Strategic and innovative evolution: Case study of Intel

Corporation

Abstract

The paper argues that the transformation of start-ups into leaders or trend enablers in the high
technology sector can be best accomplished by the combination of strategy, innovation with
vision and leadership. In this paper we review the position of Intel corporation which
transformed itself twice. In addition to this Intel seemed a particularly interesting research site
because it is one of the most important firms of the digital age and its evolution highlights the
fundamental technological and economic forces that characterize digital industries. The study
has been divided in two periods, i.e., producer of memory/DRAM under Moore & Noyce and
producer of microproccesor under Grove, due to its appropriatness within the context of the
problem. It has been analyzed by using the induced and autonomous strategy along with the
theory of competitive strategic position. The paper concludes that while internal ecology model
is more suitable in unexploited industries to exploit unknown oppurtunities of new ICV's, there
needs to be a structural context to avoid failures.

Keywords

Intel Corporation, Microprocessors, DRAM, Induced, Autonomous, Rational Actor Model,

Internal Ecology

1
Table of Contents

Abstract 1
Keywords 1

SECTION 1 – Introduction 2

SECTION 2 - Theoretical Framework

2.1 Rational Actor Model. 3

2.2 Internal Ecology Model 3
2.3 Induced Process Strategy. 3
2.4 Autonomous Process Strategy 3
SECTION 3 - Intel Corporation 6

3.1 Epoch II: DRAM Business 7

Genesis 7
Rise of DRAM and Ancillary with Distinctive Competencies. 7
Transmormation 8
Market and Product Strategy 9
Organization Structure Context/Strategy Actions 9
Corporate Strategy and Leadership/Strategy 9
Structural Context 10
Autonomous Variation 10
Strategic Context/Selection 11
Strategy Reorientation/Retention 12
Analysis: Internal Ecology Model 12
a Strategic Inertia 13
b Strategic Re - orientation. 13
c Strategic Renewal 13

3.2 Epoch II: Intel Microprocessor Led PC Revolution 14

Technical Competencies/Barriers. 14
Supplier Side Benefit. 14
Buyer's Side Advantages 15
Reduced Substitutability 15
Vectorized Induced Process Strategy 16
Corporate Strategy 16
Structural Context 16
Induced Action 17
External Environment 17
Intel Capital and Autonomous Strategy Process. 18

SECTION 4: Final Word 18

SECTION 5: Bibliography 21

2
Section 1 - Introduction

I argue that “whether transformation of start-ups/organizations into leaders or trend enablers in

the high technology sector can be best accomplished by the strategy from “bottom up” or “top
down” hierachy or a combination of adaptive strategy – making and innovation over a period of
time altering with the level of success of the organization”. A clear insight in this long standing
dilemma of organizational and strategic management researchers has been attempted by
investigating Intel Corporation, which transformed itself from a memory start - up to the leader
of PC revolution. Since it's start in 1968, when Robert Noyce and Gordon Moore left Fairchild
Semiconductors to design and manufacture integrated circuits (IC), Intel has weathered major
changes in the semiconductor and computer markets, transforming itself twice. The company's
CEOs have chosen very different methods of formulating and implementing business strategy in
the company. This paper is a critical study of two periods1:

a) Epoch 1 - defined by Intel as a memory/DRAM producer under the leadership of Moore-

Noyce. (1971-1985)

b) Epoch 2 - defined by Intel’s transformation into microprocessor monolith under Andy Grove
post DRAM exit (1985-1998)

These were analyzed using the framework of induced or “top-down” and autonomous or “bottom
up” strategy making along with theory of competitive strategy. Intel’s two periods are considered
for analysis because of their appropriateness within the context of the problem. In this paper, we
start by building the theoretical framework of strategy making, followed by outlining the two
eras in accordance to Intel Corporation. Main literature has focused on the work of Prof. Robert
Burgelman whose research has focused on the role of strategy in firm evolution, with emphasis
on Intel Corporation.

1
Burgelman R. A., (2002) “Strategy is destiny”, New York: The Free Press.

3
Section 2 - Theoretical framework

Strategy making in a firm is a complex process involving conceptualizing and implementation of

key actors throughout the firm. This process can be further divided into two dimensions2:

a) Degree of concentration of strategic decision making with specific groups, and

b) Degree of coherence between conceptualization and implementation.

