Professional Management Skills Assessment Paper

Management Skills Assessment –AMD Case 1

AMD : A Customer-Centric Approach to Innovation

ISEG – ISM MBA Program

September 30, 2010

Professional Management Skills Assessment

Word Count: 2600


This case analyzes the strategy of AMD, a microprocessor manufacturer which is a direct

competitor of another microprocessor company, Intel. Between the two companies the

competition has never been really balanced because of Intel’s much more Important Size

and budget. AMD has found itself in a bad shape several times but has always success in

overcoming difficulties resulting from its far smaller market shares and – over the years – has

built a strategy to survive and strengthen its position against its giant competitor Intel.

What would it take for AMD to see significant increase in its market share in processors

used in corporate desktops and notebooks? How can the success of Opteron in the server

segment be leveraged to other segments?

It would take a lot for AMD to catch up with Intel as the gap in terms of market share

between the two companies is huge. Except in very specialized niche markets, Intel has kept

a significant leadership in every segments, including the server microprocessor market

where AMD best performed. Still in the second quarter of 2010, the domination of Intel over

the market was undeniable with 86.1% market share against 13.7% for AMD on the pc

processor segment, 72.2% against 27.5% on the desktop microprocessor market and a 93.5%

market share against 6.5% on the x 86 server microprocessor segment. (Michelle Maisto

citing IDC, 2010).

Moreover as mentioned by Ofek and Barley “Intel’s dominant market position could limit

AMD’s ability to make inroads to key market segments beyond servers, such as corporate

desktops and notebooks.”


In order to gain significant market share in processor used in corporate desktops and

notebooks, AMD should, in my opinion, focus on differentiating its products by giving them

an added value that would be valuable to end users. That’s what, so far, the company

couldn’t achieve for the desktops and notebooks ranges of microprocessors. Indeed, their

price/performance ratio is not as interesting as the performance of their range of servers’

microprocessors.(Ofek & Barley p.11) To not have a value added on those microprocessors,

that would differentiate them from Intel’s microprocessors, is definitely a big issue for

opening significant inroads into this market.

The product differentiation is one solution. By improving the quality and the number of

features of its desktops and notebooks microprocessors, AMD can get a competitive

advantage over Intel’s product. Though, since Intel’s R&D funds are much higher (Ofek &

Barley p.19), one good way to overtake Intel would be to perpetuate the “virtual Gorilla”

Strategy presented by Ofek & Barley p.3. Technology partnership would indeed accelerate

the improvement of AMD products and would create synergies with partners that, in the

case of AMD, often are potential customers too.

The second solution for AMD is to differentiate its product by conceptualizing new ways of

using products based on their assets. The example given on the paper is a perfect illustration

of what could have been done to create a new way of using corporate desktop by

“reinventing the commercial client” with the “Server based computing.” (Ofek & Barley p.

12). The idea was great; it was about selling to clients a computing system based on the best

asset of AMD which was the server’s microprocessors.

Finally the “customer centric approach” set by AMD to improve and develop its products in a

way that serves the best end users is a good idea to explore. It first allows the company to


create products with features that are supposed to be very close to customers’ expectations.

On the other hand this perpetual communication and mutual feedback introduced between

AMD and the end users contribute to build a relationship based on trust that might turn to

be a long term relationship.

However, even though AMD had the best microprocessor for desktops and notebooks

computers, would that be enough? Indeed, to have the best product is one thing, but to

convince potential customer and end users that your product is the best is another story.

A great part relies in how AMD will market its desktops and notebooks microprocessors.

Here the success of Opteron in the server microprocessor segment can be leveraged by

using the notoriety AMD gained through the success of this product. AMD has to use this

arguments to progressively gain the credibility it lacks on those segments. Then if AMD

success to put itself as a credible alternative to Intel’s microprocessor over desktops and

notebooks segments, they would have done half the way. The second half of the way relies

on creating a change in OEMs minds, that is, to switch from to position of a “credible

alternative supplier” that they can use as a threat in their bargain with Intel to the supplier

they want to buy from. And this shift on OEMs customers could likely come from Intel’s

strategy itself. Indeed, in the recent year the microprocessor giant has widened its range of

products and now offers a larger range of hardware as well as a significant range of software

(John Stokes, June 2010). As a result, OEM’s could review their buying strategy as Intel

becomes more and more a potential competitor for them. Thus, if they are a credible

enough alternative, AMD could take advantage of this situation in order to gain market

shares. The microprocessor company is even rumored to be in talks with Apple in order to

supply microprocessors for the iMac. (John Stokes, May 2010).


