A new 7-S analysis of intel’s secret to success: The new 7-S’s inside

The New 7-S’s can be used to assess competitors, especially to identify their strengths, weaknesses, and use of these factors in the four arenas of competition. Intel Corporation provides an illustration of how a hyper­competitive company uses the New 7-S’s to seize the initiative over and over again. It has drawn upon most, if not all, of the New 7-S’s in main­taining its leadership in chip making despite (or even because of) fierce assault by competitors. It has moved from advantage to advantage, keep­ing one step ahead of competitors in not only its product innovation but also other aspects of its strategy.

Although this example is of a high-technology industry, hypercompeti­tion extends across many industries, as noted in Part II. The intensity of competition and the highly visible nature of high-technology companies make them an easier subject for analysis. It is not to imply that hyper­competition is limited only to high-technology industries.

S-l: Superior Stakeholder Satisfaction

Before the Pentium chip, Intel rarely asked customers what they wanted, but now they have instituted a process of concurrent engineering to get customers (and internal manufacturing) involved as early as possible. Be­fore designing the Pentium, Intel designers visited every major customer and major software houses to ask them what they wanted in a chip. Intel has also provided early software simulations of its new chips to computer makers, allowing them to get a jump on designing their new machines, and produced software compilers to help software companies use the new chip.

CEO Andrew Grove holds regular meetings with employees from all parts of the organization to brainstorm about the future, competitive chal­lenges, and customer needs. Employees are motivated and empowered to serve customers’ priorities above their own. Employees have a right to de­mand AR—“action required”—of any executive. Over the years Intel has also worked to avoid layoffs through asking staff to put in overtime or cut back on hours.

S-2: Strategic Soothsaying

Intel CEO Grove has quipped that the company bets millions on science fiction.1 As pressure builds from clonemakers and rival systems, engineers are brought together to consider the emerging technological capabilities and the performance needed to keep ahead of competitors. Intel has also expanded into other areas such as supercomputers, flash memories, video chips, and networking boards. Its sales in these areas are climbing at an average rate of 68 percent per year.2 It has gained 85 percent of the emerg­ing market for flash memory chips and practically owns one third of the market for massively parallel computers. This experience provides knowl­edge that Intel can then apply to standard chips, adding features such as video.

S-3: Speed

Intel used to bring out one or two new chips each year and a new micro­processor family every three or four years. In 1992 it drove out nearly thirty new variations on its 486 chip and introduced the next generation of chip, the Pentium. To stay ahead of clonemakers, Intel plans to create new families of chips every year or two throughout the 1990s.3 Instead of waiting until the current generation of chip is rolled out before working on the next one, Intel now develops several generations of chips at once. It is already working on obsoleting its chips before they have even hit the mar­ket. Intel has created design-automation software that allows it to add two or three times the transistors to each new chip design with no increase in development time. It also has achieved a breakthrough in modeling sys­tems that promises to cut the four-year product-development cycle by six months. The new Quicktum system will allow Intel to perform engineer­ing tests up to thirty thousand times faster.

S4: Surprise

Intel’s multiple capabilities—with strengths in microprocessors, other chips, flash memories, personal computers, and supercomputers—keep competitors guessing about its next move. Since its early days, it has often pursued a strategy of simultaneously pursuing alternative technology, and it currently has its own versions of the competing RISC-based chip (Re­duced Instruction-Set Computing) although it continues to defend its stronghold of CISC (Complex Instruction-Set Computing), which offers more software. Not wanting to compete with its customers, Intel hasn’t entered the personal computer market under its own name, but it has de­veloped the capabilities to do so as the only supplier to computer manufac­turers with a brand name—so competitors never know when it might de­cide to enter the PC market.

Intel has used advances in modeling and design of new chips to surprise competitors. Its new modeling system gave it a strategic victory over a competing RISC-based chip. At a technology forum in November 1991, an Intel executive demonstrated a working model of the Pentium chip, using a link to the model, before an actual chip was ready. In what may have been a response to Intel’s signal, six months later Compaq Computer Corporation canceled plans to launch a RISC-based personal computer.4 And it is still unclear whether new research efforts in RISC chips will sur­prise Intel.

Intel also maintains a flexible workforce, shifting employees to different projects and keeping operations lean. Despite its continued growth in rev­enues, Intel cut its number of employees between 1984 and 1992 to main­tain flexibility.

S’5: Shifting the Rules

Intel’s move into new areas such as supercomputers, interactive digital video, and flash memory has helped shift the rules of competition. Flash memory provides an alternative to the standard memory market, where Intel lost out to Japanese competitors. Intel is adding ancillary products, such as networking circuit boards and graphic chips, that make it easier for computer makers to add these features. It has also designed a personal computer with workstation power, the Panther, which it is licensing to computer makers. This shifts the rules by creating a machine that Intel is not marketing itself. The purpose of the design is to take full advantage of Intel’s Pentium chip.