The two extremes of former could be complete concentration with top management or wide
distribution within an organization. In the case of latter, all the units of an organization can act
simultaneously or in the other extreme act sequentially. This broad classification gives rise to
four broad strategy making processes, of which the two key models based on concentration of
decision making role are:

2.1 Rational actor model3:

This represents the most idealistic where a rational leader is responsible for strategic decision
making and organizing all units to simultaneously implement his decision, suggesting a strong
coherence between strategy and action. Such an idealistic model is expected to succeed only in a
market that can be reasonably anticipated.

2.2 Internal ecology model4:

This model is defined by a distributed strategy making at organization/middle manager level

combined with simultaneous actions from all units . This is a highly dynamic model in which
coherence depends on the characteristics of the internal selection processes operating on the
strategic initiatives. This would suggest it to be ideal for an evolving sector with huge
opportunities and uncertainties.

2
Mintzberg H., (1978), “patterns in strategy making”, management science, 24, 934-48.

3
Allison, G. and Philip Z.(1999) “Essence of Decision”. New York: Longman

4
Burgelman R. A., (1991), “Intraorganizational Ecology of Strategy making and organizational adaptation: Theory
and field research” , Organizational Science, 2, 239-62

4
The differentiation among these process models is caused by the shift in the relative balance of
“strategic intent” formation methodology and resource allocation in a firm, as defined by
induced and autonomous process strategy5.

2.3 Induced process strategy:

Resembles the traditional “top down” approach, wherein the top management formulates their
strategic intent based on organizational learning of a firm's distinctive competencies and product-
market domain. This provides the framework to align the varied initiative of operational and
middle level managers towards a common goal. As a result, induced strategic process is directed
towards gaining and maintaining leadership of a firm in a core business and a familiar external
environment. Internal selection in a firm is managed to obtain coherence between strategic
actions and intent by putting in place a structural context, comprised of administrative and
cultural mechanism like resource allocations.

2.4 Autonomous process strategy:

Consists of entrepreneurial spirited initiatives from individuals outside the scope of corporate
strategy. These initiatives typically involve new combinations of competencies which are not
recognized centrally important by the firm. The so called disruptive technologies6 often spring up
as autonomous initiatives of established companies in unfamiliar emerging environments, which
may become important later. As a result, a firm’s strategy is indeterminate regarding these
initiatives. A critical step in their sustainability is to come up with strategic context of these
initiatives for evaluating and linking them to corporate strategy.

Together, these two process models provide basis for conceptually understand the emergence of
firms using evolutionary organization theory7, based on four generalized processes: variation,
selection, retention and competition. Variation result’s from desires of distinct groups to

5
Burgelman R. A., (1983), “A model of strategic behavior, corportae context, and the concept of strategy”,
Academy of management review, 8, 65
6
Bower, J.L. and Christensen, C.M. (1996) "Disruptive Technologies: Catching the Wave", The Journal of Product
Innovation Management, Volume 13, Number 1, pp. 75-76(2)

7
Burgelman R. A.,(2003)” Strategy Making and Evolutionary Organization Theory: Insights from Longitudinal
Process Research”,

5
demonstrate their specialized skills and initiatives. Selection works through administrative
mechanisms controlling the resources allocation. Retention concerns the initiatives which
survive and grow. Internal competition arises from different strategic initiatives struggling for
limited resources. Induced and autonomous strategic actions correspond to variational, structural
and strategic context corresponding to internal selection process; and corporate strategy
corresponding to internal retention respectively.

In hightech sector, where innovation is key to growth, the focus would always be on company
spending. Innovation cycles and approaches are intricately linked to corporate strategy. Early
research efforts suggested that the interplay between the prospects of a company’s mainstream
businesses and the availability of uncommitted financial resources create a strong force which
drive the Internal Corporate Venturing (ICV) cycle8. There are four common situations that can
result from that interplay as depicted in the figure below

Figure 1: Prospects of the Mainstream Business

8
Burgelman R. A. and Valikangas L., (2005 summer), “Managing Internal Corporate venturing Cycles”, MIT sloan
management review, 26-34

6
a) ICV orphans: Initiatives arising from committing excess financial resources by a firm, but
lack of corporate motivation to support them actively due to large opportunities in the core
sector.
b) All out ICV drive: Top management is an ICV drive due to urgency arising from lack of
growth potential in core and large excess of financial resources.
c) ICV irrelevance: It arises where there is paucity of funds and huge growth opportunity in the
core like start-ups.
d) Desperately seeking ICV: This is mostly the failure prone area, wherein a firm is short of
financial resources as well as growth prospects in an incumbent sector.

