INTEL CORPORATION
Intel Corporation
Generic Strategy
The generic strategy according to Porter refers to the details of interaction between product differentiation strategies, cost minimization, and Market focus strategies. It describes a company as one having multiple segments which can be targeted by the firm. According to the case study on Intel Corporation between 1968-2003, the generic strategy involves a number of ideologies. These Ideologies include, cost leadership, focus, and differentiation
Focus
For almost a decade, Intel corporation was a leading company in the production of EPROM and DRAMS and was famously known for it. Nevertheless, due to the rapidly changing markets, Intel decided to drop the manufacturing of DRAMS, and instead opted to develop microprocessors. It concentrated on developing 8086 and 8088 types of microprocessors which were developed by Complex Instruction Set Computing (CISC). Despite fierce competition from RISC, CISC was still able to beat competition (Casadesus-Masanell, Yoffie, & Mattu, 2010).
Differentiation
Intel had already developed a strong Brand image since 1968 that had seen it gain success over the years. Also, its superior and quality products such as the microprocessor 8086 and 8088 which are commonly used in the current day PC’s have seen it succeed on so many levels. The quality of its products and services has enabled it to charge premium prices and in return, it was able to acquire a huge market base.
In the 1970s, Intel formed a group of systems that enabled it to develop computer based instruments that would enable engineers at OEMs to design computers that were built around intel microprocessors. Further, in order for the Intel Corporation to ensure that its products were completed in a timely manner, it had to venture or invest in small companies such as the Intel Capital (IC) which was founded in the 1990s (Casadesus-Masanell, Yoffie, & Mattu, 2010). IC was to help in creating bits that would help in building the company’s products which would in turn ensure a market ecosystem was in place.
In the late 1990s, the CEO of Intel realized the need to look for opportunities in the upcoming technological changes. It was clear the demand for PCs would drop due to the presence of the internet and other products such as smartphones, PDAs, among others. By this, Intel was divided into four main areas which included: customer platform, which included mobile and desktop microprocessors; server platforms; wireless and cellular which involved the production of chips which would aid in the integration of voice and data, and lastly, networking and communication area which was charged with the mandate of designing chips meant for routers, switches, modems and interface cards for networks. This differentiation was a huge step towards its market dominance in the 20th century (Casadesus-Masanell, Yoffie, & Mattu, 2010).
Cost Leadership
The fact that the company had a strong brand, made it easier for it to dominate the market with little money being used in the advertisements. A good example of the strong brand was when the company developed EPROM and sold it a higher price than its competitors and still maintained a large market share.
Also, when the company began manufacturing CPUs, it sold them at a relatively lower price. This was due to its ability to develop better products with minimum costs. It made enough profits that enabled it to maintain its aggressive approach of developing other products.
Strategy Resource and Capability
Value-Chain Analysis
Intel has established itself in the production of Semiconductors based chips which are continuously being developed after every 12-18 months in order to beat the ongoing competition from other firms. By this, Intel only focuses on developing products that semiconductor related products and focuses on developing them. It started with DRAM, EPROM, microprocessor 8086 and 8088, Pentium, and the R&D department is seriously finding a way of developing a 10nm chip. This has been brought up by the need to develop new chips that are smaller, cost effective and efficient.
Tangible and Intangible Resources
Intel Company has numerous resources all ranging from tangible to intangible ones. Its number of employees amounted to 85000 back in 2004 and that number has rose to 107600 employees in 2015. Notably, in 1974 the company had only a 3100 employees and the number rose up to 83400. Its net assets value in 1974 was worth 75 million dollars which gradually increased to 44,395 million dollars in 2001. Also, the company has continuously accumulated net revenues over the years. In 1974, the company made 135 million dollars’ profits while after a few decades, it made 26,539 million dollars as profits (Casadesus-Masanell, Yoffie, & Mattu, 2010).
Firm’s Core Competencies
Intel has three main competencies which include:
Manufacturing competence- Unlike most companies such as ARM Holdings who are the main partners to Apple Inc., Intel is best known for manufacturing its own chips. It does not rent out its services to other companies. By this, the designers are able to design new chips, test them and sell them on large scales at an effective cost and speed.
