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Amd Customer Concentric Approach Explanations FLORIAN VIDALINC ISM/ ISEG SUP5 2F MBA Program PROFESSIONAL MANAGEMENT SKILLS ASSESSMENT Due to the 4 November, 2010. CONTENTS LIST Executive Summary 3 Introduction 4 1. What would it take amd to see a significant increase in its market share processors used in corporate desktops and notebooks? how can the success of opteron in the server segment be leveraged to other segments? 5 2. What do you make of amd’s “power campaign”? Is the value proposition it highlights compelling to end users? 6 3. How concerned should amd be about intel’s imminent new product plan? will they hamper amd’s growth plans? 4. WILL AMD’S CUSTOMER CENTRIC APPROACH BE A SOURCE OF ADVANTAGE OVER INTEL? 8 5. WILL IT YIELD COMMERCIALLY VIABLE INNOVATIONS THAT ARE DRAMATICALLY DIFFERENT THAN THOSE INTEL WILL DEVELOP? 10 Conclusion 11 LIST OF REFERENCES AND BIBLIOGRAPHY 12 EXECUTIVE SUMMARY For years, AMD held the place of a distant follower of the large microprocessor market leader, Intel. Up to there, the competitor Intel holds a “push” strategy by creating consumer needs thanks to technological innovations. Those were linked with strong marketing campaign in order to facilitate a quicker adoption process of their new product line.

However, in 2003, AMD change its traditional strategy to use a widely different one by switching into a blue ocean strategy. Indeed, AMD has changed course to become a “starter” firm. AMD has decided to launch at first its own brand server microprocessor range, called “Opteron” before one of Intel. At this moment, the firm made the decision to initiate the moves of server segment and therefore take heavier risks in term of investments, sales, pushing partners to adopt their new technology, reliability of their new products and also regarding their credibility of the market.

Corporate desktop segment is for mass market, not a niche as server segment. So the investments required have to be higher and bigger to build an image of credibility, brand awareness to corporate segment which do not really the product line of AMD. The problem of “Power Campaign” is that it focused on the brand image of AMD and not enough about their product line to push them to adopt a specific product more efficient in performance and energy consumption. It does really not highlight compelling to end users who are only looking for an efficient product: the technologic side of product is not enough accentuated.

Customer centric approach is a new marketing and strategic point of view of the market and of the demand for AMD. But this strategy focused on customer is feasible for a niche market because needs could be almost at the same level whereas in desktop segment, it is not the case in mass market, it requires an important part of investment of funds to adapt their product line then, to adapt their infrastructures to customized demand and developing new products requires a very important budget, cut manufacturing costs and to increase the manufacturing yield of the company.

It will a hard task to do but if they manage to find some followers, it can succeed. INTRODUCTION By way of an introduction, we have to do a small overview of semi conductor industry and see where the second worldwide larger microprocessor designer and maker, AMD, is. The high gross margins rate of chip makers compared to the other actors of the value chain IT goods industry (PC, server and mobile) shows us that microprocessors and software/ device (Microsoft) are the two key points of the industry. For example, Intel and AMD, microprocessor maker had respectively a gross margin of 56. % and 39. 3% from 2003 and IBM and Dell, PC manufacturers, got 37% and 17. 9% in 2003 (Exhibit 8). It is competitive industry drives by the dominant Intel which have known in 2003 a rupture thanks to AMD. This company is a distant follower of Intel which has a really dominant position on the market which can influence all their providers and the entirely industry. In order to differentiate its company, AMD has chosen to adopt a new innovative strategy to counter Intel dominance. So we are wondering how the move of AMD can be effective, yield commercially viable and by what means? . What would it take for AMD to see a significant increase in its market share in processors used in corporate desktops and notebooks? How can the success of Opteron in the server segment be leveraged to other segments? Before coming back on the success of “Opteron”, AMD’s product range in the server segment, we have to explain the history of the company and what leads AMD to launch this new innovative and disruptive product line in 2003. For years, AMD held the place of a distant follower of the large microprocessor market leader, Intel.