S’6: Signaling

Grove has signaled Intel’s intent to fight the clonemakers “with every- thing we’ve got.”5 It has also stated a vision of making the company the center of all computing, from palmtops to supercomputers. Its precise strategy for doing this is less visible. Although it has clearly revealed that it has 686 and 786 chips in the works, what these chips will be able to do is still open to speculation. As discussed, Intel used signaling to shift the rules of competition by transforming computer chips from a hidden com­modity to a marketing asset through its Intel Inside campaign. By making the chip visible and using branding in marketing PCs, it made major gains in its battle against the clones. But the brand is only as powerful as the computer chip behind it.

S’7: Simultaneous and Sequential Strategic Thrusts

Intel has used a variety of simultaneous and sequential strategic thrusts to seize the initiative. In the late 1970s, struggling with its 8086 microproces­sor chip, Intel launched an all-out assault—code-named Operation Crush—against Motorola and other competitors. Intel set up war rooms to work toward making the 8086 the industry standard. It was this effort to si­multaneously attack several segments of the market that helped lead to IBM’s decision to adapt the 8088 as the center of IBM’s personal com­puter.6 Intel rode the wave of the PC’s growth to dominance in the micro­processor industry.

Intel also participated in both the memory and microprocessor markets at various points in time. In a way, Intel’s retreat from the memory chip market and return with flash memory might be seen as a sequential set of moves akin to a strategic retreat followed by regrouping and counterat­tack. It has used multiple exploratory attacks to develop a variety of know­how and technology capabilities and gauge competitor and customer reac­tions (for example, its simultaneous development of RISC and CISC technology). It has also explored promising markets (such as video and massively parallel computing) and moved into those with the highest po­tential for growth. It has built its businesses by using a sequential strategy, moving from memory chips to microprocessors, to boards, to building per­sonal computers (although not marketing them).

Assessing Strengths and Weaknesses by Using the New 7’S’s

The above analysis has shown that Intel is good at using all of the New 7-S’s for moving from advantage to advantage. Although it is the market leader, it still views itself as “under attack.”7 And it is. A misstep in this hypercompetitive minefield can prove fatal. But by building temporary ad­vantage upon temporary advantage, Intel has seized the initiative again and again. In contrast to this cycle of gathering momentum, a firm that loses the initiative faces a cycle of competitive decline and a downward spiral, as will be discussed later in this chapter.

Normally a company will not be good at all the New 7″S’s, so the New 7-S’s can best be used as a guide for building new strengths and plugging glaring weaknesses. It can also be a basis for identifying where to attack competitors (their weaknesses) and what to avoid (their strength in the New 7-S’s).

Analyzing the Four Arenas by Using the New 7-S’s

Unlike many chip makers that have gone into decline, Intel has used the New 7-S’s to seize the initiative in the four arenas of competition. The New 7-S analysis is also designed to evaluate the relative strengths and weaknesses of competitors in using the New 7-S’s in each arena of compe­tition, as well as in each of the New 7-S’s per se. Companies can analyze which of the New 7-S’s they are using and which are being used by their competitors in each arena. Companies then are able to see where they need to concentrate on building their strengths or where their competitors are particularly vulnerable to attack in each arena. For example, a compet­itor that has not developed the capability for speed could be less able to respond to a rapid attack or competitive move in the know-how-timing arena.


Intel’s added attention to customers (S-l)—drawing them into the design process and assisting software developers—has added a service component to its definition of quality. Intel has rapidly achieved increases in product quality through speed (S-3) and strategic soothsaying (S-2) to identify new product attributes desired by users. It has also used its speed to roll out products quickly and then drive down the price before competitors. Its Intel Inside campaign shifted the rules of competition (S-5) to emphasize chip quality and brand image among purchasers of personal computers.

Intel is vulnerable to a competitor that can provide better service to customers (S-l) and identify emerging customer needs (S-2) in the fast- paced environment of high technology. Because definitions of quality constantly shift with technology, Intel must stay ahead at each shift. The technological strengths of each new innovation are quickly copied, driv­ing prices down, so a competitor with a process innovation that reduces costs (surprise, S-4) could seize the initiative by increasing its profits or offering a lower-priced chip.


Intel has used its capabilities for speed (S-3) to move from new technology to new technology, working on the next generation of chips before the previous generation has hit production. This has kept rivals constantly be­hind Intel. But competitors are becoming ever faster. Intel’s position of being innovation leader and the first mover in the microprocessor chip market is an expensive and risky one. Intel’s windows for gaining returns on its massive R&D investment are increasingly shorter, and it depends more on speed (S-3) and surprise (S-4) to quickly gain an advantage over competitors and to remain unpredictable. It has sought to define the future of the industry through strategic soothsaying (S-2) and gaining know-how and capabilities in new areas such as video that can later be used to en­hance its microprocessor chips. By signaling (S-6) that it has plans for new technological breakthroughs in chips throughout the 1990s, Intel encour­ages customers to wait for its next chip rather than adopt those of its com­petitors.

