Class 2

Industry, Strategy, Business

Model (continued)
Intel Case Study
NBC1 2008, (c) 2008Jay A. Smi
th

Announcements

Attendance list
Email

accounts
Registration confirmations

Today: review, Intel case

Next classes:

5/13

Sales & Marketing

5/27 Dell Online Case Study
6/3 Regional Goods Marketing Project
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4 Cs & 2 Ss Review
Competitors

Suppliers

___ Company

Substitutes

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Channel

Customers

Collaborators
th
/ 5 C
3

Channel
How customer gets your product/service
Direct companys own network

Sales

Force, Mail, Telemarketing, Vending,

Some Internet/Catalog, Company Store

Indirect via one or more other companies

Sales

Agents, VAR (value added resellers),

Stores (department, convenience, supermarkets,
Some Internet/Catalog (e.g. Askul)

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Collaborators

Partners, helpers, advisors, experts

Directly or indirectly help the company
Examples
Industry

experts, user groups, educators, advisors

Industry or trade groups
Government, NPOs, universities
Complementary product/service providers

Software makers for hardware

Computer magazines, manuals, websites

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In Class Exercise
Competitors

Supplier
s

___ Company

Channel

Customers

Substitutes
Collaborators

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5 Forces Affect Industry Profitability

Profit = Price Cost

cost

Supplier
Power

New
Current
Competitor Competitor
Entry
Rivalry

price

Buyer Power
Channel / Customer

Company

price
Substitutes

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price

Todays Drucker
A business has 2 basic functions:

marketing
and
innovation.
Peter Drucker

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Intel Case Study

Technology Innovation

Marketing Innovation

Big idea, new technology/business area: (semiconductors, IC chips)

Intel Inside

Company is more than its products

Platform (product series, same technology base)

Strategic Choices

Sustainable Competitive Advantage

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Intel 1968-1977 Case

Trying to do things nobody else could

Robert Noyce (co-inventor integrated circuit IC)

Gordon Moore (creator of Moores Law)

Andy Grove joined, took personal risk
First 2 DRAM products not successes
3rd product 1103 became world leader,

90%

of Intel revenues (concentrated)

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10

Intel DRAM Strategy

Strategy: push product design, be first to market

Design

& process technology leader

Investment in plant & equipment
Costs drop over production volume (scale) growth
Prices drop with competitive capacity
DRAM generally not protectable with patents
Japanese started introducing products more rapidly

Invested more heavily in production (44% vs. 22%)

1986

Intel decided to exit DRAM business

1/3 of R&D, but only 5% of Revs, was small player in market

Japanese beat Intel on process technology (of commodity)

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11

Intel and Microprocessor

1970 CPU chipset order for Busicom calculator

Technology

development paid by customer

Bought rights for non-calculator use

Hard to see future even for Gordon Moore

Non-sequential forecasting
Sometimes easier for outsider to see

Exit:

never gave it another thought Moore

We didnt take it (PCs) seriously Grove

By 1984 mid-level managers shifting technology

Hard to leave business that began company

Especially for long time senior managers
Mid-level managers closer to daily business realities

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12

Intel
AMD, TI, Cyrix
Motorola

Competitors
DRAM
Direct

Equipment (sole/dual)
Kyocera, etc
Suppliers

Intel

IBM

Channel

Customers

Licensees
-IBM
-Others

Compaq
Dell
Packard Bell

C
H
A
N
N
E
L

E
N
D
U
S
E
R

RISC

Substitutes

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Software
collaborators
Providers
OS
Application

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Apple/Motorola vs. IBM/Intel

First to Market
Closed architecture
Sole-provider

Exclusivity

Proprietary
INTERDEPENDENCE
OF COMPANIES (p.30, 22)
Value Chain
1994 Apple/IBM-Motorola PowerPC chip
2006 Apple/Intel

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Big, famous name

Standardized, open
architecture

Components
Software
Scale economies

Intel gets benefit of IBM

marketing and strategy
(derived demand)
14

Intel Microprocessor Progression

Chip
(bits)

Year
Introduced

Initial
Price

Licensees

Intel-Chip
Market Share

1978

$360

12

30%

1982

$360

75%

1985

$299

1 (IBM)

100%-IBM

1989

$950

Transistors
8086
(8-bit)

29,000
80286
(16-bit)

134,000
80386
(32-bit)

