Intel's Manufacturing Strategy

D. ROUACH, ESCP-EAP10.0

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Intel's Manufacturing Strategy

World's largest semiconductor company

Two dominant products:Microprocessors

Flash memories

Multiple manufacturing sites for the same product

Huge volumes at each site


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Reasons for Semiconductor Alliances

Competitive Alliances:share costs, resources and technologyreduce risk and time-to-marketraise customer confidence in successimprove customer sourcing position

Non-Competitive Alliances:diversify into new business or technologyguarantee source of supply


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Copy EXACTLY!

Transfer of new technologies in both new and existing factories accomplished in record time

Less startup problems and faster time to resolve them

Equal productivity from the start

One learning curve

Less problems, therefore more resources per problem

Source: C.J. McDonald, Intel


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The future of AT&T in Europe depends on its alliances

AT&T is building a strong network of partners in EuropeUnisource (Sweden, The Netherlands, Switzerland) in 17 countriesTelecom Italia (Europe and Latin America)Local Partners (France, Germany, Italy)

Our services development depends on our alliancesBusiness services (Communications, On-line)Consumer servicesWorld Partners for global reach

The growth of European customer base is the keystone to develop

US skills transferValue added servicesCommercial attitudes

Source : AT&T


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Map of overseas laboratories (National/Panasonic)

PERDC

AVTC

AVIRC

AMSMACRAD

R&D CenterMTV

CorporateLaboratories: Global mission Regional mission

Division Laboratory

Corporate Organization

MITT

PTI/TAD-West

STLPTI

MADC

PDCMCC

KMERLPTI

MIERLPTI PTI/Technoresearch Office

PTI/Boston OfficePTI/TAD-East

ATVLMARL PTI

MITL PTI

CSTL PTI

ATVL: Panasonic Adv. TV - Video Laboratories, Inc.AVIRC: AV/Information Research CenterCSTL: Communication Systems Technology LaboratoryMARL: Matsushita Applied Research LaboratoryMITL: Matsushita Information Technology LaboratoryMITT: Matsushita Electric Institute of Tech. (Taipei) Co.,Ltd.PERDC: Panasonic European R&D Center (Panas. Europe (HQ) Ltd.PTI: Panasonic Technologies, Inc. (parent company for 6 US-based R&D LaboratoriesSTL:Speech Technology LaboratoryTAD: Technology Administration Div.


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Knowledge Management Matrix

Source: Conference MBA, Lars Ch. Smith

Know Don't know

Know EXPLICIT Known knowledge Gaps

Don't know TACIT Unknown knowledge Gaps


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Knowledge Management MatrixKnowledge Management Matrix"Chief knowledge Managers""Chief knowledge Managers"

Knowledge thatyou know you have

Knowledge thatyou don't knowthat you have

Knowledge thatyou knowyou don’t have

Knowledge thatyou don't knowthat you don't have

Source: Conference MBA, Lars Ch. Smith

Know Don't know

Know

Don't know


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American Proverb

Prod

. by

MrJ

R (

-:

Coopetition

« If you cannot beat them »

Join them !


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- Jack Welsh Chairman of General Electric Prod

. by

MrJ

R (

-:

Coopetition

« Who is my client in the morning,

my rival in the afternoon,

and my supplier in the evening? »


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The development of alliances and partnerships is part of Gemplus’ strategy to benefit from external sources and competencies.

The co-operation agreement covers joint marketing sales and development efforts in the smart card market.The agreement brings together the card technology of Gemplus with IBM’s systems capabilities and expertise, and will involve development of multi-application cards, for use in electronic commerce and other electronic business transactions.

Gemplus, Alliances and partnership

Cooperation


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The industry is dominated by well established

players….

ChipManuf.Chip

Manuf.Terminal SuppliersTerminal Suppliers

SystemInteg.

SystemInteg. S/WareS/Ware

End UserEnd User

CardManuf.Card

Manuf.

