By
TMCnet Special Guest
Scott Grant, Senior Manager, Accenture semiconductor industry group
When this global recession ends, the semiconductor industry will be a different world with different competitive dynamics and different priorities than when the recession began. Faced with this reality, semiconductor companies on the path to achieving high performance need to consider investments in now five key areas. They are:
- maintaining morale and energy in the workforce, especially in innovation;
- reducing the time to cash for new products;
- introducing a higher degree of operational excellence into the business;
- pursuing alliances to share cost burdens of new product development;
- and acquiring new assets.
The rest of this article delves into each one of these five areas.
1. Maintaining morale and energy in the workforce, especially in innovation.
In a downturn cash flow is king. Cost-cutting becomes a critical concern. But cost cutting can have serious negative repercussions for a company’s workforce, often paralyzing a business due to fear among workers that they may soon be losing their jobs or that their organization may be the next part of the company to be jettisoned. The impact of such a mindset can be especially damaging to a company’s ability to continue innovating. Even so, when cutting costs and divesting of assets, semiconductor companies must ensure they keep the organization—particularly areas engaged in innovation—stable, energized and productive.
As such, companies need to make deliberate, targeted investments in employee training and development to help ensure they have the skills to be productive. They also should conduct periodic reviews of employees’ career paths and succession plans to give employees insights they need to progress within the company. In addition, regular assessments of employees’ mindsets and perceptions, such as a quarterly employee survey, can help executives keep tabs on the overall mood of the workforce and identify possible issues to deal with before they become a drag on morale and productivity.
One semiconductor company that addressed cost removal through resource reduction faced significant morale issues. Although company leaders focused on change management, no one paid much attention to the transition management, which involved how people dealt with their new surroundings after other employees were let go. This mistake left the remaining organization unprepared to deal with the loss of control and colleagues, and unequipped mentally to work within the “flat” organization. Once the company recognized the issue, it implemented transition management practices to foster personal ownership of the new organization, provide closed-loop feedback from each organizational layer and encourage leadership to acknowledge the loss. Concurrently, the leaders highlighted the positive opportunities the company could create in the new environment.
Another semiconductor company found satisfaction dropping among employees responsible for innovation, because of recent personnel reductions and slowing sales and revenues. An organizational assessment revealed that employees perceived team members’ ideas were not being implemented, and that distrust existed because of poor communication across the company. These problems resulted in lower personal productivity. In response, the company set in place a more visible innovation process that identified and sponsored ideas from the team. The company also revamped disjointed communication from leadership to create a common message, as well as recognize and address specific challenges within the organization. Ultimately, these actions improved employee trust and morale, and reduced departures of key employees.
2. Reducing the time to cash for new products
Despite the economic downturn, to remain competitive semiconductor companies need to continue to bring innovative new products to market. They also should identify and execute on opportunities for competitor displacement and/or growth within key market segments. But they must do so quickly and economically to maintain profit margins where possible.
For integrated device manufacturers, this means streamlining the design and engineering process to improve efficiency and accelerate product development and delivery to market. By industrializing the design flow, product lifecycle process and new product introduction approach, semiconductor companies can reduce the frequency and amplitude of change late in the chip design cycle, thereby reducing overall chip design costs. By moving more features out of the chip itself and into embedded software, companies can extend the lives of the semiconductor hardware while accelerating and simplifying product updates. And by standardizing product data and technologies, a semiconductor firm can more easily decide whether to manufacture internally or externally. This improves efficiencies and decreases the time to deliver new products to market.
For providers of manufacturing services, this means infusing greater predictability in operations. This also means investing in new technologies aimed at streamlining production and more effectively meeting customers’ needs. As external manufacturing service suppliers become enablers of chip design for their clients in design houses, as well as fab-less and fab-lite clients, their ability to integrate with their customers’ design chain directly affects the time to deliver chip samples to market. Ultimately, this integration affects the cost to manufacture each design process technology node.
3. Infusing a higher degree of operational excellence into the business
During the past few years achieving operational excellence on a global scale, through consistent, harmonized global processes and systems, has become a critical imperative for companies around the world. Semiconductors are no exception. By creating and applying common processes and operating models to all markets in which they operate, and coupled with making targeted improvements to existing key processes and systems, semiconductor companies can significantly boost efficiency while reducing overall operating costs.
