded in 1968 by Gordon E. Moore and Robert Nonce when they left Fairchild Semiconductor. A number of other Fairchild employees also went on to participate in other Silicon Valley companies. Intel’s fourth employee was Andy Grove who ran the company through much of the 1980s and the high-growth 1990s. Grove is now remembered as the company’s key business and strategic leader. By the end of the 1990s, Intel was one of the largest and most successful businesses in the world, though fierce competition within the semiconductor industry has since diminished its position.
Intel has grown through several distinct phases. At its founding, Intel was distinguished simply by its ability to make semiconductors, and its primary product were static random access memory (SRAM) chips. Intel’s business grew during the 1970s as it expanded and improved its manufacturing processes and produced a wider range of products, still dominated by various memory devices. While Intel created the first microprocessor in 1971, by the early 1980s its business was dominated by Dynamic random access memory chips. However, increased competition from Japanese semiconductor manufacturers had by 1983 dramatically reduced the profitability of this market, and the sudden success of the IBM personal computer convinced then-CEO Grove to shift the company’s focus to microprocessors and to change fundamental aspects of that business model. By the end of the 1980s this decision had proven successful, and Intel embarked on a 10-year period of unprecedented growth as the primary (and most profitable) hardware supplier to the PC industry. After 2000, growth in demand for high-end microprocessors slowed and competitors garnered significant market share, initially in low-end and mid-range processors but ultimately across the product range, and Intel’s dominant position was reduced. In the early 2000s then-CEO Craig Barrett attempted to diversify the company’s business beyond semiconductors, but few of these were ultimately successful. In 2005, CEO Paul Tortellini reorganized the company to refocus its core processor and chipset business on platforms (enterprise, digital home, digital health, and mobility) which led to the hiring of over 10,000 new employees. In September of 2006 due to falling profits, the company announced a restructuring that resulted in a layoff of 10,500 employees or about 10 percent of its workforce by July of 2007.
In September 2006, Intel had nearly 100,000 employees and 200 facilities world wide. Its 2005 revenues were .8 billion and its Fortune 500 ranking was 49th. Its stock symbol in INTEC, listed on the NASDAQ.
Source: http://en.wikipedia.org/wiki/Intel
SWOT -> Key success factors
One thing that has always been true in this industry is that recovery after a down cycle never occurs with old products. Technology evolves so rapidly that the market moves to the next generation or beyond. Thus, to be successful it is necessary to continue investing in new products even during these down periods. Intel did this. The world was asking for processors with full 32-bit capability. To do so would require a sufficiently more complex chip than had been designed previously. The expected advantages included much higher performance and an architecture where software could be written to operate with greater reliability and security. This, again, was an extremely important product in Intel’s history and probably the foundation of success over the last decade.
Many of today’s chips, however, with their thousands of times increased complexity, sell for no more than did the first Intel products. The past twenty-six years have seen wild swings in the market. Shortly after Intel was founded, a recession period entered, something that actually can be advantageous for a start-up company because people and materials become more available. It is, however, a difficult time in which to grow. From 1976 through 1980, Intel and the industry enjoyed a long uninterrupted period of growth, which was terminated by another recession in the early 1980s. Intel passed the billion dollar revenue mark in the subsequent recovery, peaking in 1984 prior to the collapse in 1985. Recovery from the trough has been steady since 1986, with Intel’s annual revenue in 1995 exceeding billion. It has been an exciting twenty-seven years. Technology has progressed dramatically. In the beginning Intel was pushing the state of the art to put two thousand transistors in a chip. Now Intel puts several thousand times that many in a modern microprocessor and looks forward to this rapid evolution to continue.
Strategic Fit (Strategic Drift)
There is a vast literature ascribing the success of a company to the vision, strategy, and leadership approach of its chief executive officer or more popularly know as the CEO (Bargeman, 2002).
