The textbook uses Apple to explore the concepts behind the three elements of a good strategy. Here, we will build from a brief case about a different firm to help us further understand these ideas. Please read the following case about the 3D graphics company Nvidia, as well as the Chapter 1 text, before answering the related questions.
Nvidia went from an IPO in 1999 to being named "company of the year" by Forbes magazine in 2007. Forbes noted Nvidia had gross margins of 46 percent in 2006 and its stock price rose even faster than Apple over this period. In 2013, the firm, with over $4B in sales, provides processors for use in mobile devices, cloud computing, and super computers.
However, had it not been for some early stumbles, the firm may have never reached these successes. Nvidia was founded in 1993 by Jen-Hsun Huang and two colleagues. Their first product-delivered in 1995-was a commercial failure. However, a rival firm, 3Dfx Interactive, introduced a very successful 3D graphics chip for the rapidly growing PC-based gaming industry.
Chastened by this initial failure, Mr. Huang and his team regrouped. They analyzed the gaming industry of that era and concluded that the market (gamers, as well as others interested in rendering graphics) would want to continuously upgrade to the best graphics technology available for the foreseeable future.
Given this situation, Mr. Huang focused the team on a new insight he thought would lead to success. Nvidia would release a new chip every 6 months rather than the standard 18 months used by the rest of the semi-conductor industry. Nvidia decided that if they could gain and keep the highest-performing graphics solutions in the marketplace, they would be able to build a great business.
To achieve this position, the company had to deliver on a number of important steps. Nvidia spent nearly a third of the firm's cash on emulation technology to prototype the graphic chips before they were produced, thus looking for problems early in the design cycle. This allowed them to limit delays in getting to market. They also invented the graphics processing unit (GPU) to assist the customer base in utilizing these new chips more rapidly. Nvidia also created three overlapping development teams so each team had 18 months for the chip design and fabrication, but staggered these with 6 months between releases. Finally, the industry had moved to driving costs down in the design and fabrication processes, but Nvidia pushed their designs to the maximum technical limits for enhanced end-user performance.
The strategy worked wonderfully. For example, Intel introduced a 3D graphics chip in 1998, but exited the business only a year later. In 2000, 3Dfx was in bankruptcy proceedings, and Nvidia acquired some of 3Dfx's key assets in 2001.
Sources:
Rumelt, R. (2011), Good Strategy / Bad Strategy: The Difference and Why It Matters (Crown Publishing); www.nvidia.com; Caulfield, B. (2007), "Shoot to kill," Forbes, December.
1. Nvidia went through a major rethinking of its strategy after its initial market failures. Based on the case just mentioned, what is the major diagnosis of the competitive challenge they found?
select
a-Nvidia should buy or at least partner with rival 3Dfx.
b-Intel would be targeting this market shortly and Nvidia needed to be ready.
c-Customers would be willing to buy new and better graphics solutions frequently.
d-The overall graphics market will be shrinking, so performance is needed to win market share.
e-Nvidia needs to create three staggered development teams for chip development.
2. The textbook notes that the formulation stage of the AFI framework has parallels to the guiding policy of a good strategy. What is the key guiding policy developed by Nvidia, as mentioned earlier?
select
a-Nvidia must take this business away from Intel while the market is still small.
b-Nvidia must have the most user-friendly chip in the marketplace.
c-Nvidia must have a set of coherent actions for their strategy to be successful.
d-Nvidia had to stumble before it could focus on needed improvements.
e-Nvidia would release a better chip in one third the time of the traditional industry.
3. The final and perhaps hardest part of a good strategy is to deploy a set of coherent actions for the implementation of the strategy. Which of the following is NOT an implementation action taken by Nvidia?
select
a-Employing a GPU system approach for easier integration of new Nvidia chips
b-Using the maximum technical limits of the chip design for enhanced performance
c-The creation of three staggered chip development teams
d-Investment in emulation systems for rapid prototyping of the chip designs
e-Releasing a new chip every 6 months rather than every 18 months
4. In the textbook example of Apple, what is the evidence that Apple has recently had a sustained competitive advantage?
select
a-Apple moved to only one laptop and one desktop computer.
b-Apple got record labels to agree to download single songs rather than albums.
c-Apple has outperformed its rivals consistently over time.
d-Apple changed its focus from desktop to mobile devices.
e-Apple's stock price reached $700.