INTEL CASE STUDY
Competencies refer to the fundamental knowledge owned by the firm, and to be distinctive they are not confined to functional domains but cut across the firm and its organizational boundaries (, 2002). The notion of distinctive competencies, first discussed by (1957) and (1965), was further reiterated by and (1990). In their analysis, key resources, skills and technologies are called core competencies. The following takes the Integrated Electronics (Intel) case and analyses the giant digital company’s core competencies by way of the three epochs that it has gone through since 1968.
This first era that Intel has gone through, specifically between the years 1968 and 1985, has displayed the company’s corporate values which have become the firm’s foundation for the success that it will witness in the succeeding years to come. The development of their products to impact their core competencies involved an approach to management which was structured, disciplined and controlled. They have a corporate culture that fosters constructive debate, in where rewards are associated with high performance, and which allows for the recruitment process to be focused on hiring people suited to their culture. As for the strategic fit, or how well Intel’s mission and strategies fit its internal capabilities and its external environment, the company has taken pains to make sure that their aims are clear, specifically, this is to make memory chips which did not compete directly with Fairchild Semiconductors and other companies in the same field because they were complex. Their strategies, therefore, are moulded on the ground work that they are a firm of less-complex products, which partially contributed to the informality of their planning system. Additionally, their technical excellence is linked to goals which were laid out by the management, providing a fit and a marriage of their mission and strategies to their internal capabilities and external environment. The main characteristic, therefore, of the Intel company in this first phase is its informality in their planning system, in that ideas bubbled up from engineers and marketers which the top management assessed and allocated funds to. An analysis of Porter’s five forces in the context of Intel would reveal that:
Threat of New Entrants ~ The threat of new entrants is very low due to high entry barriers to the industry. The economies of scale, i.e. the not-so-competitive prices in the industry, the sizeable amount of capital and investment requirements and the difficult access to industry distribution channels are some of the contributors to the high barrier of entry to the semiconductor industry. Additionally, it is not easy to penetrate this type of industry due to the requirement of highly specialised skills to be able to barely survive the competition.
Threat of Substitutes ~ The threat of substitutes is low, as the price to shift from one semiconductor provider is relatively large. As companies are often looking for ways to achieve competitive advantage through buying high-end semiconductors which would provide the highest efficiency, the buyer’s willingness to substitute is pretty low once they find that the provider is very suitable to their needs. Also, the price and performance of the substitutes, coupled with the relatively high cost of switching to substitutes do not present a grave threat to the company under analysis.
Bargaining Power of Buyers ~ As there are only a few semiconductors providers who can compare to what the company has managed to achieve in this era, the bargaining power of buyers is not as great coupled with the industry being a key supplying group for the buyers, which in this case, are large companies.
Bargaining Power of Suppliers ~ there are is a sparse of dominant suppliers in the industry, and they so far have not threatened to integrate forward to the industry, or threaten to set up their own retail outlets due to absence of strong Internet presence and powerful IT platform, so the bargaining power of suppliers is highly controlled. This presents a potent competitive advanatge for Intel, in that they are able to control the prices of their raw materials, thus resulting to more controlled expected earnings.
Intensity of Rivalry between Competitors ~ Rivalry is not very intense, as there are only a few dominant industry competition, and few still have powerful and fully integrated IT platforms. In fact, as one of their aims is not to compete on the Fairchild Semiconductors level, they have managed, at this point in time, to make a safe niche of their own in the industry with which to call solely their own.
This first phase that Intel went through has been an indicator that the company is bound to face a lot of changes in the run primarily due to the nature of business that they are in, likewise the PEST Analysis of the semiconductor industry in general.
With the dawn of the 1980s also came a more crowded marketplace, which prompted the digital company giant into a paradigm shift, mainly evidenced by the move away from chip suppliers towards equipment manufacturers and by the withdrawal from the DRAM production, as the company realised that they would never be able to compete with the said market. There was significant resistance on the part of the employees with this move form the management, and only with properly executed change management were they able to pull through of the mess of this shift. In the past their business strategy was to innovate faster than competitors, exploit leader advantages and then move on to the next generation of technology. Intel is revising its overall strategy in response to market changes. For the first time since the latter phase, it is creating semiconductors for the low-cost computer market, which is expected to grow dramatically in the next several years.
In these markets, profit margins are typically lower. This may, in the following phase, move Intel to diversify its strategy to address different markets—those that demand rapid product innovation and those that demand low-cost innovations. Intel seeks these rapid, incremental technological advancements in a very structured development process. They accomplish this in part through concurrent development of product generations and their associated manufacturing processes. That is, new products (including semiconductor chips and software) and their new manufacturing processes are developed simultaneously. The move from informal planning to a more structured planning was also evident. Formal strategic planning processes and corporate management’s statements of strategy began to champion microprocessors. Intel appears to be a relatively flat organization—no product divisions; sales and product groups have a few engineers dedicated to support a specific product. While manufacturing operations are organized under one individual, employees are geographically dispersed. Specific manufacturing project teams are pulled from across the organization as required. Intel has a history of maintaining a fluid and flexible organization where all such forms are ultimately transitory, and their purpose is to respond to the needs of the time.