Some of the areas especially attractive for operational improvements, and key metrics to emphasize, include:
- Supply chain
- Factory, where spins per product, time to volume, cost per wafer, and throughput should be emphasized
- Planning, including metrics such as which and how many chips are available to promise for delivery to customers
- Research and development, especially the time it takes to progress from one stage of chip design to the next
- Engineering tasks that help reduce scrap and rework.
At the business unit level, traditional multi-factory optimization or virtual manufacturing is a critical improvement opportunity. This new operational model requires firms to evaluate their capabilities in three areas: sourcing, new product introduction and integrated supply chain planning. Strategic sourcing and procurement tend to contribute to overall cost reduction and profit margin improvement. Industrializing processes for introducing new products creates greater operating control through visibility and systemic changes, resulting in faster time to volume production, and the time from the research and development product concept phase to when the semiconductor company receives payment for that product from a customer.
4. Pursuing alliances to share cost burdens of new product development
As the cost of bringing innovative new semiconductor products to market has soared, interest in alliances has heightened. Semiconductor companies view such arrangements as a way to spread around research and development and manufacturing costs, speed product introductions, accelerate development of new technologies and platforms, and share risks.
Alliances have their benefits. Typically they deliver from 50 to 60 percent of the intellectual property (IP) required for a particular process technology node. This means the other 40 to 50 percent of the IP consists of unique, customized and differentiating IP from individual companies.
But some multi-party alliances also carry a risk of complicating and confusing value propositions of alliance members. As a result, a semiconductor company that joins an alliance must ensure it can extend its IP and make unique platform modifications to differentiate itself from other alliance members and other competitors.
Differentiating for design and manufacturing companies in the alliance includes additional services they can provide. For manufacturing service companies, this could mean offering chip driver designs for complex, mixed-signal semiconductor chips on the platform developed by the alliance. For chip design companies, differentiation could be providing unique application programming interfaces for access to programmable devices within the companies’ embedded components. This gives chip companies’ customers more flexibility for tuning their own semiconductor products to work with a wide range of different customers’ products.
5. Acquiring key assets
Semiconductor companies can also help themselves during the downturn by focusing on core areas of their business. When assets are acquired within two companies, several practices can smooth the integration process. These processes help chip companies generate greater value from their mergers and acquisitions. The first two practices are:
1. Fine-tuning merger and acquisition strategies and screening methods to help ensure that acquisitions will fill strategic gaps. For integrated chip manufacturers or fables companies, this means being vigilant in searching for vital IP that can strengthen their IP portfolios. For founding or manufacturing services businesses, this means gaining production capacity to differentiate themselves from less-equipped competitors.
2. Targeting good companies that have been dragged down by the overall market and/or by weaker companies in their peer group. Once they have identified potential acquisition targets, chip companies must accurately identify synergy potential, which requires skillful blending of industry-comparable benchmarks (to determine the magnitude of what’s possible); and opportunities specific to the merging companies (such as consolidating redundant manufacturing facilities). By combining the two perspectives, a semiconductor company can determine if industry benchmarks are realistic and targets specified are aggressive enough.
3. Finally, executing to realize the potential is crucial. Three key steps that can help companies successfully integrate are:
- establishing an integration team with a well-defined charter and scope, as well as a full time staff of experienced, knowledgeable managers.
- determining requirements to help minimize the gap between the day the merger is approved by the government and the day the merging companies are expected to begin operating as one integrated enterprise.
- developing a set of metrics to help the integrating organizations gauge whether operational and financial targets are being met.
In summary, semiconductor companies need to realize that the name of the game in this tough market is simplifying their businesses. This means eliminating unnecessary costs and unproductive assets to get more lean, more streamlined, more efficient, and more focused on the products/services, capabilities, markets and customers that matter most. Coping with decreasing global sales and a volatile economy, semiconductor companies might be inclined to merely ride out the global economic downturn. But this is exactly the wrong strategy. Being proactive in these challenging times is paramount. Semiconductor businesses emerging out of this fiscal crisis stronger will proactively fine-tune and enhance their capabilities. They will also accelerate innovation that will lead to growth and, ultimately, high performance