Andy Grove succeeded Gordon Moore as CEO in 1987 at the time that Intel was recovering from defeat in its original semiconductor memory business and refocusing on its microprocessor business (Bargeman, 1994). He held the position until early 1998. Between 1987 and 1998, Intel became the clear winner with its microprocessors in the personal computer (PC) market segment. In 1998, however, Intel’s growth in the core business slowed down significantly. Also, it had become clear that new business development was relatively unsuccessful during Grove’s tenure as CEO. In 1997, Craig Barrett, then Intel’s chief operating officer (COO), observed that Intel’s core microprocessor business had begun to resemble a creosote bush, a desert plant that poisons the ground around it, preventing other plants from growing nearby. The creosote bush metaphor raised potentially interesting questions about the strategic consequences of Intel’s ability to dominate in the PC market segment. It drew attention to the phenomenon of co evolutionary lock-in: a positive feedback process that increasingly ties the previous success of a company’s strategy to that of its existing product-market environment, thereby making it difficult to change strategic direction. Little attention had been paid to how co evolutionary lock-in comes about and may become a significant source of strategic inertia. It seeks to shed light on the role of the CEO in creating a strategy-making process that leads to co evolutionary lock-in and what its implications are for organizational adaptation.
Grove described his approach as “vectoring” Intel’s strategy-making process. Vector–a quantity having direction and magnitude, denoted by a line drawn from its original to its final position (Oxford English Dictionary)–seems an apt metaphor to describe his efforts to align strategy and action. By creating a strategy vector, Grove was able to drive Intel in the intended direction with a total force equal to all the forces at its disposition.
Identifying & responding to Change -> Role -> Values and Beliefs
Intel launched its advanced Pentium chip in 1994 on the wings of a marketing and communications program built on the widely recognized success of the company’s Rend-driven stream of components. The company had invested heavily in its well-known ongoing “Intel Inside” advertising campaign featuring a core message of the superiority of Intel-brand components. This communicated identity was supported by the company’s track record of successful innovations. However, during the fall of 1994, murmurs grew louder within the advanced user community that the Pentium chip was flawed for some complex computations, especially in scientific research. These user doubts and concerns were spread largely by e-mail. Although aware of the concerns among part of the user community, Intel did not undertake any public actions to rectify the underlying product problem. As the situation burst into the public arena when news of the problem “migrated” into mainstream media, and very quickly escalated into a major mass-media print and broadcast news story. The company characterized the concerns as exaggerated and the problems as likely to occur very infrequently; Intel would replace the chip only if its own analysis and judgment led it to a conclusion that the problem was serious. Very soon, as awareness and concern mounted about Intel’s Pentium chips, doubts were being cast by key stakeholders on the reliability of Intel’s positioning (Conceived Identity). Confronted with a deepening misalignment of its Communicated and Conceived identities, Intel within weeks changed its position to one of greater responsiveness to customer concerns. Through these actions, the company gradually moved to restore its traditional reputation for developing and manufacturing high-quality components (2003).
Change Management
Intel is symbolic of America’s manufacturing recovery. The microprocessor is as fundamental to the new model of technology management. Intel’s production challenge is to combine the integrated design flexibility historically limited to machine shops with the throughput efficiency of the mass producers in an environment of technological complexity and rapid change. Intel’s distinctive competence is not custom-designed microprocessors but leadership in volume production of a product whose performance requirements are advancing at double-digit rates. This involves combining fast-changing technologies with leadership in chip design and production. Intel pursues systems integration and integrates over 600 activities embodying an array of technologies with deep roots in various technology and science research programs being conducted outside the company.
The production challenge addressed by Intel is not to achieve economies of scale for a given technology but to achieve continuously higher productivity and lower costs by sustained technological change. The challenge is to manage manufacturing processes involving a range of technologies to satisfy productivity advances of this dimension. Systems integration is the response. It is about building the organizational capability to incorporate rapid technological change in components into complex products. This involves simultaneous advances in integrated circuit design tools, production technologies, and miniaturization capabilities. But it also involves sustained technological innovation, which, at Intel, led to the development of a business model constituted by a leadership and design dynamic (Best, 2001).
