Intel, the world leader in silicon innovation, develops technologies, products, and initiatives to continually advance how people work and live. Founded in 1968 by Robert Noyce, Gordon Moore and later joined by Andy Grove, the company is a Silicon-Valley start-up that builds semiconductor memory chips. Intel introduced the world’s first microprocessor in 1971.
Tetra Threat Analysis
Sustainability is the most important segment that most companies need to pay attention to in order to stay in the race in face of tough threats like industry level performance effects and within industry performance differentials. The tetra threat framework is used for diagnosing the sustainability of the lead players within the industry performance. The 4 primary threats are
1. Threat of Imitation
2. Threat of Substitution
3. Threat of Holdup
4. Threat of Slack
The added value aspect faces threats from imitation and substitution whereas the appropriated value has threat from hold up and slack.
Following are the responses of Intel with respect to the tetra threat framework:- Threat of Imitation: clones
Imitation in simple terms is copy, creating clones or duplicates. Intel had many competitors some of whom had the knowledge and capacity to produce similar semiconductor chips. AMD, Texas Instruments, Cyrix were major competitors including Motorola.
To counter the threat from imitation Intel responded as:
Private Information: Patents – At an earlier stage, Intel vigorously protected its intellectual property through patents and litigations. But later it did not follow this since microprocessors became obsolete from time to time
Relationship- Maintained strong relationship with its complementary partners like Microsoft, IBM and hence provide best services. This prevented customers and end users from switching over easily. With customers like IBM, Compaq and many more, the “Intel Inside” campaign benefitted all in the long run without pushing them for copying the technology of Intel.
Technology upgradation- Upgraded its product with next generation microprocessors which made it difficult to copy. Several generations of the product were made to avoid duplication.
Strategy for Pentium- achieve an overwhelming advantage in performance over competitive offerings
Economies of scale- It started project CRUSH and introduced more than 2000 designs which show its scope economies strategy for reducing threat to imitation
Threat of Substitution:
Substitution is mainly here a threat to resources rather than product substitute completely.
Intel’s response to substitution:
Straddling and Threat from RISC – One threat was from RISC (UNIX) as far as microprocessor architecture was concerned. Intel had advanced further in CISC despite having RISC as well. RISC was very fast but compatible with nothing. Intel had a strong i860 with RISC architecture. Intel did straddle for some time with RISC but it was accidental. It initially made considerable efforts to sell i860 (RISC) as a substitute for X86. But soon Intel stepped up the R&D for new generations of X86 (CISC microprocessor) and advanced further to leave behind the RISC as substitute and it developed two generations of its X86 line simultaneously.
Harvesting- Initially in response to Japanese technology for increased memory capacity of DRAM, Intel used all its resources in developing and extending the DRAM technology. But soon due to the day-to-day decisions of the middle level managers, the process had shifted to microprocessor development. This proved a good decision step by Intel. Later DRAM were not produced anymore.
Defending- As the product lifecycle for microprocessor shrunk Intel charged a heavy price for the new products initially and then reduced the price. Earlier while handling IBM, Intel gave licenses to 12 companies itself holding only 30% revenue. Then it reduced it to 4 companies holding 75% revenue itself and later gave license only to IBM, hence reducing threat of substitution.
Leapfrogging- jumping all the way to 32-bit technology, going from 286 micro processor to a 386 microprocessor and then to a 486 microprocessor forced the PC industry to develop fast keeping the 32-bit support in mind. Hence most PCs were now thinking in terms of collaborating with Intel. After the evolution of internet, Intel saw the internet as having potential of a 10X change for the company. And it made huge investments in more than 50 companies for supporting internet technologies.
Threat of Hold-Up:
It is a threat to the appropriation or capture of sustainable added value that is often rooted in resource of co specialization. The firm and the complementary company co-specialize, their added values overlap and it becomes impossible for both to appropriate the full amount. Hold up is like supplier or buyer power.
In Intel case these interdependencies led to complex and sometimes tense relations with its customers and suppliers.
Supplier relation- It incorporated sole sourcing and then switched to dual sourcing of critical pieces of production equipment. Also Intel had entered the market by having contracts with the suppliers for mass production of parts. Thus it held-up its suppliers.
Build Mutual dependency – the Intel Inside campaign- Intel’s customers were OEMs (original equipment manufacturers). Hence Intel Inside campaign was to complement the marketing efforts of OEMs. Many participated but many feared that their own brand would be undercut. Intel’s response was that campaign was mainly to expand the total PC market and was solely for end users. It pulled software vendors in this campaign as well- “Runs even better on Pentium Processor” was the tag line. Initially IBM and COMPAQ resisted, but soon joined the campaign. Hence Intel managed to build good relations with the complementary companies and develop mutual dependency. This reduced hold up since the value of the end product that is the PC and the software was increased tremendously and the complementary were forced to use Intel.
Increased the bargaining power – When demand of chips was high, Intel used the bargaining power by increasing the price of the chips very high and later reducing it to control demand and supply.
Building Trust with customers- When demand was high, Intel balanced the allocation among OEMs as one way to handle demand and supply. It used past buying behaviour to determine how many chips to give to which customer when supplies were low. It has made a strong trust relationship with its complementary companies and suppliers.
The processors which it made were used so commonly that the complementary products were valued very high along with this.