Competitive Analysis Assignment Report

MBA 603 Business Strategy

Summer 1998

Certification

The undersigned, certify that this document is my work product, and that I reviewed and proofread the document carefully and completely before submitting it for grading.

Andy Gruenbaum

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1. Intel is a classic example of W. Brian Arthur’s “network effect”. Within the high technology environment, Intel does not necessarily have the most superior product, but it has succeeded due to the accruing of many small events. In layman’s terms, Intel has benefiting from the “snowballing effect”. Intel was in the right place at the right time. Intel exerted muscle and wit at the times when the standards were being developed for the industry. When the opportunities presented themselves, Intel locked in the personal computer market. In Intel’s case and also according to Arthur’s theory, anything that can be “locked in” can lose its advantage as the market becomes unstable again. The current changes in the technology and the PC-market place make the future of Intel less certain. Intel needs to be on the cutting edge of the next technological wave, or their importance as a market leader will be to diminished. The network effect for Intel is illustrated by the following bullet points:
   1. As IBM was looking for the microprocessor to serve as the basis for their microcomputer, Intel initiated “Project CRUSH”. “Project CRUSH” led to Intel gathering in the IBM contract as the supplier of microprocessors for all IBM microcomputers. (AIntel case, @ p. 4)

1. Intel still had a few market segments where they did not dominate. The implementation of “Project CHECKMATE” allowed Intel to turn 3 or 4 market segments that were in favor of Motorola’s microprocessor to Intel’s favor. Thus, Intel’s dominance within the PC market grew even more. (AIntel case, @ p. 4)

1. Early in the microprocessors history, Intel’s upper management was not taking microprocessors seriously. The middle managers, however, made decisions that caused Intel to step back from the DRAM market and to focus on microprocessors. This serves as yet another example of how serendipitous Intel’s success really was. (AIntel case, @ p. 5)

1. When IBM decided to rely on more proprietary components, Intel opened themselves up to dealing with additional vendors. Intel chose to work with Compaq to fill the gap left by IBM. Besides using Compaq to get out the new 386 processor, Compaq was very successful and became a dominant player in the PC industry. If a “Compaq” would not have come along, Intel’s streak of successes may have ended. (AIntel case, @ p. 7)

1. Intel was dominant in the CISC chip market. Motorola manufactured RISC-based chips. To hedge their bets, Intel also developed a RISC-based chip. Intel was going to let the market decide which chip they preferred. Despite some of the advantages of the RISC chips and Intel’s willingness to compete with their own version of the RISC chips, the market chose to continue supporting Intel’s CISC processor. Yet again, the market chose to favor Intel’s product over the competitors. (AIntel case, @ p. 9)

1. IBM’s decision to build their systems with proprietary components caused the very close alignment of Intel with Microsoft. This alignment was key in Microsoft and Intel developing the horizontal relationship that presently exists. Prior to IBM’s decision, the vertical alignment was what was present within the industry. The horizontal relationship allowed the computer technology companies to specialize in either hardware or software rather than trying to market both simultaneously. (AIntel case, @ p. 8)

1. As PCs became more dominant in the office, home users of PCs wanted the same type of computers at home as they had at their office. Since most PCs were Intel-based, as opposed to Motorola-based, with a Microsoft operating system, Intel’s dominance continued to grow.
2. Because of the development of “Intel clones”, Intel came out with the “Intel Inside” marketing campaign. This campaign created the impression in the minds of buyers that “if the Intel processor is not inside, the computer is not a quality computer.” Because of the success of the campaign, Intel was able to succeed despite the cost advantages to consumers when they purchased a computer based on the processors of Intel clones. (AIntel case, @ p. 11)