Partnership with Microsoft has given the company a chance to dominate at least 90% of the PCs markets. It now develops chips which are then used as the reference for making Windows. Currently, its chips development is the basis for the creation of windows 10. Intel has been able to leap huge revenues from this partnership. Research and development is another key concept that has made Intel become competitive. Through this concept, new innovations are made and further research is always ongoing. For instance, in 2013, Intel spent about $10.1 billion on R&D alone, which amounts almost 22% of what was spent in 2011 (Hill & Jones, 2010).
Strategy Implementation
Tactical and Strategic Decisions
Intel allowed for development of other businesses within it to allow for the accommodation of the new era of the internet. It developed the four main areas: Client platforms, server platforms, wireless and cellular, and networking and communication sectors. This development was crucial in ensuring that Intel grew and counteracted all the competition coming from other companies.
In 1999 and 2000, Intel had to come up with new strategies after it experienced serious problems. Among other problems, the main ones included: capacity shortages that lead to customers seeking AMD products, products recalls, already announced products getting cancelled, and product delays. Technical miscalculation could be blamed for such problems. For instance, Intel developed RDRAM a technology product derived from Rambus. RDRAM failed massively and the CEO had to think of a way out. As a result, Intel appointed a new COO, Otellini, who was in charge of the servers, Intel’s Clients, and Communication businesses. This move enabled the CEO to concentrate on the company’s new business areas and the long term strategic direction of the company. In 2003, the CEO wanted to ensure that the company gained its legacy by ensuring a double digit annual growth with the new businesses offering a higher rate of growth than its traditional microprocessor business (Casadesus-Masanell, Yoffie, & Mattu, 2010).
People and Culture Issues
Intel is currently developing means by which it will include diversity in its workforce. By this, Intel has employed people regardless of their gender and race. For instance, in 2015, the company employed about 3000 employees with which 43.3 percent were Hispanics, Africans, women, and Native Americans. This hit the company’s goal of 40% work diversity in the workforce. It is through this that the company accepted the diversity principle to become the culture of the company (Bhat & Rau, 2016).
Its culture requires the company to develop word class products which would set new standards in the PCs market. Employees are highly intelligent and the fact that there is the R&D branch of the company, makes it possible for them to produce quality products. Next, the company still relies heavily on the Moore law that advocates for the continuous improvement of the current product every 12-18 months.
The leadership of the company consists of the Executive management, Appointed vice presidents, and corporate vice presidents. Other management fellows are the senior fellows, board of directors, and fellows ("Executive Management | Intel Newsroom", 2016).
Key Structure and Incentive Issues
All the company’s employees have a number of incentives that they benefit from for being part of the company. Some of these incentives include, full health coverage, annual leaves, and annual appreciation ceremonies that focus on rewarding employees. The health coverage is among the best in the corporation world as it allows any employee with his/her family to access the full medical coverage. Employees who have done outstanding work or made key developments are rewarded by the company annually during the appreciation ceremony. This ensures their devotion in working towards achieving Intel’s vision and mission.
Performance Evaluation
Purpose
The importance of carrying out financial analysis is to ensure that the market growth of the company is known. By this, the areas that need improvements are focused at so that the company does not operate on a loss. Further, good financial ratios prove that the company has better competitive advantage over the other companies. Profitability, liquidity, and efficiency ratios are important when they are compared with other key competitors as they highlight the key weaknesses and strengths that a company might face. Moreover, continuous comparison of ratios with time helps in identifying the financial trends of the company.
Financial Ratio Analysis (1974-2003)
Profitability Sustainability Ratios
Sales Growth ratio compares the growth of sales over the years (Bhat & Rau, 2016). According to the case study, the growth of sales increased rapidly since 1974 to 2003 with an approximated ratio of 0.1040. The pricing policy of Intel is thus faring well.
Net Profit Margin- It is found by dividing the Net Profit by sales (Bhat & Rau, 2016). The total net profit margin is approximately 1.9852 and has increased over the years. However, only a few years that show a negative ratio scale. Therefore, it can be concluded that the company is continuously making profits from the sales that it is making annually.