With this turbulent change phase came the rise of a great deal of new thinking. As stated in the case, a new link was created between manufacturing and technology and the approach to the latter was rethought and moved away from being so product-based. Manufacturing became less important than product definition and design and sales and marketing. Manufacturing improvements are developed concurrently by a fluid or a virtual organization that supports the entire corporation. These personnel are geographically dispersed and different groups are pulled together on a project basis. After project objectives are met, the organization will restructure to meet the next challenge. What had previously been an informal planning process for the company is now becoming difficult in what had become a huge corporation. A political, economic, social and technological (PEST) analysis would show how the external environment of the Intel firm has managed to affect the company developments during this epoch from the years 1986 to 1998.
Political ~ In the semiconductor industry, competition regulation is low and corporate and individual taxes are major considerations. Further, due to the increasing internationalisation of semiconductor firms, they are being subject to international trade regulations and consumer protection has also become a major consideration. This has further affected the potential entrants to the industry, and has led to Intel focusing on having their research and development on environmental management to protect their consumers.
Economic ~ The economic growth of target market is fairly positive, in the semiconductor’s industry case; the target market is the electronics industry. Industry growth is very promising and, coupled with exchange rates being relatively stable, promises a wealth of opportunities for those who are already established in this industry. With the increased pace in the change in technology spurred by more need for higher and more advanced technology, the demand for the semiconductor industry is stronger than ever. This presented a whole avenue of possibility for Intel to develop their products at a rate which will keep up with the demands of the market.
Social ~ Even income distribution among target market is observed in this industry and main consumers are large companies. As the nature of the industry in which Intel is involved in is a very dynamic nature where change and innovation are everyday words, there exists the need to constantly be sensitive to the change in market demands and preferences, as it is the key to maintaining market leadership in this type of industry.
Technological ~ A very fast technological transfer and a very fast rate of technological obsolescence is a characteristic of the industry. A unique aspect of the semiconductor industry is that prices for products tend to decrease over time. Not only does the price fall for a given integrated circuit, but as the complexity of the chip increases, the price per electronics function decreases from product generation to generation as more and more functions are integrated into a single structure. This phenomenal increase in industry productivity is the driving force that has made semiconductor electronics the technology of choice for all control and computing applications.
There are two reasons why the cost of this technology consistently drops: first, the broad applicability of semiconductor devices leads to a phenomenally elastic market, so that decreases in cost are more than balanced by increases in the total unit demand. The total market continues to grow in dollars despite the fact that the products are falling rapidly in price. Second, because of the unique nature of the technology, by making things smaller the speed of the circuits increases power consumption drops, system reliability increases significantly, and, most importantly, the cost of the electronic system drops. By making things smaller, development density is increased. More function can be built on a given area, causing the price of electronic functions to be cheaper and cheaper. 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. In the following phase, the case showed aggressive moves on the part of the firm.
Stakeholders have increasingly become important to contemporary business. Involvement of stakeholder groups has become a part of Intel's environmental management during this last phase of the firm’s history. There was therefore the need to enumerate the company’s stakeholders in order to fully understand them and consequently meet their needs. The main stakeholders of Intel are: (1) customers; (2) developer community; (3) semiconductor industry and (4) stockholders. As Intel works with the developer community, customers and others, it is building platforms that combine elements such as microprocessors, chipsets, communications silicon, software and other technologies. Intel is extending the platform approach across a number of areas including the digital home, the enterprise, healthcare, more broadly into mobility and across worldwide markets. Meeting the needs of end-users also involves the development of technologies that not only boost performance but also improve security, reliability, manageability and other aspects of computing and communications. As resources are basic elements that a firm can control in order to best organise its operational processes, an audit of the resources of a firm is a must if it is to utilise them to create the latter. The resource-based view draws attention to those internal resources created within a particular enterprise that cannot be purchased externally. The sustainability of a company’s competitive advantage depends upon the ease with which the resources can be imitated or substituted (, 1993). When resources are combined they can lead to the formation of competencies and capabilities ( & , 1990).
Financial Resources ~ The annual revenues of Intel have grown phenomenally in recent years, thanks to the push for more advanced technology by consumers. Since 1991 annual revenues have climbed from $4.8 billion, more than five-fold to $25.1 billion in 1997 (, , & , 1999). To continue this growth, Intel seeks to continue to be the pre-eminent building-block supplier to the computer industry worldwide. With these strong financial revenues, the company is expected to achieve their target profits in the years to come through the utilisation of this resource which they have plenty of for investment in worthwhile projects.
Human Resources ~ The total number of Intel employees was 63,700 at 1997 year-end, up from 48,500 in 1996 (, 1999). Worldwide EH&S staff number around 225 and are organized by site (, 1997). Although there is historically a resistance on the part of the employees when it comes to change, there is sufficient cooperation from them on an overall note, especially whet it comes to innovations for the good of the company.
Physical Resources ~ The company under scrutiny is an international company with more than a dozen major facilities outside of the United States, located in eight countries. According to (1997), there are six sites in the continental United States—in Arizona, California, New Mexico, Oregon, and Washington—with multiple facilities at each and one site in Puerto Rico. Its oldest and smallest manufacturing facility, wafer fabrication facility on the Aloha campus in Oregon, was built in 1978 and was closed in 1996. In recent years Intel has been building a new fabrication facility, an investment of $1 billion to $1.5 billion, every nine to twelve months (, 1997). With the advancement of their physical resources in comparison with existing competitors, it is not surprising to see that Intel has majority of the market share.
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