Reflections on STMicroelectronics (ST) case study that we discussed in a previous semester are penned in this post. The focus here is on the microelectronic industry and STs Strategy making pyramid.

MBA class at Tasmac 2009

 STs Mission – “To offer strategic independence to our partners worldwide as a profitable and viable broad range semi-conductor supplier”.

A successful merger separated by nationality, cultures and language

Geneva, Switzerland based ST, born of the 1987 merger of SGS Microelettronica of Italy and Thomson Semiconductors of France, took the third place in sales in 2001 behind Intel and Toshiba, and is now a leader in one of the hottest segments of the industry.

Microelectronics industry

Dynamics of the semiconductor industry shaped ST’s program for change. Microelectronics is one of the most competitive industries in the world with over 100 being global players servicing a market of over 150bn that has long term CAGR of 16%. R&D investments at 14-16% of sales are 2 to 4 times higher than other industries. The industry is one which has experienced rapid growth due to increasing advances in technology and the growth in new markets such as in China and India.

In this environment companies polarize in two groups – broad line global with market share 4-7%. And narrow niche companies with market share less than 1%. Notable exception being Intel have a narrow product base but high market structure.

Other recent trends are – much more collaboration and vertical integration across the industry, enabling manufacturers to share some of the constant development costs

STs Strategy making pyramid

STs Strategies at all the four levels are well aligned – top-down & bottom-up.

  Corporate level strategy: ST Microelectronics was formed by the merger of two companies in 1987 in order to become a global presence in the electronics industry. The marriage of two money-losing state-owned companies might seem an unlikely preface to a global success story. Yet in the past decade, STMicroelectronics has emerged from inauspicious beginnings to become the world’s No. 3 chipmaker.

Initially STM had adopted a corporate level strategy of global development, following the merger of the two companies. The corporate level global strategy was to develop SBUs encompassing production, development and marketing operations in each of the major microelectronics market in the world.

ST’s network of strategic alliances contributes more than revenue to the company. The alliances also have helped the company access and assimilate complex knowledge from disparate sources. For a chip company created far from the talent pool of Silicon Valley, this is a core competency and a major source of differentiation.

“ST really benefited from being born in the wrong place,” says Professor Doz of INSEAD. “Lacking the depth of local technologies and market understanding around its birthplaces in France and Italy, ST had to source a great deal of specialist knowledge from outside its home.”

Business level strategy: STM adopted a classical multi-domestic strategy that aimed at differentiating across several country markets to achieve world-class dominance in their key markets. The new company pursued an aggressive growth strategy.

The route followed was by investing heavily in R&D, forging strategic alliances with blue-chip customers and academia. The predominant strategy was based on leveraging the innovative capabilities of its constellation of strategic alliances. This is how ST has a constellation of strategic alliances with companies all over the globe to gain competitive advantage.

Functional level strategy:

Marketing strategy – ST makes serious attempt in marketing by taking a lesson from Intel – e.g., PC manufacturers keep choosing Intel over AMD because Intel does a better job of building relationships with PC makers. And, more importantly, Intel invests in making sales easier for the PC vendors that use their chips. Intel’s value proposition can be understood in the words of one of its customer “If we put ‘Intel Inside’ logo on our ads, they’d reimburse us between 50% and 70% of both the cost to produce and the cost to run the ad”. Based on EFQM’s TQM they aim to become more customer oriented.

HR strategy – During a downturn in the economic cycle traditional management action was brought in play – rapid downsizing hit the people, product portfolio and market share – leading to a ‘vicious cycle’. This brought to focus to survive HR needed to rethink how the company’s downsizing was managed and to create a ‘virtuous cycle’.

R&D strategic priority was in terms of investing heavily in R&D – being in a industry where increasing advances in technology occur constantly.

Operational level strategies: Industry forces and competition forced ST to refocus their activities and adopted total quality management as the basis of their operating strategy. This enabled them to become more customer-oriented and retain technological excellence. Reliance on consumer markets increases the levels of risk and uncertainty for this market.

Companies that develop quality models to ensure TQM more effectively meet their customers’ needs and are more likely to succeed than those that attempt to compete with cost-reducing strategies alone

Current status of ST

The market position of STM is that it has market leadership that is spread across many fields. According to the latest industry data, ST is the world’s fifth largest semiconductor company and has leading positions in sales of Analog Products, Analog Application Specific Integrated Circuits and Analog Application Specific Standard Products.

ST is also number one in camera modules for mobile phones, number two in discrete and analog, and number three in NOR Flash, as well as in the application segments of Automotive, Industrial, and Wireless. Furthermore, ST was the 3rd biggest semiconductor supplier in China in 2005

Environmental & Ecology: STMicroelectronics has achieved international recognition for its commitment to the environment. Its vision for environmental responsibility and sustainable development was expressed in 1995 as an “Environmental Decalogue” – sustainable development which publicly stated its ecological goals under ten key headings.

Thanks for reading!

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About dilipnaidu

An open mind! Love to share my thoughts and a keenness to learn. An engineer and a MBA I had a wonderful innings in the Army and later moved to consultancy and teaching. My current interests are reading, music, growing culinary herbs, playing golf and yoga. I am serious on "Living life less seriously". A warm welcome to you be well and be cheerful always.

4 responses »

  1. akash says:

    Respected Sir,

    Good Morning …………

    How r u ….???

    Sir, i have some doubts……

    what is the difference between HR scorecard & BALANCE scorecard …????

    are the two same or different …..?????

    Thanks and Best Regards,
    akash

    Like

  2. Respected Sir,
    Very Nice explanation about Strategy Levels. It will be useful for all management Students …A pictorial presentation of any subject matter is always useful …

    NpGandhi,Pune
    http://www.gandhiswf.wordpress.com

    Like

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