The above defined theoretical frame work and associated concepts will now be used to analyze
the Intel Corporation in its two time periods.

Section 3 - Intel Corporation

“Integrated electronics” or Intel, is the largest semiconductor manufacturer in the world, based
on revenues. By 2000, Intel's microprocessors were found in more than 80% of PCs and
appliances worldwide. Intel has survived by continuing innovating products, quickly adapting to
the market. Intel's today can boast of its revenues which are $35.3 billion as compared to $1.9
billion in 1987.9

Intel started off as leaders in both innovation and market share for memory chips but steadily
declined to be an insignificant player in the DRAM business. Autonomous initiatives like
microprocessors(CPU) started to take center stage. After years of losing shares in DRAM, by end
of 1985 Intel decided to transform itself into a CPU company while completely exiting from
DRAM. Nearly rising from phoenix, Intel transformed its corporate strategy and innovative cycle
to encash the opportunities. They have used several strategies to increase the market share and
claim a larger share of it. Intel remained aggressive through a blend of intelligent marketing,
resourced R&D, advanced manufacturing expertise, a vital corporate culture, legal, and 'WIntel'
the alliance with software giant Microsoft Corporation.

9
Wikipedia <http://en.wikipedia.org/wiki/Intel> Date excessed: 28/02/2007

7
In this paper, we shall study the strategic transformation, role of leadership and altered
innovation in both its product and its ancillaries in the two era’s.

Section 3.1 - Epoch 1: DRAM business

Genesis:
In early days, Intel and others were not focused on getting patents or achieving "inventions" so
much, as they were desperate to get new products to market and begin reaping profits. Intel was
the first to enter the 1K memory market. It's business grew during the 1970s, as it expanded and
improved its manufacturing processes and produced a wider range of products, dominating the
memory devices. By 1974, it was a leader with market share of 84%. But Intel could not sustain
the competitive advantage over long time, due to changes in external environment and
cumulative setback in internal selection environment. By 1984, market segment share had fallen
to less then 3% and the revenue contribution to Intel had fallen less then 5%. This was
accompanied with development of unplanned products from autonomous initiatives, which
started to take prominences within Intel for resource allocations. As a result of these, Intel’s top
management decided to exit the DRAM in 1984. The rise and fall of DRAM can be viewed
under the competitive and resource based strategic theory of firm (CBT and RBT). The exit from
DRAM was governed by events imitating a slow ecological process, originating from
combination of strategic alteration and organizational structure.10

Rise of DRAM with Distinctive Competencies:

Semiconductor memories required three technical competencies:
a) Design
b) Process technology
c) Large scale precision manufacturing

Process technology was viewed by Intel’s management as the firms ‘distinctive competence’ on
which it differentiated its product and got a premium price. Competencies in the field of MOS

10
Burgelman R. A.,(1996 summer), “A process Model of strategic Buisness exit: Implications for an Evolutionary
Perspective on Strategy”, 17, 193-214.

8
technology, wherein they were the first to make the process with yields higher than required for
viability. Design advantages were reduced by the standard customer procedure in
semiconductors necessitating a second source, to obtain sustained supply. This resulted in
increase of process technology's importance in being a differentiating tool. Intel's early strategy
was to deliver products based on the next generation process technology before
competitors. Being a niche product, it hadn't yet entered commodization which required mass
manufacturing. Also, in the external environment, the competitors were initially barred from
these markets as:

(a) A new entrant required large investements on factories with small shell life of 3 years
(b) It had to get some patents in order to get cross- licenses from existing competitor companies
(c) It had to learn quickly to increase product performance while lowering producing costs

Transformation:
Intel soon lost these competitive advantages in R&D to rising competitions in US and Japan. The
distinctive competencies were fast diminishing. When the external environment changed the
basis of the DRAM sector from process technology to large scale precision manufacturing, Intel
continued to rely on process technology. Further, with rising costs and movement of skilled
labourers, this competitive advantage was narrowed further. Finally with the shift of role process
innovation to equipment suppliers from manufacturers, the competitive advantage was nearly
negated in line with the competitive strategy.

