Technology and information management HW2

Friday

Saturday

Sunday

Monday

Tuesday

Wednesday

Task:

Read/review Lecture Notes and Competitive Strategies reading hand-out

Read Disk-Drive Hand-out, Skim Intel Case Study

Read Intel Case Study and take personal notes for reference

Work on Intel Assignment using personal notes

Finish Intel Assignment, Start on Disk Drive Assignment

Finish Disk Drive Assignment

Intel Structured Problem-Solving:

Problem:

How can we assess Intel’s strategy since its inception in 1968 to 1997?

Real problems that need to be solved:

• What are the key relationships between the forces of the business landscape?

• How have Intel’s technology strategy, product market strategy, and developmental goals changed?

• What were the key driving forces that triggered such changes?

Plan:

Information available to solve the problem:

• Intel Case Study

• Lectures/Notes

• Textbook

• Internet

Analyses and steps that must be performed:

- Read relevant material and take notes on significant events in terms of strategy and changes in the industry.

- Company Analysis: Structure the relevant case study information appropriately.

- Industry Analysis: Describe Intel’s industry/market landscape through Porter’s 5 forces model, and determine attractiveness of the industry as a whole.

- Assessment and Evaluation of Intel and its future through functional maps of key forces triggering changes in Intel’s strategies/goals over the years.

Execute:

Company Analysis:

Technology Strategy Evolution:

• Initially, Intel’s technology strategy was to focus on producing semiconductor memory chips for mainframe computers and microcomputers, or DRAMS.

• Their approach was to be the first and fastest in product design to push newer technology for DRAMS. This was successful until 1979 as Japanese competitors began capturing significant market share.

• Intel simultaneously participated in the Systems Business, developing and selling computer-based instruments that were a significant source of profit in the mid-1970s.

• In 1984, after microprocessors began being demanded, senior management reasoned to continue DRAM research and development seeing it as their main technology driver, and wanting the economies of scale benefits of market demand for high volumes at low prices.

• Middle management begins simultaneously shifting gears to favor microprocessor development over memory advances, seeing Intel had become small player in DRAM market and it generated only 5% of Intel’s revenues.

• By 1986, senior management approves middle management decisions to exit DRAM business and focus on microprocessor development.

• Intel’s approach to product development at this point is to sole-source critical pieces from a single vendor offering the “best of the breed” technology to standardize top notch product development and improve performance.

• In 1989, engineers and technical managers within Intel who believed in RISC microprocessors as a better approach worked towards the i860 RISC-based microprocessor, while Intel continued to develop the 486 CISC-based microprocessor.

• Intel focuses on technology performance advantages and high volumes to recoup large costs incurred in developing it.

• By 1990, Intel’s systems business accounts for 25-30% of their total revenues, now developing and selling finished personal computers.

• Sole-sourcing at this point appears to lead to less responsive requests for technical support and improvement, so Intel allows dual-sourcing of critical components for product development.

• Intel’s technology strategy is still mainly focused on being the fastest leader in developing and pushing out their core technologies of microprocessors. They also are involved in systems business and dual-source their components.

Product Market Strategy Evolution:

• Initially, Intel served the mainframe computer and microcomputer markets, and what differentiated them was their high performance product designs being pushed to the markets fastest.

• IBM’s market power with open architecture standard led to fierce battle between Intel and Motorola. Intel’s strategy of the sales campaign, “project CRUSH,” records 2500 design wins and a contract to supply IBM with the 8088 microprocessor.

• Despite their monumental victory, Intel pursues an aggressive marketing campaign against Motorola’s hold on the workstation market with “project CHECKMATE”. The effort wins more contracts for their new product, the 80286 microprocessor.

• Intel decides to risk pushing new technology with their advanced 32-bit microprocessor, the 80386. It was pricier than the IBM 286 still being sold and lacked existing compatible software. Microsoft and Compaq recognize the need to fill the new opportunity and work with Intel to create Window 3.0 and Deskpro 386. Success establishes Intel as a leader.

• When RISC architecture (substitute) for microprocessors begins entering the market, Intel’s strategy is to decrease its differentiation by increasing performance high enough such that customers don’t switch.

• In the 1990s, Intel successfully establishes strong brand identity through a heavy marketing campaign, “Intel Inside” that spreads Intel’s name across hardware and software. In return for having their logo in advertisements and physical products, Intel reimburses advertising costs of its customers.