Up to there, the competitor Intel led the market (with a “push” strategy) by creating consumer needs thanks to technological innovations. Those were linked with strong marketing campaign in order to facilitate a quicker adoption process of their new product line. However, in 2003, AMD change its traditional strategy to use a widely different one by switching into a blue ocean strategy. Indeed, AMD has changed course to become a “starter” firm. AMD has decided to launch at first its own brand server microprocessor range, called “Opteron” before one of Intel.

At this moment, the firm made the decision to initiate the moves of server segment and therefore take heavier risks in term of investments, sales, pushing partners to adopt their new technology, reliability/ quality of their new products and also regarding their credibility of the market. From 2003 to 2006, AMD market shares in server market has increased from 6% to 21% (Exhibit 2b). This launching has succeeded in spite of some AMD’s weaknesses. At First, the company had a very limited budget of only $400 million to develop Opteron compared Intel.

Secondly, AMD also had a lack of credibility and brand awareness faced to really much stronger Intel influence with industry partnerships (which always build their products in function of Intel chips). AMD’s key competitive advantages with “Opteron” in the server market, which differentiate from Intel, were: * Cost leadership * Innovation with: (constant novelties) * Architecture design with an easier upgraded integration for partners and end-users. * High performance with good price-performance ratio. * Lower power consumption. Marketing initiatives to facilitate the adoption from corporate customers thanks to strong talks with partners to cross-licensing agreements. Consequently, AMD had launched before Intel new product line more efficient that competitors cannot make lost time quickly. Moreover, to adapt this method from server segment which a niche market very lucrative and attractive to the segment of corporate desktops and notebooks, we have to notice that the size of the segments are not the same at same. Corporate desktop segment is for mass market, not a niche as server segment.

So the investments required have to be higher and bigger to build an image of credibility, brand awareness to corporate segment which do not really the product line of AMD. Of course, AMD have to follow its hard policy of research and development on innovations ahead of Intel which have to be compatible with their current operating system. However, AMD has thanks to “Opteron” a bit of credibility because they already have convinced Microsoft to work with them and also have a famous first adopter on the market, Wall Street, to integrate their technology.

To finish, in this segment the innovation and performance are important but the decision maker also chooses on the brand awareness and has to know very well AMD’s product range by an intensive AMD brand campaign and a stronger sales workforce. Thus, it is necessary to adopt a large marketing brand campaign for them by keeping low prices to be leveraged to other segments. The aim is to prepare corporate customers and corporate users to adopt faster and easily the new product range. 2. What do you make of AMD’s “Power Campaign”? Is the value proposition it highlights compelling to end users?

This campaign had two mains goals: at first, increasing AMD’s corporate brand awareness towards to IT purchase decision makers not only CIO and IT managers but also to CEO; secondly, promoting cost savings about lower power consumption and cooling. It has succeeded but “Power Campaign” do not show enough the product range of AMD. Indeed, according to the surveys of 2005 about brand tracker survey results (Exhibit 12), the respondents consider that these issues about performance are relevant to buy only at a level of 20% whereas 95% known the brand AMD.

The problem of this campaign is that it focused on the brand image of AMD and not enough about their product line to push them to adopt a specific product more efficient in performance and energy consumption. It does really not highlight compelling to end users who are only looking for an efficient product: the technologic side of product is not enough accentuated. The “Power Campaign” aim has to be redefined about the impact of the power and the cooling of server in this segment by insisting on the main advantage for a company which is saving power consumption and cooling costs.

The other side to explore to make it a real selling point for AMD is that they have the lowest operating costs with their products as maintenance costs, longer life cycle of their products and it is easy to upgrade to the next generation. So this would also be a good argument to save company money. Until now, AMD have communicated on only one of the two main points to push to purchase an IT decision maker: the corporate brand is really high now but they do not know the product line. So the campaign has to move on this point.

Customers are at this point very resilient to move of technology to change from Intel to AMD or to upgrade. 3. How concerned should AMD be about Intel’s imminent new product plans? Will they hamper AMD’s growth plans? With “Opteron”, AMD have decided to drive the market but the company does not have enough financial funds to continue to keep this advance towards its first competitor Intel which is always at a dominant position in the microprocessor market. Intel is recapturing its back and its market shares versus AMD with the launching of this new efficient chip line by being less consumer on power, performer.