On the external front, the Japanese competitors rose up quickly with strong competitive
advantages as they:
(a) Were supported from conglomerate banks
(b) Used scientific methods to lower costs and increase yield (Over 20% more yield than US
companies in 1980s)
(c) Had a domestic supply chain to provide better production tools
(d) Had a huge local product demand
(e) Acquired strong research ability which lead the industry in 1980s.

9
In the mean time, US competitors such as Texas Instruments and Mostek also had strong R&D
which aimed to produce better and bigger DRAM's with lower costs. Due to this competition,
Intel had difficulty in sustaining its position.

Market and Product strategy:

In initial years, Intel enjoyed patents, money and technology advantages, leading to short term
competitive advantage in terms of rare and valuable resources ( RBT ).11 This was also reflected
in the product introduction and pricing policy, wherein Intel's new product approach mirrored
product replacement strategy to maximize the product in a near monopolistic market.12

With the market trend moving towards commodization, customer valuation of innovation
reduced in terms of substitutability. Intel's old strategy of product replacement with supplier of
niche products left a vacuum in the standard market for low cost competitors to grab. Niche
product demand failed to cover the lost business in the old product market. This is well reflected
in the 16K DRAM market. Intel was the sole supplier of the single pin 16K DRAM and also
managed to charge a premium. But in transition to that, it lost the share in the mainstream market
for three-pin 16K DRAM, leading to a drastic fall in Intel's share. In 1979, worldwide shipments
of three-pin chips was 70 million units as compared to 150K for single pin chip offered at Intel.
This resulted from unlinked product offering with the mainstream DRAM customers.

Organization structure context/strategy actions:

Intel created an induced strategy process to pursue the opportunities in the semiconductor
memory markets. These were achieved through a combination of formation of strategy and
installation of a structural context.

Corporate strategy and leadership/strategy:

In the initial years, corporate strategy was significantly influenced by the organizational structure
and core values set by the founders. As headed by two researchers in the field of design and
11
IS Theories <http://www.istheory.yorku.ca/rbv.htm> Date Accessed: 04/03/2007

12
Purohit D., (1994), “What Should You Do When Your Competitors Send in the Clones”, Marketing Science,
13(4), 392-411

10
manufacturability, Noyce and Moore's organization had been ingrained with values of fostering
technical innovations and flawless executions. Their deep insight into the potential for silicon
directed the firm’s distinctive competencies to be based on process technology. This was
enhanced by their altered R&D model, where they insisted Intel performed all research directly
on its process line. This allowed the company to make rapid incremental process changes and
stay way ahead of competition.

Structural context:
A structural context was created to couple the strategic initiatives at the operational level with
the corporate strategy. This started with the organizational structure, where even though each
product division had its own development and marketing group, there were a set of common
functional groups gorming matrix which controlled the flow. Further, these were made adaptive
in terms of market demands. Strategic planning systems in form of strategic long range planning
(SLRP) were put in place with aligned actions of operational managers.

A key structural rule regarding the manufacturing resource allocation within various groups was
to be decided by maximum margin per wafer rule. The top management abided with the rule in
the resource allocation made by middle managers who decided it in accordance to the rule and
market realities. Further Intel had installed a very rigorous measurement and reward system in
accordance to its core principles of result orientation, discipline and profit orientation. Together,
these aligned the actions of middle and operational management with top management.

Autonomous variation:
Even though induced strategy process had a variation reducing effect, the initial management had
also created an organizational structure that breaded and supported the autonomous process. The
key indicator was the emergence of the microprocessor and the EPROM as disruptive
technologies that provided unplanned alternatives to DRAM, originated by middle managers
rather than an insight of corporate management. The rise of microprocessor highlights the strong
individual initiative oppurtunities at intel, rooted in the distinctive competencies of core business
which brought Busicom to Intel.

