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Strategy development at Intel controlled.

Technical excellence was married

By Jill Shepherd with goals stipulated by senior management,
which needed cross-functional discipline if they
Intel (an abbreviation of Integrated Electronics) were to be reached on time. An ethos of top-
is a digital company operating in, having down financial rigor was balanced by a culture
arguably created, and the semiconductor in which those who knew what was needed to
industry. Over thirty years the company has achieve the goals were never crowded out
achieved strategic transformation twice. because they were junior. Knowledge was more
powerful when associated with technical
Epoch I excellence than hierarchical position, creating an
Between 1968 and 1985, during which the CEO Intel ethos of constructive debate. Insofar as it
was mostly Gordon Moore, Intel was a memory existed, strategic planning was fairly informal:
company. Founded by Gordon Moore and ideas bubbled up from engineers and marketers
Robert Noyce, Intel was the first company to which top management assessed and allocated
specialize in integrated circuit memory products. funds to. Recruitment processes focused on
Noyce co-invented the integrated circuit, hiring staff suited to the Intel culture, and
whereas Moore, a physical chemist, saw the rewards were associated with high performance.
potential of metal oxide semiconductor (MOS)
process technology as a way of mass producing Epoch II
semiconductors at low cost. Both managers left Come the early 1980s Intel moved towards a
Fairchild Semiconductors, the subsidiary of different era, courtesy of a more crowded
Fairchild Camera and Instrument Corporation marketplace. Over ten years, the big earner,
they had helped found. According to Noyce, DRAM, lost market share from 83 per cent to
senior management at Fairchild were 1.3 per cent and amounted to only 5 per cent of
unsupportive of innovation, perhaps because Intel’s revenue, down from 90 per cent.
they had become too complex and big an Innovation moved towards the equipment
organization. In turn, Andy Grove joined Intel, manufacturers away from the chip suppliers and
thinking that the departure of Moore and Noyce professional buyers sought much tougher deals.
left Fairchild fatally bereft of middle Competition had heated up with choices having
management. Their aim was not to transform the to be made as to which technical areas to excel
industry, but to make memory chips which did in. At this time Intel made a decision to
not compete directly with Fairchild and others geographically distance its three main product
because they were complex. development areas, DRAM, EPROM (its most
Two events were critical in these early days. profitable product in the mid-1980s) and
Firstly, the first Intel memory chip was static microprocessors. In the case of microprocessors,
(SRAM), but was soon replaced by a dynamic the development of which had begun in Epoch I,
chip (DRAM). Secondly, the traditional strategic the new basis of advantage increasingly became
choice of second sourcing manufacturing chip design rather than manufacturing process as
‘failed’ as the chosen company could not deliver it was in the other areas. Over time DRAM lost
a new generation manufacturing process. Intel manufacturing capacity within Intel to the
was obliged to do all its own manufacturing, but unplanned microprocessor area. A rule, created
also retained all the profits. This early success by the first Financial Director and designed to
and ‘luck’, according to Gordon Moore, lasted maintain Intel as a technological leading-edge
nearly 20 years. Although this good fortune can company, stipulated that manufacturing capacity
be construed as luck, perhaps Intel was ahead of was allocated in proportion to the profit margins
the silicon technology competence game – achieved in the different product sectors. The
maybe without knowing it – and was expecting emphasis within the DRAM group was on
too much of its supplier. finding sophisticated technical solutions to
Developing, manufacturing and marketing DRAM’s problems; it was, however, innovation
DRAMs involved an approach to management in markets where innovation was no longer
which was structured, disciplined and commercially viable. DRAM managers
nonetheless fought to have manufacturing well as sales and marketing became more
capacity assigned purely to DRAM, proposing important, manufacturing less so. Corporate
that capacity be allocated on the basis of strategy came into line with market
manufacturing cost. Senior management refused. developments and middle management
Once this decision was made to keep the priorities; and formal strategic planning
resource allocation rule, the strategic freedom processes and corporate management’s
left to corporate managers to recover the statements of strategy began to champion
founding businesses, SCRAM and DRAM, to microprocessors.
which they were very attached, diminished as That said the potential of the PC was not
market share fell beyond what could be deemed recognized immediately. Indeed, a presentation
worthwhile recovering. DRAM managers had to made by a newly recruited manager on that
compete internally with the technological potential failed to grab the attention of
prowess of the other product areas where morale managers. Later Intel managers reflected this
and excitement were at high levels and was because the presenter, although enthusiastic,
innovation was happening in an increasingly appeared to be ‘an amateur’. Had that same
dynamic market. And as microprocessors analytical content been presented by a ‘smooth-
gradually became more profitable, talker’, perhaps the importance of the PC market
manufacturing capacity and investment was would have been taken on board sooner by
increasingly allocated away from memory corporate management. By the mid-1990s the
towards them. Eventually corporate managers relatively informal processes of strategy
realized that Intel would never be a player in the development were becoming difficult in what
64K DRAM memory game, despite having been had become a huge corporation. More formal
the creator of the business. In 1985, top strategic long-range planning were introduced
management came to realize they had to where each business unit had a subcommittee
withdraw from the DRAM market. In 1986, which on a yearly basis developed a business
Intel made a net loss of $173m (≈ a150m) and plan to be submitted for approval to corporate.