Intel, with its rapid and steady development of each new family of chips, could be blindsided by an innovation that comes from left field. If a competitor is better at reading emerging customer needs (S-l) and tech­nological advances (S-2), it could come up with a product that Intel hasn’t imagined. Because Intel is skilled at assessing the future and keeps a sharp eye on new technological breakthroughs, the competitor would have to come up with a breakthrough that is not publicly known. This would re­quire stealth and innovation to create surprise (S-4). The competitor might also shift the rules (S-5) by applying know-how from another indus­try. For example, increasing consolidation of television, CDs, telephones, and computers could provide opportunities that Intel may not recognize with its primary focus on the computing industry. Similarly, a shift in the standards of computing—such as the rise of RISC-based chips—would provide an opportunity for a strong competitor to Intel to emerge. But Intel, which already has its own RISC chips, would be expected to quickly and forcefully respond to such a threat.


Intel lost its stronghold in the computer memory chip market to the Jap­anese in the 1980s, who used surprise (S-4) by coming from overseas and achieving higher customer satisfaction (S-l) coupled with lower costs. Intel has come back in this market by shifting the rules (S-5) to flash memory. Intel also gained another significant stronghold when IBM adopted Intel’s microprocessor as the heart of its PC in 1980. From its loss of the memory chip market, Intel realized that it had to work hard to sus­tain this new stronghold in microprocessors. But it overestimated the strength of the entry barriers that it created in microprocessors.

Intel’s apparent attempt to shore up its stronghold in microprocessor chips by cutting back on licensing its chip technology to other manufac­turers may have been a mistake. Intel had granted twelve licenses for its 16 bit chip, but only one for the more powerful 386 chip (to IBM—to manu­facture half of the chips in its own computers).8 It overestimated the strength of its technology-based entry barriers. By trying to hold onto the manufacturing itself and creating barriers for others, Intel may have brought on itself (or at least speeded up) the competition of clonemakers who reverse-engineered Intel technology. These clonemakers used speed (S-3), to rush chips out quickly after Intel’s release, and surprise (S-4), by attacking Intel when it thought it was protected by patents, and shifted the rules (S-5) by using reverse engineering to copy Intel’s chips rather than original R&D to create the next generation of chips.

Realizing that the technological and legal barriers to imitators are much weaker than it originally thought, Intel is now relying on speed (S-3) and signaling (S-6) to counter the efforts of the imitators. As CEO Grove has commented, “We will guard our intellectual property like a hawk, but ul­timately, speed is the only weapon we have.”9

Intel remains vulnerable to a shift in the rules of competition (S-5), for example, a new platform that supersedes the PC or doesn’t operate on standard chips. Just as the advent of the PC created Intel’s stronghold, this new system could further undermine it and create a temporary advantage for another company. Companies with capabilities in both the computer and microprocessor chip industries could create the new machine that would undermine Intel, and at the same time, they could manufacture the competing chip to take advantage of this new opportunity.


Intel built up deep pockets during its early years with memory chips and the 8086 processor. But its resources have risen and fallen with changes in the competitive landscape. Intel is well aware that each new wave of tech­nology is a bet-the-firm decision in which it could completely lose its deep pockets.

Intel has thrown its deep pockets behind every one of the New 7-S’s. It has increased customer satisfaction (S-l) by rapidly developing chips and keeping its hands in new technology (S-2), boosted speed (S-3), and in­creased surprise (S-4) through innovation. It has shifted the rules (S-5) through its leadership in developing each new generation of chips. Intel also has used its deep pockets to send strong signals (S-6) to competitors about its intent to win. In 1992, Business Week reported that Intel plowed about $800 million into R&D, on revenues of about $4.8 billion.10 Its deep pockets have allowed it to pursue several simultaneous markets and inno­vations and plot a series of sequential attacks (S-7).

Clonemakers have already turned Intel’s resource advantage against it by shifting the rules (S-5) through reverse-engineering its chips for a frac­tion of the cost of the original R&D. Former partners such as AMD have used the courts to gain access to licenses11 and surprise (S-4) Intel. Alli­ances among major companies such as Apple and IBM have also shifted the rules of competition (S-5) by creating new competitors with deep pockets to counterbalance Intel’s stranglehold over the PC market.

The Outputs of This “Static” New 7-S’s Analysis

As illustrated above, the New 7-S’s can be used to analyze a particular company’s use of the New 7-S’s. Such analysis offers insights into current strengths and weaknesses in the opponent and opportunities in the indus- try. But even this type of analysis is too static for hypercompetitive envi­ronments—companies do not operate in a vacuum, and conditions change over time. An analysis of how several competitors have used the New 7-S’s over time provides a more dynamic examination of the changes indus­tries undergo and the reversal of fortunes of individual firms within the industry.

Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.

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