11
Ted Hoff and Federico Faggins, new engineers at intel, were the first to recognize the strategic
importance and opportunity of microprocessor when external customer Busicom came forward
with a request to develop a set of specific functionality chips. Realizing Intel’s internal resource
constraints to develop a complete set and top management's desire to satisfy customer, they came
up with the concept of microprocessor. They championed it autonomously to the top
management to obtaining resources and buy rights from Busicom, giving microprocessors a
chance to reshape Intel with renowned 4004 processor. This gave microprocessor business a
skeptic alignment to the corporate strategy. Again at the design stage of 8-bit processor, top
management had mandated a radical new design of 8800, but autonomously a group also worked
on a simpler 8080 design. When middle management realized that 8800 would not be ready in
time for market to ever increasing competition from Motorola 68000, they developed 8080,
which became the foundation of the revolutionising 8086 processor.13

Middle and senior management went beyond the technical competence to support the marketing
and sales efforts by coming up with new radical product placement strategies like operation
CRUSH.14 Even though top management was still focused on DRAM, a strategic intent was
decided by open debate on ideas between middle and top level management for resource
allocation and strategies. This was the key to a continuous shift of manufacturing resources from
core business to new ventures like microprocessors. This resulted in the strong support from top
management like Andy Grove and Gordon Moore in form of Crush and Busicom deal.

Strategic context/selection:
The story of microprocessor reflects the key importance of internal selection process and open
debate structure, with an informal and flat organization structure based on knowledge
power intead of positional power, established as core values by Moore and Noyce. Emphasis was
on openness at an individual level and constructive criticism based debating. The rigorous
internal selection process also imposed checks on ICV models to demonstrate strategic
viability/context and to obtain resources. Hence the impetus to make microprocessor a central
part of Intel was originated by middle managers, who obtained the resources and market along
with developing technical competencies for their initiative.
13
Wikipedia <http://en.wikipedia.org/wiki/Intel> Date excessed: 28/02/2007.
14
Wikipedia <http://en.wikipedia.org/wiki/Intel> Date excessed: 28/02/2007.

12
Determination of strategic context and creation of linkages to existing core businesses was very
important in survival of new initiatives. These were critical to reduce the strategic dissonance
between the current core and future possibilities.15 Inability to achieve these, lead to
cannibalization of ICV like direct ventures into PC as an original equipment manufacture
(OEM).

Strategy reorientation/retention:
The success of microprocessors and shift in Intel's product domain from memory (low design) to
microprocessors (high design) had important consequences. It propelled refocusing of distinctive
competency from process technology to circuit design and technical marketing as the
determining factor for corporate strategy. Top management further recognized the opportunities
in the form of protected intellectual property in new ventures and accompanying benefits. The
retention of microprocessor in corporate strategy originated from an organizational learning in
the form of resource allocation and market trend, allowing top management to recognize and
rationalize strategic exit from core business of DRAM.

Analysis: Internal ecology model:

During epoch 1, Intel's corporate strategy was characterized by flexibility, largely owing to the
unexplored and unexploited nature of IC business. Besides, the core principle of maximizing
return on wafer and value creation, it was amended to maximize on opportunities generated. The
product base was widened and distinctive competencies were altered, primarily by a bottoms-up
approach. Adaptive organizational capability during this period could be attributed to the
simultaneous application of induced and autonomous strategy through four forms:

a) Strategic inertia16:

15
Grove, A. and Burgelman, R.A. (1996), "Strategic Dissonance", California Management Report, Vol 38 (2), pp. 8
– 28.
16
Hannan M. T. and Freeman J., (1984), “Structural Inertia and Organizational Change”, American Sociological
review, 49, 149-64

13
Induced strategy process implemented to establish reliability in the core sector results in an
inertia to strategy to respond to change in the environment. This was reflected in Intel’s failure to
change its product technology based differenciation strategy when external environment altered
DRAM into the commodity sector requiring focus on cost and quality. Similarly, Intel continued
to invest in DRAM R&D for nearly 5 years after losing leadership at a cost of better options like
microprocessor. This was primarily due to inertia of established managers to accept the loss of
viability in core. As a result of which, it continued to attempt short term adjustment in strategy to
remain in DRAM business, without altering main strategy to support DRAM.