1. Unfortunately for Intel, locking in on a technology is not forever. Legal action taken against both Intel and Microsoft (2) lately would seem to give a strong indication that the “stable” industry is no longer quite as stable. The “network effect” predicts this instability, and the fact that it is now occurring would seem to give strong evidence that Arthur’s theory is correct.
1. Intel has the more effective organizational structure to a implement a cost-leadership strategy. Barney defines cost-leadership as a strategy that “focuses on gaining advantages by reducing its economic costs below the cost of all of its competitors”. (ABarney, @ p. 185) When Intel is compared to a pharmaceutical company like Bristol Myers Squibb (BMS), Intel is the organization that can best use its structure to implement a cost-leadership strategy. This point is substantiated by the following bullet points:
   1. Because BMS is a company that makes a wide variety of products for the health and personal care industry, they are in a situation where personal taste and need are an issue.(9) If BMS’s research and development group develops a pharmaceutical product that is only needed by a small percentage of the world’s population, they are still obligated to release and to market the product. If the product cures a disease or carries health benefits, BMS will provide the product even if they are not able to make a large profit on the product. Intel, on the other hand, focuses all of its efforts on furthering the technology for technologies sake. If Intel promises a product and then decides to delay the product, none of their customers will suffer any health problems. Intel can make purely business decisions on its products. (4) Because of the products that BMS develops, they do not have this luxury.
   2. Intel’s dollars spent on R & D have more predictable results. According to Moore’s law(1), Intel can expect to see the continued miniaturization of the microprocessor. Moore’s law states that the amount of information storable on silicon doubles nearly every year. With this assurance, Intel can expect to see additional rewards from its R&D spending. BMS’s research, on the other hand, does not have the assuredness that the funds it spends on R&D will yield a good return. (11, @ p. 24) It is this lack of predictability that makes it very difficult to adopt a cost leadership strategy within the pharmaceutical industry. If BMS knew a new super drug could be developed with some regularity, they would be in a much better position to adopt this type of strategy.
   3. With the current FTC suit against Intel (2), Intel would be very wise to adjust its pricing and make the necessary changes to its organizational structure that will allow it to become more of a cost leader within the microprocessor industry. Intel has made some questionable decisions in the treatment of its customers (3). The challenges Intel will face with the law suit will force them to be a more agile company and a company better prepared to deal with a more involved federal government.
   4. BMS participates in an industry that has existed for many years. While BMS makes products that make people lives better, Intel makes products that were not made 30 years ago. (5) Because of the newness and continued growth of the high technology industry, there are likely decisions Intel will have to make to take advantage of the market changes. These decisions will help them to become a company with a better grasp of its financial future.
2. When comparing the product-differentiation potential of Intel and BMS, BMS has the greater potential. Barney defines product-differentiation as “gaining a competitive advantage by increasing the perceived value of a companies products or services relative to the perceived value of a competitors products or services”. (ABarney, @ p. 220) Although Intel does many things well, BMS is positioned for sustained competitive growth in ways that Intel is not. This is detailed by the following points:
   1. Within the organizational structure, both companies do very well. Intel is organized to develop two different versions of a product in tandem. This allows greater sharing of knowledge and less duplication of efforts. Additionally, Intel is able to coordinate the efforts of marketing, engineering and manufacturing so that new products are brought to market in the most effective way possible. BMS also works with teams. As different groups research in an effort to develop new products, they need to communicate outside of their groups. This communication allows research to be shared and to allow solutions to come from other research groups. BMS also has many academic and R&D alliances around the world. This allows BMS to tap isolated pockets of creativity. (9) Lastly, the example in the Intel case of the middle managers deciding to phase out production of DRAM shines brightly. Intel managers explored new opportunities and convinced the upper management they were knowledgeable enough to address Intel’s future manufacturing needs. (AIntel case, @ p. 5)

1. Within the management control systems, BMS is the winner. Although, Intel has had a few failures in its 30 year history, it has not had the history or the opportunities for corporate learning that BMS has had. As BMS has grown to over 50,000 employees and developed numerous divisions, they have learned lessons that have helped them grow to their present levels. The success of both companies demands creative people. Without creative people, both BMS and Intel would suffer. Both companies offer internships and a variety of other methods to insure the recruitment of creative employees. (8, 10) In regards to timing, Intel can release products as they believe the market will best receive them. If BMS chose to release products in a similar manner, specifically with their health-related products, it would be considered criminal. (6) The release of a new health product may create great demand, but likely there is more of an education process with a new pharmaceutical product than there is with a new microprocessor.
2. In regards to compensation policies, BMS is again the winner. The best product a company can choose to sell is a consumable. When someone runs out of a consumable product, they will have to buy more. This allows BMS to know the market share of specific products and to attack segments of the market that are not being addressed. If BMS is a leader of a particular segment, they have achieved their goal of being first or second in all categories they compete in.(6) Beyond stock options (7, E-3-3), I could find no clear evidence of the rewards offered, but obviously BMS has to compensate their employees for reaching these aggressive goals. As evidenced by BMS’s 1997 annual report, BMS is involved in lawsuits regarding breast implants and a few other issues. (7, @ p. 53) Intel is also now involved in legal action with the FTC. (2) Both companies could have avoided potential legal action, but if they chose not to take the risks, they would not have enjoyed the successes they have achieved.

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