Emergent Strategy

Strategic direction may emerge from actions taken by middle management, and
organizational routines rather than by strategy as designed by top management.

Intel, the world’s largest manufacturer of microprocessors (MPs), was

widely regarded as a highly innovative and skillfully managed high
technology company. However, Intel originated as a memory company, in
the business of DRAMs –Dynamic Random Access Memory- and EPROMS-
Erasable Programmable Read only Memory. So how did the core business
of Intel get transformed from DRAMs to MPs in 1980s, and how did this
happen, despite top management clinging to the view that DRAMs were
the core strategic business of Intel?

Initially, the distinctive competences of Intel included design and process

technology, in line with the basis of the competitive environment at that time.
However, the industry was in a state of rapid change and fierce competition, and as
such, the basis of competition shifted to manufacturing and commoditization. Intel
faced increasing turbulence in this new environment and attempted to solve their
manufacturing problems by entering into the business of producing
microprocessors.

One of the regulations within Intel was with respect to the allocation of
manufacturing capacity: the different product divisions competed for manufacturing
resources from the centre. Intel’s resource allocation strategy criteria attempted to
manifest the external competitive realities of the different businesses by allocating
manufacturing capacity in proportion to the sectors that displayed the highest profit
margins. Although the official corporate strategy was committed to memory, and
top management continued to allocate R&D funds to work on memory, the reality of
the cumulative events was that, as MPs gradually became more profitable,
manufacturing capacity was increasingly allocated away from memory and towards
MPs.

Furthermore, Intel had a tradition and a culture of ‘constructive confrontation’;

candid discussions regarding the merits and demerits of the different strategic
initiatives and allocation of resources were encouraged. Middle managers had a
mandate to respond to the external competitive pressures of the environment.
When several middle managers took the initiative to use a new process technology
which favored logic and MPs rather than memory, this resulted in the rapid growth
of the MP business.

Despite the fact that the official corporate strategy was inherently committed to
memory, Intel’s external and internal environment produced a major shift in the
allocation of resources away from the memory business to the emerging MP
business. Although there was still heavy investment in DRAMs, the actual
allocations for the manufacturing capacity were decided at lower levels in the
organization. By the time top management realized this, Drams’ market share had
diminished to such an extent that it needed an investment of several hundred
million dollars in order to survive, and a decision was made to exit the memory
business.

(Prepared by Urmilla Lawson, Graduate Business School, University of Strathclyde.)

Source: R.A. Burgelman, ‘Fading memories: a process theory of strategic business

exit in dynamic environments’, Administrative Science Quarterly, 39(1994), pp. 24-
56.

Questions

1. Identify the processes at work in strategy development at Intel.