b) Strategic re - orientation:
Alteration of strategy of an established firm has always raised contradicting views.
Organizational ecologists17 find it threatening whereas punctuate equilibrium theory18 believes it
to be an integral part of survival. Internal ecology model also suggests this as a major disruption
in the set induced strategy process, resulting in a threat rigidity effect wherein firm resorts to
strategy adjustments are needed. This can be equated to Intel’s pursuit of DRAM. Failure of this
mechanism would force top management to pursue abrupt reorientation, which wasn’t the case
with Intel.

c) Strategic renewal:
This results in an adaptive nature of organization and is propelled by autonomous strategy
process, which allows internal experimentation and selection of niche products like EPROM,
before major strategic context development at corporate level. Intel’s transformation to
microprocessor wasn't an abrupt transition/reorientation but a gradual replacement induced from
bottom up hierarchy.
3.2 Epoch II: Intel Microprocessor led PC revolution

17
Barnett W. P. and Caroll G. R., (1995), “Modeling Internal Organizational Change”, Annual Review of
Sociology, 21, 217-36

18
Tushman M. L. and Anderson P., (1986), “Technological Discontinuities and Organizational Enviornments”,
Administrative Science Quaterly, 31, 439-65.

14
In 1971 Intel launched the 4004 which was the world's first microprocessor. But it was only in
epoch II, that Intel transformed itself from an ailing semiconductor company to a market leader
of PC technology by controlling the forces in accordance CBT and creating a sustained
competitive advantage based on it's design and manufacturing resources (RBT), enabled by
astute corporate strategy making and leadership.

Technical competencies/barriers:
In 1980s, IBM turned the PC industry into an open structure which begins a new era of
horizontal competition.19 Horizontal PC industry was governed by “increasing returns to
adaptation”, in which a high installed base is the key to enhance returns. Even though initially
Intel lagged the competition in terms of design inferiority, it won the critical IBM PC account
through combined focus of technical (redesigned CPU to 8086/80286) and marketing (CRUSH)
efforts. This turned to be a significant turning point in establishing the Intel architecture (IA) as
standard of PC industry to follow, with huge success of IBM PC. With microcode being made
copyrightable in late 80's, Intel created a strong entry barrier for second source manufactures like
AMD to copy their products, allowing huge success of key processors like 486. This allowed it
to have a sustained advantage over competition by reducing imitation and substitution, in
accordance with RBT and CBT, resulting in huge financial advantatge for leading the market
with newer technology.20

Supplier side benefit:

Intel also gained more power from supplier side where more and more plant equipment suppliers
had emerged in the market. Advent of new suppliers in Taiwan and South Korea gave Intel more
power to negotiate contract and lower their costs by sourcing from different suppliers. As against
this, Intel had fallen prey to the dependence of Japanese OEMs advantageous to japanese
chipmakers in DRAM era.

Buyer’s side advantages:

19
Stanley M. Besen, Joseph Farrell (1994), "Choosing How to Compete: Strategies and Tactics in Standardization ",
The Journal of Economic Perspectives, Vol. 8, No. 2, pp. 117-131
20
IS Theory <http://www.istheory.yorku.ca/competitivestrategy.htm> Date Accessed: 04/03/2007

15
Rise of new players like Compaq reduced the power of IBM as OEM, enhancing Intel bargaining
power to avoid the design sharing of subsequent technological superior products like 486.
Reduced monopoly on PC OEM side allowed Intel to pursue the sole supplier strategy, allowing
to maximize the control over external market environment and benefits of high R&D costs.
Besides, Intel vertically integrated into the computer OEM in design and manufacturing with
ancillary ventures like superior chipsets to support IA chips. This made them gain more power
on customer side.

To further gain market control, Intel ventured into end-user oriented brand awareness marketing.
Intel advertised on Medias and put an “Intel- inside” logo on each final product of OEMs. These
strategies helped them to build an image of advanced strategy backward compatibility and
reliability. This influenced consumer buying behaviors by making Intel an end-commodity brand
synonymous to microprocessor, creating demand for Intel CPUs from downstream.21

Reduced substitutability:
Unlike the DRAM where Intel pursued the product replacement strategy, in microprocessor it
pursued a line extension strategy where it continued old product line even when it launched new
technology to retain market share and avoid low price clone steal market. Line extension reduced
profitability at cost of maintaining and increasing market share to take advantage of "increasing
returns of adoption",22 but obtaining the optimal level of innovation23. Further it enhanced
product offering across all price product ranges to cater from low to high end customers, as
compared to only making niche products in DRAM.