Role and strategic value of Core Competence
The decision to increase the frequency of new-chip releases was a strategic response by Intel, primarily to stronger competition from Advanced Micro Devices. Before 1996, AMD had produced several Intel chip designs under a disputed contract. In January 1996, the dispute was settled, and each company’s strategy evolved in its own way. Intel concentrated on Pentium designs, which AMD had no legal right to produce, and AMD upgraded its microprocessor design capabilities by purchasing Negev. By 1999, AMD had reduced–from over 18 months (in 1995) to almost nothing–the lag time between Intel’s release of a new design and the release of AMD’s competing chip. That prompted Intel to schedule more frequent releases, bringing the market closer to the cutting edge.
Intel’s decision was partly facilitated by improvements in the economics of producing new chips. The production of microprocessors is highly sensitive to environmental disruptions (from dust, for example), flaws in chip design, and mistakes in the fabrication process. These factors can strongly affect the yield of usable chips. For a new design to be economically viable, 70 to 90 percent of the chips produced must be of marketable quality. After 1995, companies in the industry decided to improve their manufacturing processes by exploiting technological advances–in manufacturing equipment, simulation, and wafer inspection–that reduced the number of production runs needed to get to a marketable yield. This approach allows manufacturers to reach profitable scale sooner and slightly softens the impact on margins of shorter product life cycles.
Strategic Value of Corporate Ventures
The prospect of significant financial gain appears to be at the core of why many companies engage in the indirect-external form of venturing (Covina and Miles, 2002). As demonstrated most vividly by Intel’s experiences in the late 1990s, indirect-external venturing can sometimes be effectively used to “spike” corporate financial returns when core operations are not as profitable as external venture investments (IPO et al., 2000; Takahashi 2000). Takahashi (2000) reported that Intel’s portfolio of high-tech “investment” businesses increased in value from 0 million in 1997 to .2 billion in 1999. Due to recent stock market declines, the taking of equity positions in external ventures for purely financial purposes is decreasing in popularity (Williams, 2001). Nonetheless, the possibility of great wealth appreciation will likely remain a major point of appeal for the indirect-external form of venturing.
In indirect-external corporate venturing the corporation invests in a venture capital fund that targets external ventures in specific industries or technology sectors. There are at least two common variants of this form of venturing. The venture capital fund may originate outside the corporation and be managed by persons who are not corporate employees. In this case, the corporation typically operates as one of several investors in a venture capital fund, and the corporation’s interest in the external ventures targeted by the fund may be strategic or merely financial. The venture capital fund may also originate within the corporation and be managed by corporate employees ( 2002).
Corporate Values
A Virtual Factory (VF) ergonomics team was formed with a defined charter and membership, as well as defined strategic objectives and deliverables. The team charter was “To resolve high priority ergonomic risk factors across multiple manufacturing sites.” The membership consisted of one person from each site whose job description included resolving ergonomic issues for his or her site. In addition, there was a management level team coach whose role was to ensure the VF ergonomics team was aligned to Intel business objectives.
The team defined its strategic objectives, which provided guidance for the team’s activities. Team deliverables were defined to direct the team’s work towards products or processes to meet the strategic objectives. Critical success indicators were defined to measure the effectiveness of the team. For example, one strategic objective was to reduce non-neutral wrist movements during product handling. A deliverable defined for this strategic objective was “To develop a human-machine interface that allows neutral wrist posture when loading 200mm wafer cassettes onto equipment.” The critical success indicator was to have four interfaces designed within six months. Another strategic objective was “To define a robust decision-making process using documented engineering criteria.” The deliverable was to have a decision-making process identified and engineering criteria defined. The critical success indicator was to have the decision-making process ratified by all sites in the first quarter of the team’s charter. These are 2 examples of strategic objectives used at Intel during the VF ergonomics team’s formation. Other objectives were developed to guide the team successfully through its first years (2001).
Credit:ivythesis.typepad.com
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