lost nearly a third of its workforce. Whilst this added discipline, the problem was
However, lingering resistance to the exit that these plans became repetitive and lacked the
continued. Manufacturing personnel ignored innovation and renewal that had driven Intel’s
implications of exiting from DRAM by trying to success.
show they could compete in the marketplace
externally, by explaining failure in terms of the Epoch III
strong dollar against the Japanese yen and Intel’s performance as a microprocessor
battling with poor morale. Eventually Andy company was financially spectacular. In 1998
Grove, CEO from 1987, took the executive Andy Grove became Chairman and Craig
decision to withdraw from EPROM, leaving no Barrett took over as CEO. Both were aware that,
doubt that microprocessors now represented once again, Intel was facing new challenges.
Intel’s future strategic direction. The subsequent After 10 years of 30 per cent per annum
exit from EPROM was rapidly executed. Staff compound growth, 1998 saw a slowdown. The
associated with EPROM left and set up their era of the internet had arrived and the company
own start-up. The period pre and post the exiting needed to broaden its horizons. Not only did
of DRAM was turbulent. Although seemingly Intel need to maintain its competence in design
messy, it gave rise to a great deal of new and product development alongside continuing
thinking. A new link was created between manufacturing competence, but it also needed to
manufacturing and technology, trying to rid the understand more the needs of the user and
company of the rivalries established in the era of develop competences in corporate venturing,
internal competition between DRAM and other allowing part or full ownership of companies
technology areas and return to the era of with strategically important technologies. After
collaboration. The approach to technology was a period of adhering strongly to its focus on
also rethought and moved away from being so microprocessors, it needed ways of regaining the
product-based. Product definition and design as entrepreneurial flourish of its former days. In
any case, the business had become more believed that PCs would be needed for storage in
complex, requiring as many chips as possible to the digital home but saw its future in all kinds of
be put along the whole value chain of the semiconductors, not just those for PCs. For
internet moving it towards wireless and the example, Intel invested in three companies:
digital home. Barrett launched a series of BridgeCo which designs chips to link devices
seminars for Intel top management aimed at within the home; Entropic which designed chips
getting them to dream up new businesses and a for networking over coaxial cable; and
New Business Group (NBG), with different Musicmatch selling software that records,
processes and values, was founded with the brief organizes and plays music. By how many digital
to kick start new internal business ventures. A appliances would complement or substitute for
framework was created to handle the interface PCs remained to be seen but by 2003 Intel had
between the NBG and the rest of the company to determined to establish itself as a leader in the
establish whether any proposed new business design, marketing and selling of chips. In 2004 it
was not only strategically important externally was announced that in 2005 Paul S. Otellini,
but also built on, or required, the development of who does not have the engineering background
new competences internally. of Barrett, would take over from Craig Barrett as
The early years under Barrett saw a flourish of CEO, who would take over as Chairman,
activity and new ventures. In the first two years making Andy Grove Chairman Emeritus.
these included: buying DEC’s chip unit with Business Week commented: ‘In this new age of
rights to the zippy Strong ARM processor, “Think Intel Everywhere”, not just inside the
which Intel adopts for some mobile and PC, Intel will face tough competition, as it enters
networking products; dozens of new products in the communication, entertainment and wireless
1998, including routers and switches; the launch sectors whilst also defending its flank from other
of the cheap Celeron chip; the establishment of a microprocessor companies such as AMD. . . .
home-products group to develop web appliances Whilst remaining driven by innovation Barrett
and internet-enabled TVs and set-top boxes; the and Otellini have spent time trying to learn from
acquisition of networking chipmaker Level One, past mistakes, to become more market savvy,
specializing in chips that connect network cards forging closer relationship with customers to
to wiring; and of Dialogic, a maker of PC-based avoid designing products no one desires,
phone systems, giving Intel technology for the becoming more cooperative and less arrogant
convergence of voice and data networks; and a whilst also investing in five new factories in
home networking kit to send data over phone 2005.’
wiring in homes. 1999 saw the launch of 13
networking chips and Intel’s first web-hosting Questions
center, with capacity for 10,000 servers and for 1. Identify the different strategy development
serving hundreds of e-commerce companies; the processes operating in Intel. How different/
acquisition of DSP Communications, a leader in similar were these processes within and between
wireless phone technology, and IPivot, a maker the different epochs?
of gear for speeding up secure e-commerce 2. How effective were these different processes?
transactions. And in 2000 the launch of seven What effect did these processes have on Intel’s
server appliances, called the NetStructure performance?
family, to speed up and manage web traffic. 3. What were the tensions between processes
In 2002 efforts were directed at promoting within each epoch?
wireless technology development through an 4. What proposals would you make as to the
investment fund which was extended in 2004 to most appropriate strategy development
fuel the advance of the Digital Age into people’s processes that should exist as Intel moves into a
homes making the transfer of photos, music, more and more diversified business model?
documents, films between various devices. The
fund backed start-ups working in the area and
was also aimed at expanding interest in the area,
both technological and consumer oriented. Intel