• To handle new product introductions and excessively high demand from the market, Intel limits demand through premiums and supply allocation among OEMs based on past buying behavior.

• Intel’s Product/Market Strategy focuses on differentiating the company through high performance, brand recognition, and being the fastest leader in advanced technology. In serving the desktop computers market, they’ve established beneficial relationships with powerful operating systems and computer manufacturers like Windows and Compaq and horizontally integrated for cost-effectiveness.

Developmental Goals Evolution:

• 1970’s: Develop semi-conductor memory chips

• After creating the first microprocessor, Intel didn’t see potential until IBM’s market power motivated them to develop and supply the 8088 microprocessor for them.

• In 1984, senior management still believed in focusing resources on developing DRAMs for the upcoming years for the sake of better economies of scale benefits and believing in it as the main technology driver.

• In 1986, senior management approves middle management decisions to exit DRAM business and focus on microprocessor development, as they became a small player in the DRAM business.

• Intel aims to only supply IBM with the 80386 microprocessor to retain more revenue and profit.

• Intel decides to focus on developing technologically advanced microprocessors such as the 80386 despite risks of lack of software and high price.

• The success of the 80386 leads Intel to continue to focus efforts on developing the 80486, which also becomes a success in 1989.

• The i860 RISC-architecture microprocessor and the 486 were both being developed within Intel, but Intel chooses to focus development on the 486 CISC-architecture due to the large preference for compatibility with existing software from computer manufacturers.

• Intel had a background operations on developing computer-based instruments, and by the late 1980’s, their development goals included finished personal computers to sell.

• Intel’s sales volume strategy when it came to high demand and short supply for their new products was to allocate supplies among OEMs based on past buying behavior.

• Intel’s development goals have changed from semiconductors to currently focusing on microprocessor development. Though they are willing to develop and supply advanced microprocessor technology to lead the industry, while being at risk in the initial period of time in which compatible software is not available yet, they have been largely successful in capturing the market. While their architecture development preference is based on software compatibility, they are confident they can still maintain high enough performance to nullify the differentiation and threat of RISC substitute architecture. Their sales volume strategy is determined by allocating their supply among OEMs based on historical buying data.

Industry Analysis:

Porter’s 5 Forces Model:

Evaluation of attractiveness of industry as a whole:

Force

Key Determinants

Strength of the force

Rivalry between competitors

Concentration of 3 main competitors: Intel, Motorola, and later AMD, all of which have good brand identity. Intel has established itself as the industry leader through successful brand identity/marketing campaigns like “Intel Inside.”

High

Barrier to entry

High economies of scale with increased output covering costs, short product cycles, established brand identity, high capital requirements (Intel at $4.5 billion).

High

Threat of substitutes

RISC (speed and cost advantages invading PC’s domain in office computing). Need high performance to diminish differentiation and threat.

Medium

Buyer Power

OEMs like IBM and Compaq, and software/OS manufacturers like Microsoft and Apple have significant influence over development direction. Campaigns like “Intel Inside” established agreements involving reimbursing advertising costs. Patent cross-licensing and horizontal integration.

High

Supplier Power

Low supplier concentration important to improve process performance and standardization, giving sole-source or close-to-sole-source suppliers more power. In Intel’s case, tended to become less responsive to requests for technical support/improvement.

Medium

Attractiveness of the Microprocessor Industry:

The cumulative strength of the five forces is considerably high making the Microprocessor Industry not very attractive. There are already powerful competitors with Intel as the industry leader with good brand recognition through “Intel Inside”. The microprocessor industry requires high output to cover production costs so this creates high economies of scale, and in addition, production cycles are short and there are high capital requirements. The powerful OEMs and operating system manufacturers like Compaq, IBM, and Microsoft also have strong bargaining power and Intel has already established mutually beneficial relationships with them. Meanwhile, the single alternative microprocessor architecture RISC (Reduced Instruction Set Computing) offers speed and cost advantages that would require new entrants to be able to develop high performance products to fend off the differentiation advantage. In addition, because microprocessor companies benefit from having fewer suppliers, there is significant supplier power in the industry.

