Growth and competitiveness of Established Companies Seagate Technology

1
Growth and competitiveness of Established
CompaniesSeagate Technology

• 2001. 12. 21
• Kyeong-Nam Yeon

2
Seagates Background

• founded in 1979 by Alan Shugart
• First product 5.25 inch hard disk
• Captured half of the market for small disk drives
  by 1982
• By 1984, sales has reached 344m
• Dependent on IBM 1/3 of the companys shipment
  to IBM
• In 1984, dwindled PC demand causing IBM to reduce
  orders and demand lower prices
• Disagreement over the move to the 3.5 inch form
  factor
• Favored by Finis and marketing side but opposed
  by many in engineering
• Finis Conner left Seagate to start Conner
  Peripherals company

3
1983-1991 The Mitchell Years

• In 1983 Mitchell replaced Shugart as president
• Management style centralized decision-making and
  aggressive sales tactics
• High volume production strategy to get costs down
• Vertical integration employed 40,000 people
  worldwide to make many of the components
• Relocated manufacturing operations overseas where
  labor costs were lower
• Experienced a significant rise in sales by 1987
• Was driven by the rapid growth in the market for
  hard drives in desktop computers

4
1991-1998 The Shugart years

• Environmental change disk drive industry in
  state of transition
• 1n 1987, shift from 5.25-inch to 3.5-inch drives
• Built-in hard drive
• Price wra in PC ? resulted in significantly
  lowered margin
• Seagates profits declined by 39 BY 1988
• In 1991, Seagate suffered an 11m loss despite
  steady revenues of 2.67
• Reengineering
• escape from autocracy
• Empowering nine senior vice presidents
• Focusing on higher profit margins and specific
  markets
• Highlighted the controlling technology

5
From 1998 Steve Luczo

• Seagate posted a 530m loss in its fiscal year
• Luczo was named president and COO
• State of disk drive industry
• Declining prices and customer consolidation
• Declining price structure
• Increased competition in high-end business

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Luczos strategy

• Time-to-market and technology leadership focus
• Main objective going forward is to improve its
  time-to-market for all products, especially in
  the low-end or desk top market
• Seagates traditional market strategy efficient
  manufacturing and huge volumes ? no longer
  sufficient ? technology provides a lower cost
  platform
• Changing the emphasis on vertical integration
• Encourages management to analyze each component
  process to determine if Seagate should be going
  it or if it should be outsourced
• Outsourced 10-20 of its heads from outside
  suppliers ? take advantage of the leader in head
  technology, incorporating the latest technology
  into its products
• Shift from a cost model to a gross margin model

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Luczos strategy

• Organizational structure
• Seagate was organized along functional lines ?
  compartmentalized and inefficient long lead
  times and high cost
• Implemented a cross-functional team
  organizational structure core team organization
  structure
• focus on product excellence, not on functional
  excellence
• Provides more accountability
• Phase zero process lays out what the criteria
  for the drive are, what the schedules for the
  drives are and where the technology is going to
  come from
• Technology
• Give the responsibility of not only catching up
  to competitors technology but also surpassing it
  to CTO
• mandate Advanced Concepts Laboratories to find
  technologies that will be important 3 to 5 years
  in the future
• Launched a new research organization, Seagate
  Research
• First research organization on disk drive except
  IBM
• Focused on the materials, processes and
  technologiesthat will come to fruition at least 5
  year
• Purchased Quinta Corporation to overcome
  superparamagnetic limit

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Luczos strategy

• Operations
• Time-to-market model requires flexibility, the
  ability to change product mixes very fast and go
  to another product because a customer requested
  it
• Set up a metric system to measure the companys
  ability to respond
• Implemented relationship between operation and
  marketing
• Master schedule in process belongs to marketing
  department
• Envisioned consolidation of all assembly
  operations into a single, automated disk drive
  plant
• Product design centers
• Consolidated 5 U.S. design centers into three
• Implemented consistent development methodology
• People
• A cyclical process of execution
• Lower-level decision-making

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Contemplating Seagates future

• Shift to higher value-added storage such as
  network attached storage
• Automation and commonality
• Design engineering ? process engineering
• Hardware ? Software

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Implication

• Change of industry environment
• Seagates strategy to overcome crisis