What do you make of AMD’s “power Campaign”? Is the value proposition it highlights

compelling to end users?

Since AMD had an unquestionable competitive advantage over Intel regarding the

performance per wattage of its microprocessors, and that, adopting AMD chips would likely

result in energy savings as well as space savings for end users; which both lead to money

savings. AMD was perfectly right to capitalize on this asset in order to run a powerful

advertising campaign that would definitely hit Intel’s product notoriety or, at least

strengthen the awareness of customers for AMD’s power efficient microprocessors. In my

opinion the campaign was well thought and it brought end users to either realize or think

about the potential savings they could do by switching from an Intel based CPU to an AMD

one. However, the efficiency of this campaign has been affected by external parameters that

AMD can’t totally control. First of all, as mentioned by Ofek and Barley in their paper, “there

are some customers that focus less on technology and more on the corporate brand when

making their purchase decision. Today it is easy (for us) to win the hearts and minds of the

CIO and IT managers, but the CFOs and CEOs have to be willing to engage (with us)”. Some

people will thus continue to buy from Intel because of the awareness they have toward this

brand and not on the basis of an objective comparison of both technologies.

Then we can remind that unfortunately at the time of this advertising campaign, the range of

AMD based servers proposed by OEM was relatively restricted compared to the range of

Intel based servers. Once again this wasn’t due to a performance matter, but to the fact that

most OEMs were literally scared of giving more room to AMD based product in their offer as

they feared Intel’s future reaction. (Ofek & Barley p.11).


Finally, the timing of the campaign could have been debated has it came just before the

announcement by Intel to launch a “new core architecture” that would be more energy

efficient and with a better performance than any AMD chip (Ofek & Barley p.14). Intel’s

awareness being much bigger than AMD, this announcement might have locked AMD’s

message out of the customers’ mind.

The value proposition highlighted in the power campaign is quite attracting to end users as it

would allow companies to cut cost significantly by saving energy. This is confirmed as well by

the result of a Ziff-Davis Media Survey mentioned in the paper which says that “ power

consumption and cooling in data centers were significant concerns” for data center decision-

makers (Ofek & Barley p.12). But on the meantime, the same survey relates that real

investment decision makers didn’t “sought to lower operating costs by targeting data center

power consumption and cooling”.

In my opinion the value proposition highlighted – even though it was attracting- wasn’t

totally compelling to end users. Indeed for most of the companies a change in the

technology would probably require a big investment that would weight in the company

expenses and that would turn to be profitable over the medium or long term thanks to

energy savings. But why many company would choose this option since Intel announced

they would launch soon a chip that would save energy too and that would be more efficient

than AMD’s chips? Many companies would thus prefer to upgrade their Intel chip as it would

probably be cheaper and not less efficient.


How concerned should AMD be about Intel’s imminent new product plans? Will they

hamper AMD’s growth plans?

AMD should obviously be strongly concerned about Intel’s imminent new product line. The

new chips Intel plans to launch are directly in competition with AMD products. Moreover,

Intel not only plans to be competitive in the server market but in the desktops and mobile

segments as well. Those new processors will, according to Intel, exceed everything AMD

could launch in 2006” (Ofek & Barley p.14) in terms of performance and power efficiency.

The launch of those microprocessors, if it turns to be true, is a big concern for AMD that has

already not a dominant position over the market. More than simply locking AMD out from

desktops and mobile segments, it could reverse the servers segment in favor of Intel. Of

course this remains hypothetical and this reorganization of Intel could either hamper or

benefit to AMD’s growth. I would explain this thought by the fact that Intel’s reorganization

already planned to broaden the company’s offer with software, wifi radio, chip-set and other

features in order to give to Intel “a greater share of wallet than a processor sale alone” (Ofek

& barley p.15). But as said in the first question, this strategy might lead OEMs to consider

Intel more as a direct competitor for some components and thus to partially review their

business relationship with the chip maker at the benefit of AMD.

Will AMD’s customer centric approach be a source of advantage over Intel?

AMD’s goal to focus on customer needs could look at first as a common marketing behavior.

Indeed, the goal of marketing is to assess the needs of customers in order to propose a

product that fits the best their expectations.


As said by Ruiz in the paper of Ofek & Barley (p.13) “It is very difficult to define what is

customer centric, because everyone says they are customer focused these days.” However,

AMD strategy seems to go beyond the simple will to fulfill what is expected to be the need of

an average customer in the industry.