Assessment and Evaluation:

The key driving forces that triggered changes in technology strategy, product market strategy, and developmental goals, as well as the results of such changes are detailed in the bulleted timelines of their respective “Evolution” sections (in the Company Analysis results above). To add, Intel’s technology strategy has proven successful in the past, and will appear to continue its success as it remains one of the world’s largest purchasers of equipment and capital investments. In addition, their involvement in systems business was a good decision and has brought them steady increases in revenue since 1970. A main key to Intel’s success was participating in microprocessor development when it began to grow around 980, and finally exiting the DRAM business by 1986. It would appear to be in their best interest to continue developing high performance microprocessors and expanding their systems business operations.

Numbers are based off approximations and key percentages at specific years mentioned in the case study.

Conclusion:

Intel rose from a semiconductor manufacturing company struggling to compete against Japanese competitors to a leading microprocessor manufacturing company with simultaneous operations in finished PC development. Its position/competitive strategy to compete successfully in the industry has been a focused strategy on supplying brand recognized, high performance, leading-edge microprocessors for OEMs, software manufacturers, and end-user consumers. Its “Intel Inside” campaign promoted a mutually beneficial relationship between Intel and its buyers through increasing its own brand identity, while also encouraging horizontal integration and an “open standards”-based identity among PC manufacturer participants like IBM. Through dual-sourcing, and keeping suppliers at a minimal, Intel was able to better control performance and standardization. Because of its hold on the industry, along with other powerful competitors and generally high forces in the Porter’s 5 Forces model, the microprocessor industry that Intel is a part of is not very attractive to enter for new companies.

Disk Drive Industry Structured Problem-Solving:

Figure 1.3

Problem:

What is the meaning and significant (value) of the functional map (Figure 1.3) in the disk drive industry handout?

Real problems that need to be solved:

• What does the functional map mean or indicate of disk drives?

• How would a disk drive company use this functional map?

• What high-level conclusions can be drawn from the map?

Plan:

Information available to solve the problem:

• Disk Drive Handout

• Lectures/Notes

• Textbook

• Internet

Analyses and steps that must be performed:

- Read relevant material and analyze the functional map relative to its given context in the readings.

- Explain the meaning of the functional map

- Explain the usage of the functional map by a disk drive company

Execute:

1. Meaning of the functional map:

The Disk Drive Price Experience Curve shows plotted points corresponding to years from 1977 to 1994. Indicated with each year by the x-axis is the number of cumulative terabytes produced. Indicated with each year by the y-axis is the price, or cost per megabyte in constant 1982 dollars. The slope of the plotted points is 53%, meaning as each shipment of cumulative terabytes doubles throughout the years, the price per megabyte is falling significantly to almost half its previous cost. Ultimately, with time, more cumulative terabytes shipped in the industry sees megabyte price decreases much steeper than those seen in the market for other microelectronic products, which typically have a 70% slope.

2. Usage of the functional map:

With a fairly consistent approximate 50% slope over the years from 1977 to 1994 of the Disk Drive Price Experience Curve, it’s easier for a disk drive company to predict the future year’s price per megabyte. As a result, as shipments increase in the industry, companies can analyze the map and use its prediction of future megabyte pricing in the market to price their own products strategically over rivals. Knowing the future megabyte price trends can allow a disk drive company to prepare business and development strategies before-hand that will give them an advantage, or method of accounting for falling prices.

3. Drawing Conclusions:

As the price per megabyte declines about 5% per quarter, and more disk drives are produced, it’s evident that consumers benefit significantly from the industry trend. In addition, disk-drive companies are forced to move fast in developing technology as improvement and innovation in encouraged by the market and its trends with each year.

Figure 1.4

Problem:

What is the meaning and significant (value) of the functional map (Figure 1.4) in the disk drive industry handout?

Real problems that need to be solved:

• What does the functional map mean or indicate of disk drives?

• How would a disk drive company use this functional map?

• What high-level conclusions can be drawn from the map?

Plan:

Information available to solve the problem:

• Disk Drive Handout

• Lectures/Notes

• Textbook

• Internet

Analyses and steps that must be performed:

- Read relevant material and analyze the functional map relative to its given context in the readings.

- Explain the meaning of the functional map

- Explain the usage of the functional map by a disk drive company

Execute:

1. Meaning of the functional map:

The functional map’s x-axis ranges from years 1975 to 1995, while the y-axis describes the Areal Recording Density or millions of megabits per square inch engineers are able to fit onto disk drives at the time. It shows how over time, technology is improving and the Areal Recording Density is increasing from year to year. Also notable on the functional map is distinct, plotted points labeling the new Read-Write Head Technologies developed at that time, showing Ferrite-oxide heads had the lowest recording density in the early 1980s, and the later Magneto-resistive heads developed in the 1990s were able to accomplish Areal Recording Density’s nearing the 1 thousand million megabits per square inch mark.