Vectorized induced process strategy under strong leadership of Andy Grove24:

2
21

Miles M. P. and Darroch J., (2006), “Large firms, entrepreneurial marketing processes, and the cycle of competitive
advantage”, European Jounal of marketing, 40 (5,6), 485-501.
22
Brian, W.A.(1989), "Competing Technologies, Increasing Returns, and Lock-In by Historical Events", The
Economic Journal, Vol. 99, No. 394, pp. 116-131.

23
Purohit D., (1994), “What Should You Do When Your Competitors Send in the Clones”, Marketing Science,
13(4), 392-411.

24
Burgelman R. A., (2002), “Strategy as Vector and the Inertia of Coevolutionary lock-in”, Administrative Science
Quarterly”, 47(2), 325-357.

16
Who was the first CEO to realize the strategic implication of transformation of PC industry from
vertical to horizontal and accompanying increasing return to adaptation by keeping Intel’s x86
architecture as standard. He realized importance of aligning strategic intent and action or
strengthening the induced strategy process to maintain leadership and resolve strategic dilemmas
from external and internal selection to avoid DRAM debacle.

Corporate strategy:
With exit from DRAM in 1985, corporate strategy was renewed based on DRAM experience to
(a) Make IA to be an industry benchmark
(b) Become sole supplier of IA based microprocessors as against distributed systems in DRAM
to reap benefit of high development cost
(c) Have superior manufacturing capacity by having better transfer between process technology
R&D and manufacturing25, to avoid DRAM debacle in epoch I
Further unlike epoch 1 with multiple products, there was a huge focus on process technology
competencies and manufacturing competences of microprocessor business. This allowed top
management to have better understanding and learning of PC industry and evolving
opportunities.

Structural context:
Andy Grove also realized the necessity of clarity of objectives for an organization to propel this
induced strategic process. The internal reward and rating system was closely linked to executing
microprocessor technology which directed middle managers actions to microprocessors. SLRP
was revamped with PC industry being set as product-market domain and clear objectives of
(a) Leader of microprocessors
(b) Lead the PC revolution to foster CPU demand resource allocation rules were centered on
objective one

Induced Action:

25
Robinson A. L., (1980), “Giant Corportaions from tiny chips Grow”, Science, 208 (4443), 480-484.

17
Having made a strategic choice, the top leadership turned Intel into an executioner delivering
new microprocessor generation to entire PC market segments, taking risky steps like huge
investments in equipment several years before demand of new processors and
preannouncing powerful road map. This was a direct reflection of changed leadership, where
Noyce and Moore focused on idea and technology leadership; Grove was more focused on swift
execution. Grove transformed organization structure into one based on clear articulation and data
driven strategy focused around strategic intent. This was less hospitable to autonomous process,
which couldn't define their strategic context early. Finally, the firm's power structure was
transformed into a top driven strategy, while organizational level still retained the matrix
structure with interdependencies. This allowed open debate and individual initiatives, but
interdependencies narrowed the focus to microprocessors only.

External environment:
With narrowed induced focus on making Intel microprocessor based PC to be leader, Intel also
worked on influencing the external environment. Ventures like Intel capital were set to
financially assist and setup new entrants in field of OEM like Dell that promoted Intel
microprocessors only. As a result of these the bargaining power as well as profitability of OEM
shrunk significantly. This endangered development on part of OEMs. Thus, Intel entered vertical
integration through ventures like IA labs into system level products like motherboards and
chipsets which were enabling technologies to cash strapped OEMs26. A key part was also to
develop software that would need excess computing power with each new generation of Intel
processors. Microsoft operating systems(OS) ran more than 85% of the worlds PCs, which ran
mostly on Intel chips. Hence to Intel's advantage OS was written with Intel chips in mind for
optimal efficiency. Between 1993-99 Windows NT combined with high performance Intel
processors to make steady and significant progress in high end server/workstation market at
expense of UNIX. Intel caved IAL ventures like native signal processing, which went against
Microsoft.

