“Intel Centrino in 2007: A New “Platform” Strategy for Growth” discusses an extr
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Question
“Intel Centrino in 2007: A New “Platform” Strategy for Growth” discusses an extremely important strategic and organizational change for Intel by the creation of Centrino. The development of Centrino was part of Intel’s right hand turn toward different performance measures. It required the company to alter its strategy away from optimizing only on clock speed as the performance method for discrete processors, toward interrelated features that sought to balance features including reduced power consumption and wireless communications. This strategic shift, together with the introduction of new multi-core architectures, fundamentally changed the company’s definition of success for the future.
Transcript
Professor Robert A. Burgelman and Philip E. Meza of the Stanford Graduate School of Business and Evan Berrett of Intel Corporation prepared this as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2007 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. I NTEL C ENTRINO IN 2007: A N EW “P LATFORM ” S TRATEGY FOR G ROWTH I NTRODUCTION In March 2003, Intel launched its new Centrino® mobile platform for use in notebook computers. By early 2007 the platform had achieved strong success for the company. Creating Centrino, however, had required Intel to make major changes to its strategy and organization. The development of Centrino was part of Intel’s “right hand turn” toward multiple performance vectors beyond maximizing clock speed, including improvements coming from increased power efficiencies, form factor and connectivity. This strategic shift, together with the introduction of new multi-core architectures, 1 fundamentally changed Intel’s definition of success for the future. It was a dramatic move forced on the company, in part, by physics and changing industry and competitive forces; but also made possible, in part, by a radically innovative microprocessor architecture developed by its scrappy, geographically distant microprocessor design center in Israel. Intel had built its reputation developing and selling increasingly fast microprocessors for PCs. In 2000, Intel was by far the industry leader in the most profitable microprocessor industry segments. Desktop PC microprocessors were still the main source of Intel’s revenue and profits and in many ways this segment dominated the company’s outlook. Yet there were signals in the industry that things were changing that could impact Intel’s microprocessor leadership position. The mobile computing segment in particular was growing rapidly. These computing devices, such as ever thinner and lighter laptop PCs, relied on battery power and required microprocessor architectures that were fast yet power-efficient. Precisely to serve this vital segment, Intel had 1 Multi-core refers to placing two or more computational engines within a single processor. For more information, see: “Intel Multi-Core Processor Architecture Development Backgrounder, www.intel.com/cd/00/00/20/57/205707_205707.pdf Intel Centrino in 2007: A New “Platform” Strategy for Growth p. 2 developed and launched Intel® 2 Centrino® 3 mobile technology as a “platform” of components designed to work together. The Centrino platform included a microprocessor, chipset (combining graphics and memory capabilities) and wireless communications products. Creating the Centrino platform marked a new paradigm for Intel that would change the way the company thought about design, architecture, manufacturing, and marketing. Given Centrino’s success, Intel’s top management was interested in the lessons that could be drawn from the experience of creating the Centrino platform to inform the company’s “platformization strategy” going forward. G OT G IGAHERTZ ? During the 1980s and 1990s, processor speed was seen as the primary measure of value for microprocessors in the consumer PC market. Processor speed, also called frequency or “clock speed,” is the speed at which the processor executes instructions and is often expressed in Megahertz (MHz), which is 1 million cycles per second or Gigahertz (GHz) which is 1 billion cycles per second. Over time, Intel optimized its design processes and manufacturing facilities to produce faster and faster microprocessors while at the same time doubling the number of transistors found on a given space on a microchip—the latter is the phenomenon first described in 1965 by Intel cofounder Gordon Moore and popularly known as Moore’s Law. 4 Intel’s first commercial microprocessor, the 4004 introduced in late 1971, contained 2,300 transistors and performed at 108 Kilohertz. During the 1990s, as Moore’s Law predicted, the number of transistors on a chip doubled about every two years, and increased processor speed followed. By August 2001, Intel’s Pentium® 4 5 processors ran at 2 GHz and contained over 42 million transistors. Intel’s own highly successful marketing efforts influenced consumers to value faster microprocessors. Software vendors and new technologies also helped fuel the desire for faster processors by creating software that required faster processor speed. By the end of 2000, processor frequency and design leadership, coupled with the ability to manufacture effectively, helped Intel grow to over an 80 percent share of market in PC microprocessors, while achieving margins nearing 60 percent in a maturing product-market segment. At this time, Intel’s internal development plans (called product roadmaps) continued to rely on processor speed as a key driver of microprocessor value. But as early as 2000, physical limitations, shifting consumer 2 Intel® is a registered trademark of Intel Corporation or its subsidiaries in the United States and other countries. 3 Centrino® is a registered trademark of Intel Corporation or its subsidiaries in the United States and other countries . 4 Gordon E. Moore, “Cramming More Components Onto Integrated Circuits,” Electronics , April 19, 1965. Moore’s Law describes the exponential growth in the number of transistors that could occur on an integrated circuit every year or two, and predicts its continuation—which has held true for over 35 years. The practical impact of Moore’s Law was predicted (presciently) in a cartoon in that 1965 article, which depicted “Handy Home Computers” being sold next to notions and cosmetics in a department store. 