Thus, the differences about product line is tend to decrease and Intel with this new line can also get almost rather efficient products than AMD ones. So, the only one way of differentiation is now thanks to the marketing and the brand recognition, awareness and trust of their customers and partners. AMD has to convince users to upgrade and/or change their operating system easily. Furthermore, Intel is able to cope with AMD by investing widely more money in their marketing campaign to promote their new product line.

It is a high advantage, also more important nowadays, because microprocessor providers as Dell or IBM for example have decided to follow moves of Intel to integrate the new Intel microprocessor in their end products (supplier market power). As a consequence, the strong influence of Intel versus AMD is always really important and partnerships with providers (Original Equipments Manufacturers and Original Design Manufacturers) increase its dominance in the market and weaken AMD’s one.

Indeed, the providers are also financially in charge of the half of Intel’s advertising and marketing campaign expenses because if Intel sells more, they will therefore produce and sell more. It was an option that could not take AMD with their partners before due its lack of credibility and its rank of follower during many years. The collaboration is a key point in this industry helped by high financial power. It really can hamper AMD’s growth plans. Nevertheless, AMD has an innovative with an adapted marketing campaign that is already recognized by the current customers.

The firm stays the second largest microprocessor company after Intel but AMD do not has the volumes of Intel with 83% of the market against 21% for AMD according to the semi conductor association in 2006. So, the collaboration with providers, the very important expenses in marketing and the same level of technology are real threats from Intel to AMD’s growth plans because the brand recognition, the influence and the large power of funds that benefits Intel is widely higher than AMD.

In business to business, the customer is not really volatile, he is very loyal to a particular brand: it is a long term relationship at the contrary of business to consumer. To finish, even if Intel has the dominant position, AMD has still got its positioning about the cost leadership by cutting their price and has got a differentiation by the marketing approach but it requires manufacturing yield very precise and flexible to adapt the company to the demand of the mass market that AMD want to tap into. 4. Will AMD’s customer centric approach be a source of advantage over Intel?

Customer centric approach is a new marketing and strategic point of view of the market and of the demand for AMD. Before, Intel and their competitors have seen the microprocessor market as a market where the company had to push consumer to adopt new technological innovations to perform. It was their function to create the customer needs and cater to their needs by being more and more efficient and performing. AMD has decided to switch and do not set up the company at the center of the industry and push into the background the consumer.

Nowadays, it is microprocessor maker which has to revolve around the customer and looking for to cater to their needs by improving feedbacks, surveys, trade/commercial approach with them, according to AMD. This Blue Ocean Strategy is not the approach adopted by Intel and other competitors, only by AMD. Thus, AMD wants to adapt their product innovations closer to their needs but the thing is that AMD is present not only on a niche market with server but also in mass market with corporate desktop and mobile segments.

But this strategy focused on customer is feasible for a niche market because needs could be almost at the same level whereas in desktop segment, a mass market, it requires: * An important part of investment of funds to adapt their product line * To adapt their infrastructures to customized demand and developing new products requires a very important budget. * Cutting manufacturing costs to keep low prices by a restructuration plan maybe. * Increase the manufacturing yield of the company, we can wonder if AMD has the manufacturing capacity to meet the demand and make adjustments quickly to it.

Even if the company can make all these changes, it requires a lot of money and it is a really disruptive approach of the market with very high risks. It can be very hazardous and dangerous at a strategic point of view to conciliate cost cutting price and differentiation by a dangerous marketing approach. They have to choose one of these ways not both: AMD do not the financial health to hold this strategy alone and have to make a strategic partnership with a provider or Microsoft for example to keep it.

Indeed, Microsoft cannot want to see the monopolistic position of Intel at long term. Furthermore, as we know, Intel has a very dominant position on the market. Intel has a very influence on the wholly industry and providers. Therefore, even if AMD create the products needed and demanded by customers, it is not sure that provider and other actors of the market will adopt and integrate these new technologies to their products sold to end users. A first adoption of providers (OEM and OED) is necessary in order to this customer centric approach works.

It exists too many threats and weaknesses that the approach of AMD about customer focused work well faced to Intel for all the previous reasons. It could be a financial black hole for AMD in the future. AMD customer centric approach could be a real innovation for this industry providing that it exists collaboration and adoptions quickly by providers to counter Intel otherwise it will stop AMD’s expansion and will risk going to bankruptcy. 5. Will it yield commercially viable innovations that are dramatically different than those Intel will develop?