Return on assets- It is calculated by dividing the Net Profit Average by the total assets (Velez-Pareja, 2014.). It measures the capability of an asset to turn into profit which in return shows the value of the company in terms of liquidity. A low ratio shows that the competitors have gained an upper hand in their production process and are more efficient. The current return on asset ratio of Intel as per 2003 is 0.59779 which is a lower value. The company hence needs to make some adjustments in its production process to ensure full competitive advantage over its competitors as well as make the production process more efficient.
Key Ratios (2006-2015)
Profitability(Morningstar.com, 2016)
Growth
Cash Flow(Morningstar.com, 2016)
Financial Health(Morningstar.com, 2016)
Efficiency Analysis (Morningstar.com, 2016)
Competitive Advantage
Intel has a competitive advantage over the other companies due to a number of reasons. First, the company formed a partnership with Microsoft which saw Intel attain a competitive advantage in Personal computers over other chip producing companies. Moreover, it was able to dominate the market with a 90% scale (Keller, 2016).
Next, being the first American Company to specialize on the production of silicon made semiconductors saw the company develop a huge brand. Its Intel Brand is so strong that when it started producing EPROMs, it was able to increase its cost and still the demand rose more than what competitors were receiving. During the internet era, the company sought to dominate the market by developing areas that would hugely involve networking. Even though the company failed in the preceding years, 1999 and 2000, due to miscalculations, it was able to make re-adjustments and assumed its leadership position in the technology market (Keller, 2016).
The Presence of the Research and Development department played an important role in ensuring that it maintained its dominance in the world market. The R&D department is inspired by the Moore law which allows for continuous research to make sure that the company’s value of products increase with time. It through this that Intel is able to develop new chips which are smaller, and efficient. Hence, new innovations are constantly taking place.
Competitive Status of Intel (1974-2003)
The competitive status of Intel changed slightly over the 30 years. It was not able to fully dominate the whole market due to the number of challenges it encountered. In the beginning, a Japanese based company produced chips at a relatively smaller price and in large scale which allowed it to dominate the market for a while. Also, in 1999, and 2000, the competitive status of the company received a huge blow after a number of product related issues rose. This made Intel to lose a lot of customers to their rivals.
Sustainability
Intel Corporation is a global leader when it comes to environmental conservation. The founder of the company Gordon Moore developed the philosophy which would oversee the company’s commitment to the environment. Products are designed with the environment in mind. This is done by ensuring that the impact of the product to the environment is greatly reduced in all its development phases which are: development, manufacturing, utilization and disposal. Next, it ensures its operations are responsible and are focused on minimizing its impacts on the environment. It achieves this by pursuing production means that improve the conservation of energy, and ones that reduce emissions ("Intel and the Environment", 2016).
References
Bhat, M. & Rau, A. (2016). Managerial economics and financial analysis. Hyderabad: BS Publications.
CASADESUS -MASANELL, R., YOFFIE, D., & MATTU, S. (2010). Intel Corporation: 1968–2003,1(1), 1-25.
Dess, G. (2012). Strategic management. New York: McGraw-Hill/Irwin.
Executive Management | Intel Newsroom. (2016). Intel Newsroom. Retrieved 21 June 2016, from https://newsroom.intel.com/biographies/executive-management/
Growth, Profitability, and Financial Ratios for Intel Corp (INTC) from Morningstar.com. (2016).Financials.morningstar.com. Retrieved 21 June 2016, from http://financials.morningstar.com/ratios/r.html?t=INTC
Hill, C. & Jones, G. (2010). Strategic management cases. Mason, OH: South-Western/Cengage Learning.
Intel and the Environment. (2016). Intel. Retrieved 21 June 2016, from http://www.intel.com/content/www/us/en/environment/intel-and-the-environment.html
Keller, K. (2016). Strategic brand management. Upper Saddle River, NJ: Pearson/Prentice Hall.
Velez-Pareja, I. Financial Analysis and Control - Financial Ratio Analysis (Slides). SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.1638279