STSiemensHitachiPhilipsMotorola

GemplusBullG & DSchlumbergerOberthur

IngenicoDassaultHypercomVerifoneIBM

IBMBulSki DataCap Gemini

SunMicrosoftInformax


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Strategic Alliances; a vital need...

Now that Gemplus has gained sufficient scope and maturity; it is replacing its original sole financial partners with investors from the manufacturing

and service industries who have a strategic interest in a link up with Gemplus.

Market penetration and development

Sharing Technology

Horizontal Integration

Finance to reach critical size


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The main difficulties in technology alliances are managerial

TYPE OF TYPE OF PROBLEMPROBLEMTYPE OF TYPE OF PROBLEMPROBLEM

FREQUENCYFREQUENCYFREQUENCYFREQUENCY

Different priorities of the involved companies 52%Difference in company culture 42%

Change in strategies / priorities 39%

Lack of technical competence on partner ’s side 25% Difficulties to adapt the cooperation to new commercial conditions 23%Difference in organizational level status of concerned staff 23%

Changes in ownership 21% Source: Hakanson & Lorange, 1988 by Francis Bidault


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Innovating all together?

Technological Alliances

Increasing technological integration:

Data-processing and telecommunicationsMicro-electronicsComposite materials and optical technologies

Increasing sectors integration:

Agriculture, chemistry and energy, telematicsand mass media

Direct or indirect covering of every potential sectorDirect or indirect covering of every potential sector


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The boomerang

effects of

technology

transfers TH

E R

ISK

S


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Key question: How to detect technologies likely to bring a competitive advantage?

Answer: The Technological and Competitive Intelligence

Key question: How to detect technologies likely to bring a competitive advantage?

Answer: The Technological and Competitive Intelligence


Innovation as a necessary Competitive instrument

The technology as an innovation support

Technology Innovation Competitiveness


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The risks: The Infeudation

In the case of an exclusive transfer, the company can progressively increase its dependance on the partner's technology, and then be assimilated by him.

The risk of loosing its independence



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The risks : "the trojan horse" :

Not transferring everything he promised to give,

Taking more than what he asked for,

Trying to weaken the company or to increase its dependance towards him.

The partner can have hidden intention



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Global alliance in Smart Cards systems will provide benefit to all

actors

By creating new markets opportunities !

But Silicon suppliers should be much more involvedat the beginning of the process :

StandardsDefinition of key productsValue added on Silicon

CardSuppliers

CardSuppliers

Terminals& Applicative

SoftwareSuppliers

Terminals& Applicative

SoftwareSuppliers

SystemDeveloppers

SystemDeveloppers

Buildand

operatenew

businesses

Buildand

operatenew

businesses

Chip SiliconSuppliers

Chip SiliconSuppliers


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The future of Smart Cards businesses depends onPartnerships

Build a new business environment : Smart Card replacing Paper Computer processing replacing manual or semi automatic processing & Information System

New era of interactive information systems: VISA, Master Card... or Microsoft, Oracle, Netscape, etc.

Card manufacturer should be able to provide complete solutions by effective alliances with terminals providers

Software companies System integrators

11

22


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Smart Cards partnership programs :

Distributors &value addedresailers (VAR)

Partnershipprograms -Terminals -Suppliers -Integrators

Direct salesto key account

Internal

SiliconSupplier Internal

JVLicense JV

Design ofnew

products

Buyingcomponents

&modules

ProductionCards

&Printing

Personalization

Commer-cialization

1

3

2

12


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General cooperation agreements : anchor point

Distributionagreements

Ways of...

Researchcontract

CommonResearch

CommonpurchaseSubcontracting

Engineeringcontract

Patentlicence

Commonproduction

Trademarklicence Consortium

(commonmarketing)

DesigningSupplying Producing Marketing Delivering


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Is it a tactic or a Marriage?

