An Analysis of Cray Research
...ntapped markets such as the aircraft, aerospace and automobile industries, that they should focus on to expand their business. Self analysis exposed the company to several key concerns that needed to be addressed. Essentially the company was, on one side, too reliant on Seymour Cray’s expertise and, on the other side, focused on increasing speed and power and inflexible to satisfying the software needs of customers. As a result, on August 1984, Cray issued a new strategy statement that would bring profound changes in the company’s structure and culture. As shown in Exhibit 2, where the main changes in the strategies are compared, Cray Research decided to shift its strategy from a Pioneer-strategy to a Partner-strategy. As a Pioneer, Cray Research was organized in small decision units which resulted in a flexible and entrepreneurial culture. They invested heavily in R&D and concentrated all their efforts in producing the fastest and most powerful supercomputers. Although they custom-made the supercomputer for each client, they did little to understand their specific needs. They focused mainly on government and university customers whose purchase decisions were based on performance. Cray’s advantage depended on their innovation capacity. The new Partner Strategy demanded radical changes such as focusing R&D efforts in satisfying customer needs and serving more customer segments or industries. Cray Research had several key factors to achieve and complete a successful shift to this Partner strategy. The most important was to make sure that the company could deliver a tailored service to its customers. To achieve this they needed to be focused on customer intimacy, that is, make sure to know the specific needs of each segment and develop products to meet those needs. Additionally, it was imperative that people within the organization understood and adopted the new strategy. This new focus would have several key implications on the firm. First and foremost there will be a significant change in the company’s focus and structure. As Cray Research will be expanding into other industries, there is an increased need for the company to be able to identify potential customer markets and geographic areas for business. The company will need to develop an intimate relationship with clients as the company becomes more customer centric. A solid sales force will need to be created to focus on meeting with clients, assessing their needs and selling them on a system. This sales force will be especially critical for educating customers on the benefits of Cray Research’s products. Hence the company will encounter significant growth in terms of scope and breadth as the employee base increases significantly. However, due to trying to satisfy a wealth of needs, there is a probability that the company may lose its first mover advantage in speed and power while trying to focus its new product development towards customer needs. It is possible that other firms may take over the lead in creating faster computers and steal Cray Research’s dominate position in this niche market. Therefore, this expansion will necessitate assuring that the entrepreneurial culture is not lost and also continuing to have a decentralized decision making process. The leadership team will need to be restructured in order to ensure company decisions are made with the future and vitality of the entire corporation in mind, i.e. having R&D hardware and software working together to satisfy the industry needs. There will be a significant increase in required finances and a huge change in allocation of resources as the company expands. The company is currently heavily focused on hardware R&D. Since Cray Research is expanding its product portfolio to include software development, R&D spending will need to be included for software and market research too. This will force the company to cut down on some of its hardware innovation R&D expenses, which carries the risk of falling behind in hardware innovation. Additionally, there cost structure will be affected as there are new variable and fixed costs related to software development. The amount of hiring and cross training will increase adding more costs to the company. There will also be a need for more computer programmers and software experts to develop these systems or employees will need to be diversified in their capabilities to work with hardware and software. With this increase in company size, the entrepreneurial culture is strongly at risk of being phased out from Cray Research, as Cray will have to implement a consistent product development process that will not take away the free spirit vibe at the company. The company will also have to eliminate its reliance on one person for R&D (Seymour), although the culture depended a lot on Seymour’s image, reputation and stories. Other implications of this strategy include the need for Cray to develop economies of scale for its products. Although the company will be trying to include customization features for individual clients, the company will need to be able to produce equipment at a faster rate in order to meet customer demand. The company must also develop relationships with suppliers in order to meet consumer needs efficiently. In the end Cray Research will be able to strengthen its brand name across the industry and satisfy more customers through this new strategy. III. Specific recommendations to bring strategy to fruition The company must specify the arenas in which they will concentrate their efforts. Research has demonstrated that the petroleum, aircraft, and aerospace automobile industries are attractive; however, it is crucial that Cray does further in-depth analysis to understand the profitability and needs of each industry. Cray Research will not be able to target all segments at once so they must identify which characteristics are the most important. Then the company must create a prioritization matrix to determine the order of entry into each industry. Identifying the primary and secondary industries will be a critical first step. As Cray focuses on offering a hardware-software complete package (problem solving product), management must make sure not to loose leadership in hardware innovation. We recommend continuing to aim to produce the fastest and most powerful supercomputer that will be complemented with the software that will solve specific problems for the target industry. Cray Research will need to rely on organic, internal product development in the short term. This will allow the company to control their growth and understand the new strategy. In the long-term, we recommend that Cray evaluates achieving further expansion by utilizing other vehicles such as forming a joint venture or partnership with a software company. Once Cray dominates the domestic market, Cray will be positioned to expand into new international markets. We suggest following a licensing strategy in order to expand to new countries. Cray will win in the markets they enter by successfully differentiating themselves from other competitors. They still have the reputation and image of being a leader in producing supercomputers. The company should leverage this position to build a new brand image of “solutions + technology”. This can be done by emphasizing a new generation of products that combines hardware technology with customized software solutions. The success of this strategy depends on the speed and sequence of major moves. Our recommendation is to use a staged implementation plan instead of launching all initiatives at the same time. We have created a three-stage implementation plan which is illustrated in Exhibit 4. IV. Time- phased plan Stage 1. Stage one will be conducted over a two year time line. The focus of this period will be to continue serving the classic customer segment and to develop a stronger “problem-solution” reputation within the petroleum industry. We will initiate a stand alone software division, which will have the sole objective of developing software programs for our hardware. This is a strong symbolic action to communicate to the whole firm the importance of software development. The company structure will be drastically rearranged during this phase to begin the shift towards client manager support teams (See Exhibit 3- stage 1). A Vice President will be named for the software division and a pilot study program will be initiated in the petroleum industry with the objective of developing software exclusive for them. It is also essential for the company to maintain its international offices but reduce costs in this area. During this phase we will s...