275,000
80486
(64-bit)

1,200,000

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15

386 Changes Everything (1985)

Intel 386 Investments

$200

million for design

$800 million for production facilities
Decides not to license, except IBM

IBM choice allows Compaq entry and Win

IBM

delays selling, to create more closed

architecture
Compaq enters Desktop market with Intel 386
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16

486 and Wintel Collaboration

Hardware advance precedes software advance

Microsoft

Operating System (new DOS) not ready for 386

Need large installed base of hardware for software upgrade

Emerging collaboration between MS & Intel

WINdows

+ INTEL = WINTEL platform

Software + Brain

Software investments (past and future)

Increasing

switching costs

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17

Intel Inside Marketing Innovation

Ingredient /Component Marketing

Intel is superior to other chips

Market maturity, education higher (2 nd, 3rd PC)

Buyer Intel preference moved from 60% to 80%
AMD: it shouldnt matter which chip but it DOES

IBM, Compaq resisted, but then gave in

Another example?

Couldnt fight Intel

Better to have branded Intel Inside premium chip
6% rebate for use in partner marketing

Fight competitors with technology, marketing, lawyers and

money power (all pointed to same goal)

1997 spent $750 million

More valuable than patent

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Ending Question
Is the internet
good or bad
for Intel?

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19

Some Important Strategic Ideas

Where is the most value in a computer?

Success attracts competition, company must protect
against

Technology moved so rapidly that patents became

obsolete

protect by know-how, branding, scale, luck

Small stuff that goes inside other stuff

2005 Intel has 82% of PC processor market

Allows focus, expertise, scale, piggy-backing

Thrived on derived demand driven growth and rapid

change

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20

Typical Market Positions & Strategies

Position

Goal

Strategy

Toyota

Leader

Most
Sales

-Grow Market
-Grow Share

Nissan

Challenger

Challenge
Leader

-Target Leader
-Target Small

Mazda

Follower

Grow
Carefully

-Maintain Base
-Grow Quietly

Niche

Find Safe
Space

Specialize

Daihatsu

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21

Fragmented Industries
(fragment=

Market divided over many

companies
No dominant leader
Largest competitor may only
have a few percent market share
Examples:

Restaurants
Book stores
Repair shops
Publishing
Pet shops
Hair Salons
Hotels

NBC1 2008, (c) 2008Ja

22

Fragmented Industry Strategies

Construct formula facility
Expand geographically
Increase vertical integration
Become low-cost producer
Specialize by product/service
Specialize by customer type
Build brand

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23

Company
Who are we? Why are we here?
What are our goals?
What are our strengths?
What are our weaknesses?
What are our key competitive advantages?
What is our market position?
What is our strategy?
What is our business model?

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24

Homework Assignment

Design your own personal life meishi

Print 15 copies please

Send me a file by 5/12
Email: nbc1@bizsmith.com

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1. Your Name (as you want it)

- Nickname (optional)
2. Title (life position)
3. Purpose statement
4. Ideal living place(s)
5. Identifying email address
6. Anything else important
- Logo
- Website
- Business Name
- Cool Phone Number

(any languages that fit)

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Homework Assignment

Design your own

personallife meishi

name
title

SAMPLE

logo

Jay Andrew Smith

International Educator

Purpose/goal

Promoting Growth
And Understanding
Around the World

Cool place(s)

New York + San Francisco + Kagoshima + Brugge

jay@soulproprietor.us

Meaningful email/HP address

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26 etc. by hand all OK

www.vistaprint.jp, ppt, Paint, illustrator,

4 Cs + 2s The Players

Company (us)

Customer (goal)

Who, Current, Future, Advantages, Position

Substitutes (other choices for customer)

Sales Team, Distributors, Service, Support, Partners

Competition (them)

Who? How many, How strong, How important, Wants & Needs

Channel (path)

Mission, Goals, People, Structure, Strategy, Model

What, Advantages, Costs, New Technologies

Suppliers (inputs)

Who, How many, How strong, How important to us,

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27

5 Forces

Buyer Power (Customer /Channel)

How

Supplier Power

How many, how big, how important to us, to them

Current Competitor Rivalry

How

many, how big, how valuable, how sensitive

many, cost structure, capacity, positioning, exit costs

New Competitor Entry

Ease

of entry, cost of switching,

Substitute Products/Services
Advantages/disadvantages,

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cost of switching

28