When giants fail: The exploration-exploitation dilemma revisited

A case study of this decade’s Kodak

In our work as scenario planners, the cautionary tales of Kodak and Nokia – once industry giants that faltered by missing key shifts – are often invoked. Kodak famously failed to adapt to the digital revolution despite inventing the digital camera, and Nokia was overtaken in the mobile phone market after being blindsided by the rise of smartphones. However, these examples have become somewhat dated. Today, a current example of a company wrestling with strategic missteps is unfolding right before our eyes in one of the most consequential industries.

“…the examples of faltering industry giant Kodak and Nokia have become somewhat dated. Today, a current example of a company wrestling with strategic missteps is unfolding right before our eyes.”

Intel, the American semiconductor giant, has a rich history of groundbreaking innovation. Founded in 1968, the company pioneered the development of the microprocessor, launching the world’s first single-chip processor. One of its co-founders, Gordon Moore, even formulated ‘Moore’s Law’, predicting that the number of transistors on an integrated circuit would double every two years. This principle, which powered decades of exponential growth in computing power, turned out stunningly accurate and became an industry benchmark. By the early 2000s, Intel was the undisputed leader in the semiconductor industry, dominating the global market with its powerful processors used in personal computers.

Fast forward to today, and Intel is in profound trouble. The company’s market value, as high as US$ 261 billion in 2021 (a year before the rise of transformative AI technologies like ChatGPT) has lost two-thirds of its value to less than $100 billion today. Its most recent financial results from August 2024 revealed a net loss of US$1.6 billion and deep job cuts, slashing approximately 15% of its workforce. Additionally, Intel has drastically reduced its capital spending, signalling deeper trouble.

Although these woes have unfolded under current CEO Pat Gelsinger, many of Intel’s challenges stem from severe missteps made by previous leadership that failed to recognise and navigate critical shifts in the industry.

Flawed intel

In the late 2000s, a seismic shift in the computing landscape was taking place; the transition from PCs to mobile phones. Companies like Apple and Qualcomm quickly recognised the significance of mobile processors, which consumed less power and were more suitable for smartphones. These companies not only adapted to this transformation but in some respects also led this big shift, as mobile computing overtook traditional PCs to become the dominant platform. Intel, however, was slow to respond.

While this happened, the semiconductor industry itself was also undergoing a structural transformation. Traditionally, companies like Intel both designed and manufactured their chips in an integrated model. However, the industry began to ‘disaggregate’, with specialist firms emerging that focused solely on chip design, outsourcing their manufacturing to dedicated foundries like Taiwan Semiconductor Manufacturing Company (TSMC), today one of the 10 most valuable companies in the world. Intel was again late to recognize this trend, continuing to rely on its integrated model, while companies like AMD partnered with TSMC to innovate faster; allowing them to seize a significant share of the market, particularly when Intel faced manufacturing delays that further eroded its competitive edge.

“Most recently… Intel has yet again been caught out by missing out on one of the big technological waves; the transition from ‘central’ to ‘graphics’ processing units that power the current boom in artificial intelligence.”

Most recently – and what’s getting a lot of news these days – Intel has yet again been caught out by missing out on one of the big technological waves; the transition from central processing units (CPUs) to Graphics Processing Units (GPUs) that power the current boom in artificial intelligence (AI). GPUs, which are far more efficient at handling the massive data processing needs of artificial intelligence and machine learning tasks, have become the backbone of the cloud computing and AI revolution. Companies like NVIDIA, that recently overtook Microsoft to become the second largest company in the world, capitalised on this shift. Meanwhile, Intel lagged behind, losing even further ground in an industry that continues its rapidly transformation.

The ‘exploration-exploitation’ dilemma

For many industry observers, at the root of Intel’s troubles is a classic example of the ‘exploration-exploitation’ dilemma. For much of its history, Intel has focused heavily on exploitation; optimising its existing capabilities and market position. For example, as a dominant player in the PC processor market, Intel concentrated on optimally exploiting that existing market. However, this emphasis on maximising returns through exploitation came at the expense of exploration; the willingness to actively explore a changing world, experiment with new ideas, and invest in future-oriented innovations that may not have an immediate pay-off but could have positioned Intel for long-term success.

Intel’s failure to invest enough time and resources in exploration is what ultimately left it vulnerable to major industry shifts, from mobile computing to disaggregated chip manufacturing, and finally, to AI-driven GPUs. By prioritising short-term profitability by optimising for the status quo, Intel was unprepared to pivot when the industry was undergoing profound changes.

Exploration through scenario planning

This is where scenario planning could have played a transformative role. First pioneered in the corporate sector by Shell, one of the key figures in Shell’s scenario planning team, Peter Schwartz, talks about scenario planning as “a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out.”

Scenario planning involves building divergent, challenging, relevant, and plausible future scenarios to help stretch decision-makers’ frames of reference. It forces them to think more broadly and challenge their ‘official future’ by creating divergent views of the world.

“…when done well, scenario planning results in a deeply strategic dialogue about the future of your industry or sector, and the role that your organisation might (be able to) play in it.”

As such, when done well, scenario planning results in a deeply strategic dialogue about the future of your industry or sector, and the role that your organisation might (be able to) play in it. If Intel had engaged in robust scenario planning, it might have better challenged its leaders’ frames of reference, allowing them to recognise the early signs of industry shifts. Ultimately, Intel’s current struggles highlight the dangers of being too focussed on exploiting one’s current status quo and not challenging oneself enough to see shifts on the horizon.

To remain competitive in today’s fast-moving landscape organisations must have ambidexterity; being capable of exploiting one’s existing competencies, while simultaneously exploring new opportunities. In this context, scenario planning is a proven and timeless method that is invaluable in helping organisations recognise signals of change and adapt to them in a timely fashion.

At Jester Strategy, we specialise in equipping organisations with the tools and insights needed to navigate uncertainty and seize opportunities. Through our expert-led scenario planning approach, we help organisations uncover critical trends, identify potential risks, and chart a strategic course that balances both exploration and exploitation.

Don’t let the unexpected catch you off guard and be prepared. Feel free to reach out to us to discover how scenario planning can benefit your organisation.