What strategy did Intel use to gain a competitive advantage in microprocessors? In order to get a competitive advantage Intel manages three classes of players: Competitors, Buyers and suppliers. The (Reduced Instruction set computing) RISC threat In 1989, Intel faced with a potential competitive threat from an alternative microprocessor architecture while launching its fourth generation of 80486 microprocessor. Four key decisions led Intel to have a competitive advantage in this market.
First, Intel realized, as did Motorola, that IBM’s power would give it much greater strength than Apple to set standards in the industry. Intel launched two sales campaigns to secure design awards that would set the standards for chips in IBM PCs. Second, Intel continued to pursue its product leadership strategy with the 386 chip. When IBM decided to slow the development of the next generation chips after the 286, Intel worked with Compaq to push the next generation chip, the 386, to market. By getting these machines to market, Intel with Compaq set many of the standards for the design of PCs without IBM’s involvement.
This was an important step for Intel to establish that the producer of the machines would not the set the standards, but rather the operating system and microchip producers would set the standards for the PC. Third, Intel committed heavy resources to meet expected demand for the 386 to help ensure it would become a standard. Intel spent nearly $800 million to develop the capabilities to meet customer demand for the chips. As the 386 chips hit the market, they became a standard that other would have to follow. Intel aggressively committed resource to take advantage of network effects that exist for technology products.
Commenting on the level of commitment Intel made, Grove stated, “We had to commit to supplying the entire needs of the industry… We made major commitments to production ramps, and we didn’t hedge. ” What threats has Intel faced in sustaining its competitive advantage in microprocessors? The threat of new RISC technology threatened Intel’s position, Intel spent additional funds to produce a strong RISC based chip to go along with its X86 chips. The combination signaled to competitors that it would not relinquish its position and bought it insurance against that event.
Intel learned that most buyers would need a 100% difference in performance to overcome the switching costs and change standards. Intel followed a pricing and production strategy to extract profits upon introduction of each new generation of chip. By increasing the performance of one product in the relationship, the other product needed to also increase its performance. Intel benefited from the relationship and also tried to be out in front in the relationship. Why has Intel been able to sustain its advantage in microprocessors, but not in DRAMs?
Intel also followed important strategies in relation to its suppliers to gain advantage in the microprocessor industry. Intel began to use a sole-supplier strategy for purchasing most of the equipment used in the fabrication of its chips. Intel believed that this strategy would give it significant advantages in moving down the learning curve and giving it cost advantages based on faster ramp-up times and higher cumulative production. Intel learned this from its experience in the DRAM industry. Intel used product leadership to effectively compete with its rivals in chip production.
Intel became increasingly aggressive about leading the industry in the performance of products in 1986. When IBM and Microsoft were slow to pursue 386 technology, Intel partnered with Compaq to forge ahead to force the other firms to follow. Intel built on this aggressive strategy to produce increasingly powerful chips with the 486, Pentium, and PentiumPro chips. This strategy could also be seen as a byproduct of its failures in the DRAM industry. Intel lost of its product edge to Fujitsu in 1979 in DRAM and never recovered. Session Schedule Discuss the Dynamic Nature of Competition rofessor Pankaj Ghemawat outlines the key threats to sustainability: imitation, substitution, holdup, and slack. Successful companies like Wal-Mart and Intel have devised innovative responses to these threats and have outperformed their competition. II. The Four Threats to Sustainability threats to our business sustainability. 1. Imitation: When your product or service is copied or replicated in any form it reduces the value of the original. This applies to manufactured products and their Chinese versions to fly by night services whose use other people’s notes and models. . Substitution: When there is another product or service replaces the need for the one you currently provide. The old dial up modem is the best example I can think of. 3. Hold up: Delays in you delivering your service or product at the specified price and time. This comes from demand levels or just poor serve from your suppliers or further up the chain. 4. Slack: The silent killer of small business, theft, absenteeism, non engagement and waste or ineffective use of current resources All these are cancers to your business and need to be managed on a regular basis.