Autonomous strategy process:

26
Intel Corporate Strategy <http://www.andrew.cmu.edu/user/yingchic/Shared/Intel%20Corporate%20Strategy.pdf>

18
During epoch II, autonomous initiatives were somewhat subdued due to the vectorized induced
strategic alliance to microprocessor. Initiatives perceived conflicting with corporate strategy and
objectives were cannibalized. I860(RISC) chip which was championed autonomously from
design to market capture, was perceived clashing with core x86(CICS) based IA, leading to
market confusion and internal splitting of resources. It was discontinued, while still retaining the
competencies gained in its development. During early 90's most individual initiatives tracked as
ICV orphans in the ICV model like chipsets, where the onus of strategic actions and structural
context was left on venture entrepreneurs. If perceived strategic retroactively, it was made part of
corporate strategy and fully supported, like acquisition of chipset manufacturing facility.
But occasionally, an the induced business strategy for core business was applied on percieved
strategic ICV's, irrespective of the market demand leading to failure e.g. Defining pro-share for
videoconferencing while market wanted generic software. Part of this could be associated to
reduced importance of technically trained sales forces which was the dominating in Epoch I
championing new products. Further, top management's heavy focus on outbound marketing in
1990's, left them disconnected with OEM.

The pathway was tougher for initiatives not perceived strategic. They were left on self to
generate resources to develop into new business due to induced strategy process which focused
on core microprocessor. As a result they had to venture out for manufacturing resources, limiting
their full potential. Further, till their strategic context was defined, they needed to be shielded
and championed by strong managers. Both networking and chipsets faced this. While chipsets
were able to align themselves to core with help of strong managers, lack of that lead to slow
growth in former.

SECTION 4 - Conclusion

EPOCH 1 under the leaderhip of Gordon Moore resemebled internal ecology model
characterized by simultaneity of induced and autonomous strategy process. The former was
utilized to learn and establish in core product market through establishment of distinctive
competencies and product domain, while later was used to generate new radical learning for
possible strategic renewal. Top management maintained focus on development of structural
context along with an efficient and disciplined team to work, but middle level managers played

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very important role on strategic context of resource allocations. Strategic actions were not always
aligned to official strategy. Induced strategy process resulted in a strategic inertia around the
DRAM business resulting in loss of market share, while autonomous process on part of middle
level managers resulted in a gradual strategic renewal transforming memory company into a
microprocessor company.

During Epoch 2 starting with exit from DRAM, Intel's strategy making process resembled
rational actor model, wherein the strategy decision content passed to top management, in
particular to the CEO, Andy Grove, who had gained comprehensive knowledge of the
microprocessor and PC business. He was able to understand the factors which could influence
Intel's roles in the PC market and vectorized induced strategy process (blue process) to influence
internal and external selection process. The simultaneity of strategic action present in epoch 1
was still preserved, allowing a swifter implementation of the vision. This served well in the
product domain of PC to gain and maintain leadership. But this process also enhanced the
difference, induced and autonomous process had increased significantly, with former being
centralized around PC and latter being subdued.

Looking from the perspective of ICV ventures, it was a phase where lot of ICV orphans were
generated. But strategc inertia developed with disciplined machinery of Intel limited
development of new business initiatives from within, which didn't have articled strategy or
alignment with corporate strategy. One glaring example, was the impetus to processor clock
speed had carried Intel well into next decade, even though supporting applications weren’t there.
Inefficient bottom -up channel to translate customer views to top management, led them miss the
shift in market trends from speed to utility feature like own power, losing their significant share
and competitive advantage to smaller competitors like AMD (Opeteron vs old Pentium chip).
Current microprocessor industry is verging commodizations, necessiating a reorientation in the
corporate strategies to develop new competencies as well as new ventures. This would require
Intel to reinvigorate the internal ecology model, but retaining the fine tuned structural context of
rational actor model, to select right ICV. Recent change in Intel’s bureaucratic structure and
product portfolio is an example along these lines.

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Thus, internal ecology model is found more suitable in unexplored industries to exploit unknown
opportunities and success of new ICV’s, conditional to a well defined structural context to avoid
strategic inertia leading to failures. At same time, top management needs to retrospectively alter
the corporate level strategy to support and incorporate new ICVs. As these start ups gain a better
understanding of the product-market domain, they can enhance their success by vectorizing
induced strategy process but need to support the autonomous initative with structural context to
develop opportunities for sustained growth in future.

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