Broad

Scop

e o

f A

llia

nce

A

cti

vit

yS

cop

e o

f A

llia

nce

A

cti

vit

y

Narrow

Expected DurationExpected DurationShort Long

A Short TermTactic

A Long TermMarriage


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What do you want from your partner,after the deal is done?

All we wanted was

the cash,the nationality,the brand name,the patents rights,access toyour distribution

Just teach us To use your technology

A true partnership

Combiningbrains andresources

Nothing A One TimeTransfer

Ongoing managerialInput matched by us


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Keeping an Alliance Healthy

Monitor the state of the partner relationship, and adjust payoffs and processes as you go.

Watch for "strategic space" collisions, between alliance and parents.

Put some of your best managers in alliances and at the partner interface. "Good cop, bad cop" bard members.

Recognize and manage cultural differences.

Communicate, more than you think is reasonable.

Do not "micro" manage, from the parent level.

If the alliance has served its purpose, end it.


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What are the alternatives?

Pros

Working with familiarpeople and resourcesFast decision makingControl

Cons

May be too financiallyriskyMay be too slowMay need help

Pros

Achieve majorchange quicklyControl

Cons

ExpensiveIntegration may bedifficultIrreversible

Pros

Risk sharingEconomies of scaleQuick access toresources and skillsPolitical necesityLearning opportunity

Cons

May be difficult tomanage wellMay prove inflexible

Go it alone... Form an alliance...Make an acquisition...


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To Get Partnership and Alliances "Right"...

Should we?

What do we really need?

What arethe options?

Rewards andrisks of each?

Scope and duration

Type of alliance

Partner choice

Ownership

Payoffs

Reacting tounexpected events

Adjusting originaldesign and payoffs

Alliance Design Operating overtime


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Desired Partner Characteristics

The "Three C's"

Importance Level

Low Medium High Low Medium High

Capability

Compatibility

Commitment


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Implementing Technology Transfer strategies

AUTONOMOUS WAYAUTONOMOUS WAY COOPERATIVE WAY

COOPERATIVE WAY

DEV

ELO

PIN

GD

EV

ELO

PIN

GB

UY

ING

BU

YIN

G

Internal R&D

« Intraprenariat»

Joint R&D agreement

Common R&D subsidiary company

R&D consortiumSubcontracted R&D

Licence purchasing

Investment in an innovative company

Licence SWAP

Joint licence purchasing

Joint acquisition of an innovating company


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Definition

Alliances

Stand alone Transactions Joint venture Merger

An alliance is any formal arrangement between two or moreindependent or organisations for purposes of mutual gain

through cooperation for a limited period of time

Source : KMPG


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Forming global alliances and Network organisations

Companies try to find new competitive space and build business outside their business columnNew surprising combinations of Technology areas; more and more converging branchesChanging configurations between companies towards active networksTrans cultural collaboration becomes more rule that exception Learning organisations are better equipped to master the business dynamics

« The Company of the Future combines all these elements »

Source : KMPG


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In general strategic alliances are underperforming

Success rate of alliances is only a meagre 30 – 40 %

Alliance-formation is not a common management skill

Underestimation of ‘soft’ aspects(company culture, chemistry of persons, commitment)

Source : KMPG survey 1996/97

Nevertheless sharp increase in number of alliances is to be expected


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Alliances brings management in paradoxal situation

Challenge: Increasing the level of comfort

Source : KMPG

But……?!

Past way of thinking: Control + To be in control

is normal practice in business

Companies can’t do it all alone anymore; too much to handle

Alliances are a way out, but at the same time you loose control a low ‘Comfort level’


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The Base for alliances: Commitment

ReputationTeamworkAct, without escapesSmall stepsContract

Source : KMPG

« Think in terms of credible commitments »

CommitmentCommitment

ContractContract


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Gradually the importance of ‘soft’ issues is regocgnised

imp

ort

an

ce

t

‘soft’

‘hard’

Source : KMPG

Intel's Manufacturing Strategy

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