5 Intel® Pentium® 4 is a registered trademark of Intel Corporation or its subsidiaries in the United States and other countries. Intel Centrino in 2007: A New “Platform” Strategy for Growth p. 3 demand, increased competition, and a major microprocessor architecture design innovation provided impetus for Intel to change the way it thought about its future. T HE V IEW FROM S ANTA C LARA The birth of Centrino followed the confluence of two separate streams of events: one playing out at Intel’s headquarters in Santa Clara, California and the other emanating from the company’s Israel Development Center (IDC) in Haifa, Israel. (See Appendix for a timeline of key events leading to Centrino.) It took a couple of market shocks in Intel’s main businesses to bring together the developments that led to Centrino. Reorganizing in Good Times In 2000, Intel was riding the crest of a wave of investment in technology. Microprocessors for desktop PCs, Intel’s bread and butter, were selling at record numbers. Beyond desktops, customers were buying increasing numbers of expensive laptop computers too. In fact, during this time Intel was supplying its own workforce, numbering into scores of thousands of people, with laptop computers. While times were good in terms of sales and revenue, Intel suffered some uncharacteristic missteps. The company experienced a series of production problems that left it short of inventory. This opened the door for Intel’s main competitor, Advanced Micro Devices (AMD) to increase its share of the PC processor market from 16.7 percent in 2000 to 20.2 percent in 2001. 6 Further, AMD had actually surpassed Intel at its own game of increasing speed, becoming the first to release a 1 GHz processor and beating Intel to market by two days in March 2000. In the summer of 2000 Intel made a bet on its new Pentium 4 architecture. Its Microprocessor Group (MPG) located in Santa Clara and a microprocessor design team located in Oregon had driven this architecture. In backing the new Pentium 4 architecture, Intel stopped the development of most of its Pentium III lines. Pentium III development teams in Folsom, California and in Texas dropped their projects and started working on Pentium 4. One exception was the IDC in Israel, which kept working on Pentium III derivations. At the beginning of 2000 there was tension between Intel’s two largest groups with responsibility for its core business: the Microprocessor Group (MPG), which led microprocessor technology development (and took a longer R&D view), and the Intel Architecture Business Group (IABG), responsible for selling microprocessors into various products (which had a shorter term business focus). In April 2000, top management decided to combine IABG and MPG into one organization called Intel Architecture group (IAG) under the leadership of Albert Yu and Paul 6 John G. Spooner, “AMD scores points against Intel in 2001,”CNet, January 24, 2002. Intel Centrino in 2007: A New “Platform” Strategy for Growth p. 4 Otellini. 7 IAG would have both P&L responsibility and responsibility for R&D. (After Yu transitioned to lead a different group, Otellini alone led IAG.) The combination that created IAG affected some 11,000 Intel employees and brought together three separate business groups: Enterprise Platforms Group (EPG), Desktop Platforms Group (DPG), and Mobile Platforms Group (MPG), 8 with each of the three groups having responsibility for profit and loss (i.e., running the business) and R&D. Technology and Manufacturing (TMG) and Sales and Marketing (SMG) remained separate functional groups ( Exhibit 1 ). 9 In an effort to aid the transition to this new structure, Otellini temporarily split out marketing and planning from IAG and centralized these functions under the direction of Intel executive Anand Chandrasekher. Chandrasekher described the purpose of the centralized planning and marketing group he was assigned to run: 1. Centralize marketing so general managers within IAG would not be distracted by marketing responsibilities such as product ramps. 2. Provide an outside perspective about resource balancing. 3. Help determine what the market really cared about. 10 It turned out that the third task was to be particularly consequential. Chandrasekher explained, “Paul Otellini and others started to believe that the megahertz and gigahertz orientation (i.e., clock speed, or the speed at which the processor executes instructions) was running out of steam. In 2000, we conducted a market segment analysis (MSA) to further explore the market needs. These studies confirmed that the market was more interested in what a product could do rather than discrete measures of performance, for example, gigahertz. This led Paul to consider how we could best optimize our organization to take advantage of the market.” Speed Had Become Less of a Differentiator By 1999 the slower clock speeds of lower end microprocessors used in inexpensive PCs were starting to become fast enough to run most available consumer software applications without users experiencing an appreciable difference in performance. As early as 2001, Paul Otellini, then executive vice president of Intel Architecture Group, described the need for Intel to expand its focus beyond clock speed itself and take a more holistic approach. Speaking at the 2001 Intel Developer Forum, Otellini said, “While this focus on raw processor speed [clock speed] is important, it’s not sufficient to drive the levels of growth and innovation that will allow our industry to prosper.” 11 7 Intel sometimes assigns two executives to co-lead a group; a relationship it calls “two-in-a-box.” Albert Yu and Paul Otellini co-managed IAG for several months before Yu transitioned to lead Intel’s optoelectronics group, leaving Otellini as sole head of IAG. 8 Note: after the 2000 reorganization, MPG refers to Mobile Platforms Group and not Microprocessor Group.
Regarding the “Intel Centrino in 2007: A New “Platform” Strategy for Growth”, answer the following
QUESTIONS:
1. How did Banias change Intel’s core microprocessor road map?
2. What are the implications to Intel of pursuing a “platform strategy”? What major changes will the company have to make, if any, to be successful with a platform strategy?
Explanation / Answer
Answer 1: Banias had changed the Intel’s core microprocessor road map by optimizing the clock speed as the performance method for discrete processors including reduced power consumption and wireless communications, form factor and connectivity. The organization developed a radically innovative microprocessor design center in Israel.
However, this changed the organization success for the future development and marked a new paradigm for intel that would eventually change the way the organization thought about the design and architecture.
Answer 2: The implications that occurred with Intel for pursuing a “Platform Strategy” was it became the most profitable microprocessor and mobile computing industry segments. The organization has changed the way the organization through optimized design processes, form factor, architecture, manufacturing and marketing.
In the year 2000, the processor frequency and design, helped grow to over an 80 % share of the market, while achieving margins nearing 60%.
In order to have a successful platform strategy in place, the major structural change happened in 2000, when the top management decided to combine IABG and MPG into one organization that would have both P&L and R&D responsibilities. This approach benefitted the organization to attain centralized marketing of the product that will eventually lead to competitive advantages against its competitors and maintain a robust market share along with the operating revenue.
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