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~ The Leadership and Capabilities Model has a Patent Pending; Leadership and Capabilities Model and Leadership Science are Trademarks ~

The Intel Case: Fading Memories (Burgelman,

1991, 1994)
Leadership & Capabilities Model (LCM)
Reconsidering the Intel case
Observations and Conclusions

Copyright 2004 James K. Hazy

Science

Successful shift from memory to processors - 1974 to 1984 (Burgelman,

1991; 1994)
Top-management continued to consider Intel a memory company even
though market share in memory (DRAM) was in steep decline

Innovation enabled Intel to lead the market with new products

Manufacturing scale came to dominate process technology design as basis for
competitive advantage

Innovation culture empowered middle management to invest in innovative

products w/o explicit executive consent
Competences in circuit design (CD) and process technology design (TD)
were transferable to microprocessors

Copyright 2004 James K. Hazy

Science

Intel Memory Market Share and Sales

(Adapted from Burgelman, 1994; Grosvennor, 1993)
700

0.9
0.8

600
0.7
500

400

0.5

300

0.4
0.3

200
0.2
100
0.1
0

0
1974

1975

1976

1977

1978

1979

Est Memory Sales ($millions)

Copyright 2004 James K. Hazy

Science

1980

1981

Memory Market Share

1982

1983

1984

% Market Share

$ Millions

0.6

Estimated Sales for Microprocessor and Memory

and Memory Marketshare
(Adapted from Burgelman, 1994; Grosvenor,1993)

$1,400

90%
80%

$1,200

60%
$800

50%

$600

40%
30%

$400
20%
$200

10%

$-

0%
1974

1975

1976

1977

Memory Market Share

1978

1979

Est Microprocessor Sales ($millions)

Copyright 2004 James K. Hazy

Science

1980

1981

1982

1983

Est Memory Sales ($millions)

1984

Memory Market Share %

70%
$1,000

Strategic decision in 1984 to exit memory was sensemaking

after-the-fact
Intels internal selection environment, i.e., the production rule
that favored microprocessors, was more adaptively robust that
top-down strategy
Combination of top-down strategy and bottom-up, or autonomous,
strategy is enacted at firms

Importance of knowing how and when to bring top-level official

strategy in line with bottom-up strategic action
Such realignment does not necessarily involve a change in
leadership

Note: no conclusions regarding the importance of time delays

associated with building capabilities and appropriating rents
Copyright 2004 James K. Hazy

Science

Built upon RBV (Barney, 1986), Dynamic Capabilities

(Teece, Pisano, & Shuen,2000) & Knowledge Based View of
Firm (Makadok, 2001)
Organizational learning through the lens of exploration
and exploitation (March 1991)
Transformational leadership theory -- two factors
characterize leadership activity (Bass, 1985):

Transactional leadership activities promote contingent reward

structures and procedural rules managed-by-exception
Transformational leadership activities promote organizational
action influenced and inspired by vision, intellectual stimulation,
and consideration of individual needs.
Copyright 2004 James K. Hazy

Science

LCM explicitly recognizes leadership functions (Barnard,

1938; Bass, 1985) embodied as routines & capabilities that
enable learning & adaptation:
Transactional leadership activities and routines drive the
efficiencies that produce slack resources
Transformational leadership activities and routines operate to
prime, sustain & select exploration initiatives while taking into
account timing delays

Legitimize vision, passion and hunches as justification for action

Increase perceived ruggedness of performance landscape (Gavetti &
Levinthal, 1999) by considering alternative futures
Enable long-jump adaptations (Kauffman, 1995)

Copyright 2004 James K. Hazy

Science

Exploitation value creation cycle

Existing markets
rents from exploiting capabilities
slack resources
invested to improve exploitation
capabilities
rents
Transactional leadership capabilities

Exploration value creation cycle

Slack resources
allocation to exploration capabilities
delay
New Capabilities
wait

New Markets
capabilities

delay

rents from exploration of new

Transformational leadership capabilities

Copyright 2004 James K. Hazy

Science

Old and new markets

LCM input factors approximate Intel market conditions

Rent from exploitation of memory chip capabilities

Continual transactional leadership pressure for efficiency

made slack resources available
Production rule favored higher rents

Exploration at Intel

No top-down strategic initiative (no priming)

However, compatible capabilities (CD and TD) between
memory and microprocessors limited the need for priming to
build absorptive capacity absorptive capacity remains high
Sustained exploration investment at the shop floor level

Copyright 2004 James K. Hazy

Science

Importance of market timing and absence of delays

Minimal delay in information & rewards for exploration

Microprocessor market developed quickly and was
immediately profitable
Rent immediately available from exploration to feed the
positive feedback cycle
Internal selection environment, i.e., the production rule -designed to act on present state rather than desired state
data thus benefited from limited delay

LCM implies Intel transformation resulted from

complex system dynamics

Using Intel data, LCM predicts crossover and transition to

microprocessor company even without top down initiative
Copyright 2004 James K. Hazy

Science

Mix of Exploration and Exploitation

1

0.75

0.5

0.25

0
0

12 18 24 30 36 42 48 54 60 66 72 78 84 90 96 102 108 114 120

Time (Month)

Percent Exploration
Percent Exploitation

Source: (Burgelman, 1991)

Copyright 2004 James K. Hazy

Science

Observations from data as described earlier:

Market share in memory chips (DRAM) was in steep decline

Existing capabilities, CD & TD, did not match competitive dynamics

Exploration did not focus on manufacturing scale (& large market)

Middle management empowered to invest in innovative products

Exploration led to microprocessors without a top-down initiative an

example of sustained investment

Competences CD and TD were transferable to microprocessors

Avoiding timing delay associated with absorptive capacity build-up

priming investment in exploration came through investment in DRAM

Internal selection environment favored microprocessors

Did production rule save the day? No, the market saved the day -microprocessor market provided higher margins in self-reinforcing cycle
Production rule reflected transactional leadership efficiency: go for the
highest return on incremental assets!
Copyright 2004 James K. Hazy

Science

Additional insight into Intel case gained from LCM

Importance of timing delays & unique market characteristics

Intels successful transition had more to do with

unique circumstances (luck) than strategy (brains)

Loss of market share in memory (precipitating ultimate exit)

predated successful transition to microprocessors no
transforming strategy was articulated
Market for microprocessors developed quickly little time
delay between investment in exploration & sustaining rents
(feeding the positive feedback loop) thus limiting the need
for sustained commitment to exploration investment
Intel was well positioned wrt process technology design
capabilities to successfully explore microprocessor market
Copyright 2004 James K. Hazy

Science

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Copyright 2004 James K. Hazy

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Copyright 2004 James K. Hazy

Science

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