2. Usage of the functional map:

Disk drive companies can use the functional map to determine when to change their product development focus, and get out of the business in technology becoming inferior, such as Ferrite-oxide heads by the early 1990s. The functional map can be used to visualize roughly how fast technologies are improving, when to be ready to adapt to quick product cycles, and help companies be aware of which improved technologies are growing in the industry. By observing the functional map’s y-axis and growth trend, disk drive companies can set higher target areal recording densities to achieve in the near future by predicting the typical increase in the industry’s density.

3. Drawing Conclusions:

It’s easy to tell technology is improving at a very fast pace as Areal Recording Density from the Ferrite-oxide heads to the Magneto-resistive heads has increased to about 100 times what it used to be in a decade. The rate of improvement shown in the graph appears to be increasing as well, and new read-write head technologies as a result are being introduced faster. Companies need to be able to compete at a fast pace to keep up with fast changing technology or their products will become inferior within a few years.

Figure 1.5

Problem:

What is the meaning and significant (value) of the functional map (Figure 1.5) in the disk drive industry handout?

Real problems that need to be solved:

• What does the functional map mean or indicate of disk drives?

• How would a disk drive company use this functional map?

• What high-level conclusions can be drawn from the map?

Plan:

Information available to solve the problem:

• Disk Drive Handout

• Lectures/Notes

• Textbook

• Internet

Analyses and steps that must be performed:

- Read relevant material and analyze the functional map relative to its given context in the readings.

- Explain the meaning of the functional map

- Explain the usage of the functional map by a disk drive company

Execute:

1. Meaning of the functional map:

The functional map shows the impact of a new alternative substitute for removable disk packs, which served as the dominant design from 1962 to 1978. The new innovation in product architecture was called the 14-inch Winchester drive. Over the span of years 1965 to the late 1980s, we see the Areal Density in millions of bits per square inch of removable disk pack drives improve overall from approximately 0.15 million bits per square inch in 1965 to approximately 1 million bits per square inch by 1975, despite a couple drops within particular years. When the alternative architecture is introduced in 1975, the map shows Winchester drives continuing to sustain the historically established rate of performance improvement led by removable disk packs. In fact, we see it out-performing the removable disk packs from 1975 and onward with consistent increase in density.

2. Usage of the functional map:

Disk Drive companies can use this functional map to understand the impact that the alternative product architecture of 14-inch Winchester drivers have had on the industry and its success in sustaining the rate of improvement in the industry. The functional map can help companies determine if they want to switch their focus from removable disk pack drives, to Winchester drives, which has seen a higher improvement rate since its introduction than the previously dominating removable disk packs. In addition, there are fewer drops in performance over the years with Winchester drives shown in the functional map, and companies can use the map to determine when the gap in performance is enough to switch gears.

3. Drawing Conclusions:

Although removable disk packs controlled the market from 1965 to the late 1970s, it appears Winchester drives based on the functional map are leading in performance improvement since its introduction in 1975. It is crucial for new substitutes or alternatives to dominating products to measure up to historical standards of improvement rate to gain success among consumers, as consumer expectations play a huge role in determining which products lead the industry.

Figure 1.7

Problem:

What is the meaning and significant (value) of the functional map (Figure 1.7) in the disk drive industry handout?

Real problems that need to be solved:

• What does the functional map mean or indicate of disk drives?

• How would a disk drive company use this functional map?

• What high-level conclusions can be drawn from the map?

Plan:

Information available to solve the problem:

• Disk Drive Handout

• Lectures/Notes

• Textbook

• Internet

Analyses and steps that must be performed:

- Read relevant material and analyze the functional map relative to its given context in the readings.