At the beginning, if we compare the two product line and innovations of AMD and Intel, we can notice that the two companies have almost the same product line. Indeed, even if AMD is a little bit more efficient than Intel‘s product range, the brand awareness and credibility of Intel is largely higher. Consequently, their own competitive advantages are similar but Intel has the position on AMD. Its financial good health and its position towards the other actors of the Industry bring to Intel a head up to promote it, integrate and make to adopt their innovations to the market.

Here, the difference is made by the volume sold by Intel and therefore their larger financial capacity to invest on innovations and expense in large marketing campaign. The thing is that AMD do apparently have the volume to yield viable innovations on its segment where Intel is already well positioned. AMD has to be careful with its customer centric approach strategy by establishing healthy partner relationships and avoiding any aggressive merger or joint venture with them which could take a real advantage on AMD actually financially weakened.

Indeed, in 2006, AMD has chosen to merge with ATI and has tent to hit Intel in terms of innovation and techniques where they are starting to fail. In order to answer to AMD, Intel has tried to buy NVIDIA to adopt a components strategy. CONCLUSION Nowadays in 2010, AMD will continue to grow at Intel’s expenses. It is a positive step for the company, which continues to grow but has to be restructured and yield manufacturing yield. The both companies Intel and AMD released new lines of server processors by hoping to obtain or maintain more market shares part.

Therefore, they are expected to start replacing older computers of this year after the replacement of the IT delayed during upgraded the Windows 7 generation, during economic crisis last year. LIST OF REFERENCES AND BIBLIOGRAPHY * Survey: E. Ofek, L. Barley, January 2007, Exhibits 3 & 4 about AMD and Intel financial statistics extracted from “AMD: a customer-centric approach to innovation” published in Harvard Business School Review. * Internet: N. a. , 2009, pres release of AMD corporation about its current strategy, accessed on 25 October 2010 on http://www. ainecreative. com/Samples/AMD-case. pdf N. a, from Intel Corporation about microprocessor industry links and influences, published in 2010, accessed on 23 October 2010 on http://www. intc. com/intelAR2009/business/industry/ index. html N. a, figures from the association of semi conductor association in 2006, published in 2007, accessed on 2 November 2010 on http://www. gartner. com/DisplayDocument? id=480913 Shih-Lung Wu, 2001, “Industry dynamics within semi conductor value chain” accessed on 21 October 2010 on http://dspace. mit. du/bitstream/handle/1721. 1/29721/ 54038520. pdf;jsessionid=591553D23801896302C645F1EC04C9F7? sequence=1 N. a, February 2010, AMD customer concentric approach explanations, accessed on 3 November 2010 on http://www. sap. com/solutions/business-suite/crm/pdf/ CSS_AMD_ROI_full. pdf ——————————————– [ 1 ]. E. Ofek, L. Barley, January 2007, Exhibits 3 & 4 about AMD and Intel financial statistics extracted from “AMD: a customer-centric approach to innovation” published in Harvard Business School Review. [ 2 ]. N. a. 2009, pres release of AMD corporation about its current strategy, accessed on 25 October 2010 on http://www. mainecreative. com/Samples/AMD-case. pdf [ 3 ]. N. a, from Intel corporation about microprocessor industry links and influences, published in 2010, accessed on 23 October 2010 on http://www. intc. com/intelAR2009/ business/industry/index. html [ 4 ]. N. a, figures from the association of semi conductor association in 2006, published in 2007, accessed on 2 November 2010 on http://www. gartner. com/DisplayDocument? id=480913 [ 5 ].

Shih-Lung Wu, 2001, “Industry dynamics within semi conductor value chain” accessed on 21 October 2010 on http://dspace. mit. edu/bitstream/handle/1721. 1/29721/ 54038520. pdf;jsessionid=591553D23801896302C645F1EC04C9F7? sequence=1 [ 6 ]. N. a, February 2010, AMD customer concentric approach explanations, accessed on 3 November 2010 on http://www. sap. com/solutions/business-suite/crm/pdf/ CSS_AMD_ROI_full. pdf [ 7 ]. E. Ofek, L. Barley, January 2007, “AMD: a customer-centric approach to innovation” published in Harvard Business School Review