What AMD really intends to build is trust based, long term relationship with their customers.

They want to listen carefully to their feedback and make developments that are the result of

those feedbacks. AMD don’t want to make technology improvements based on what they

guess is important for their customers but rather on the real accurate points that customers

themselves said they should develop.

To achieve this ambitious project the company has undertaken a big reshaping of their

customer service processes by creating “go to market groups” such as the Commercial

business group or the Commercial Channel Council which are really close from end users and

brainstorm with them before reporting to technical teams, also called “product group”.

(Ofek and Barley p.13) This allows AMD to create a real added value around its product line

by fulfilling end users needs as accurately as it can be. Here is definitely a source of

advantage over Intel as this strategy really helps to assess customer preferences over the

long term and to observe the evolution of market needs. Moreover, by doing so, AMD will

likely satisfy its customers and then keep them as clients. This synergy created between

AMD and its customers will finally bring them to consider each other as real partners, willing

to work together, and AMD won’t be seen anymore as a simple technology provider. If Intel

keeps imposing guideline to OEMs without assessing further their real needs, the AMD

customer centric approach could, indeed, turn to be a very worthy competitive advantage

for the company.


Will it yield commercially viable innovations that are dramatically different than those

Intel will develop?

On the big picture, innovations in microprocessor technology will remain – in my opinion –

merely the same between AMD and Intel. AMD isn’t powerful enough to create a revolution

within the industry. However, AMD’s customer centric approach has chances to yield

commercially viable innovations. By understanding better end users, the company can

optimize the technology and adapt the product’s efficiency in order it fits the customer’s

exact needs. Even though Intel and AMD are likely to have comparable technologies in terms

of power efficiency and performances, AMD appear to be more willing to put themselves “in

the shoes of their customers.” (Ofek & Barley, p.13)

With same performances the difference in the product’s choice can come from how well this

product can perform within a special environment. With their customer centric approach

AMD tries to understand their customer’s environments, challenges, etc… and they build

together – thanks to mutual feedbacks – ways to implement the microprocessors’

technology at their maximum power. It results in a better efficiency thanks to a greater

product’s adaptability and a better understanding of the product by end users. That is in my

opinion a source of economically viable innovation that could contribute to make the

difference.

The perfect example is given with the Torrenza initiative that aimed to completely open to

customers the architecture of AMD Opteron microprocessor. (Ofek & Barley p.13) This was a

risky bet by AMD, but it definitely had the potential to create viable innovation by giving the

keys to customers. By being able to tailor the technology to their needs they necessarily

optimize the efficiency of microprocessor for the tasks it is used for. This “gift “ to customers


could be the source of some innovations that Intel won’t be able to detect as accurately,

because they couldn’t detect the need for those specific innovation. Here the innovation

involves several different levels. Not only innovation in performances matters, but also

innovation with product’s flexibility, with feedbacks and customer relationship processes. All

those innovations are commercially viable even thought they don’t give a dominant position

to AMD, they contribute to strengthen the company’s market shares and to its slow but

continuous growth.

As a conclusion, we could say that AMD competition with Intel in the microprocessors

industry is good for OEMs as, at least, they can choose between 2 companies. It is utopian to

think of AMD surpassing Intel in this competition as Intel leads almost all the industry

segments, far ahead from AMD. However AMD should keep going this way and take every

opportunity to differentiate itself from the giant Intel in order to keep growing and to be

considered as a viable alternative by every potential customer.


Bibliography

Maisto, Michel. "Intel, AMD Lead a Rejuvenated Chip Market: IDC - Desktops and Notebooks

from EWeek." Technology News, Tech Product Reviews, Research and Enterprise

Analysis - EWeek. 19 Aug. 2010. Web. 05 Oct. 2010.

<http://www.eweek.com/c/a/Desktops-and-Notebooks/Intel-AMD-Lead-a-

Rejuvenated-Chip-Market-IDC-848326/>.

Ofek, Elie, and Lauren Barley. AMD: A Customer-centric Approach to Innovation. Working

paper no. 9-507-037. (Boston): Harvard Business School UP, 2007. Print.

Stokes, Jon. "Intel's Big Strategy Shift and AMD's Opportunity." Ars Technica.

Ars Technica © 2010 Condé Nast Digital., June 2010. Web. 05 Oct. 2010.

<http://arstechnica.com/business/news/2010/05/intels-big-strategy-shift-and-amds-

opportunity.ars>.

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