- Explain the meaning of the functional map

- Explain the usage of the functional map by a disk drive company

Execute:

1. Meaning of the functional map:

The functional map describes the intersecting trajectories of capacity demanded versus capacity supplied in rigid disk drives. From years 1975 to 1990, the map shows various solid arrowed lines representing different drive technologies, such as the 14-inch in 1975, to the 2.5-inch in the late 1980s. These lines are plotted and extended from an initial year towards later years as the y-axis identifies the technology’s Hard disk capacity (MB) at its initial inception, and its higher capacity and growth throughout the years. These lines represent the supply in the industry, while the dotted arrowed lines represent the demand in various markets from year to year. Basically, we see the effects of new disruptive technology that often topples previous leaders of an industry to dominate the market. For example, although technology of one particular year in the functional map improves in performance over time, the gap between their market’s demands for the technology grows over time as performance feats reach different markets and no longer interest the initial market. Later disruptive innovations that initially failed to serve a market eventually increase in capacity and intersect that market’s demand line in later years, while the previous technology loses relevance. One can see the computer industry moving from mainframe systems, to minicomputers, to notebooks by 1990, as well as the response from the storage industry in accommodating demands.

2. Usage of the functional map:

Disk drive companies can use the functional map to understand the changing demands of the computer industry, and assess the proper market to accommodate. The functional map can be used to get an idea of how soon the next generation of disk drive technology might take off, whether to continue serving an existing market that may be losing interest in their product, and when to consider investing efforts on a new architecture that would catch up to market demand in the long run. Seeing and taking advantage of information from this functional map on what consumers value, as well as how it changes, can greatly benefit a company in their strategy towards capturing the market.

3. Drawing Conclusions:

The computer industry is changing fast, with a growing market demand trend for smaller disk drives. The rate of new product innovations toppling old becomes increasingly higher in recent years and failure to actively pursue new markets could lead to a company’s products becoming obsolete. For even the most well-managed large disk drive companies, it is important to stay on top of technology trends, as higher hard disk capacity isn’t always the best product development objective to pursue.

Price Prediction

Problem:

What is your prediction of the price that a disk drive manufacturer would charge for 1MB of memory in the year 2015?

Real problems that need to be solved:

• Predict the nominal price in “1982 dollars”

• Convert the “1982 dollars” price to an equivalent “2015 dollars” price

• How does this price compare to an actual manufacturer’s price today?

Plan:

Information available to solve the problem:

• Disk Drive Handout and functional maps

• Lectures/Notes on functional maps

• Internet for disk drive price research

Analyses and steps that must be performed:

- Use the functional map of Figure 1.3 from the Disk Drive handout to calculate a prediction of 2015’s price for 1MB.

- Research prices for 1MB of memory today

Assumptions:

• 53% price decline from 1977 to 1994 will be relatively consistent in the years until 2015

• Cumulative Terabytes Produced will roughly double per year

Execute:

Year

Price per Megabyte (1982 Dollars)

1994

0.30

1995

.159

1996

.08427

1997

.0446631

1998

.023671443

1999

.0125458648

2000

.0066493083

2001

.0035241334

2002

.0018677907

2003

.000989929

2004

.0005246624111

2005

.0002780710779

2006

.0001473776713

2007

.00007811016578

2008

.00004139838786

2009

.00002194114557

2010

.00001162880715

2011

.00000616326779

2012

.000003266531929

2013

.000001731261922

2014

.0000009175688187

2015

.0000004863114739

Applying the 53% price decline to the 1994 price per Megabyte and onward, it appears the nominal price of a megabyte in 2015 should be roughly $0.000000486 if predictions are based on data from the functional map Figure 1.3 and Assumptions listed under the Plan section are followed.

Converting this to 2015 dollars: (Annual inflation over period of 1994 to 2015 = 2.30% based on http://www.dollartimes.com/calculators/inflation.htm)

FV = PV(1+i)^t .0000004863114739(1+.023)^21 = .000000783976102

In 2015 dollars, the price per megabyte is predicted to be roughly $0.000000784.

Based on online information (http://www.jcmit.com/diskprice.htm), I found that in 2015, Toshiba’s price per MB is $0.0000317 while Seagate’s is $0.0000283. In comparison, my prediction is far off at $0.000000784.

Conclusion: Memory price continues to drop throughout the decades significantly as more output is shipped out. However, my prediction was off by quite a bit, and I expected the price per MB to be much cheaper at $0.000000784, than today’s current prices of roughly $0.00003. My inaccuracy in price prediction can likely be attributed to the assumption made that Cumulative Terabytes will double per year, as well as the unexpected increase in Memory Price in particular years such as those leading up to 1990:

Table from http://www.jcmit.com/diskprice.htm