Mems Case Study Case Study 5.3 Analog Devices,
Incorporated:
Microelectromechanical Systems (MEMS) Question 1 Had Mr. Payne negotiated an agreement with ADI that allowed him to start a separate, venture-financed company to commercialize MEMS devices in the late 80s, he would have realized his goal of heading his own business venture. Whether or not the MEMS devices become a success story, however, is a different question altogether. The early development of MEMS devices benefited greatly from being a part of ADI, from having the positive ADI culture, skilled workforce, manufacturing expertise, and not to mention the financial and top management support. It is unlikely that Mr. Payne would have gotten the first three factors in a brand new start up company. On the financial and management side of operation, Mr. Payne would be hard pressed to garner sufficient support to tide him through the many years of negative profits and is likely to have his attention divided between having had to defend the venture and to improve profitability at the same time. It is a point to note that during these early years, even ADI management did not really trust the potential of the MEMS devices enough to create a separate division. In fact, the early development was assigned a spare capacity of an already existing facility owned by ADI. The inclusion of the MEMS product line in a division of a core product had helped keep the program going through years of not producing profit as the losses were buried within the profit made by the division as a whole. Had Mr. Payne gotten his own company to develop the MEMS devices, the losses would have been very glaring. The venture might have been written off as too large a loss, and the company closed down long before MEMS reached profitability. The investment might have ha ve been viewed as way too expensive, especially given the lack of direct control from the financing party. Question 2
From the case study, it would seem that ADI is indeed an environment in which corporate entrepreneurs can thrive. Not only the MEMS idea came through, the idea was given support and financial backing even through years of negative profit. We believe that ADI recognizes the fact that the nature of their business in such specialized technology indeed calls for a constant look out for new ideas, inventions and innovation in order to stay ahead. The actual control for this recognition is realized in the ADI Fellows program which serves as a bridge between the front line innovator and the top management, cutting through layers of middle management who might be more concerned about current profitability rather than future potentials. This control system works very well to motivate employees to develop new ideas according to their expertise as they know that top management are always open to new ideas even if they do not eventually support ALL of the ideas. Question 3 Mr. Payne During the early development of the MEMS technology, Mr. Payne might have been to optimistic in predicting the price of the new technology. Had he not predicted such a low price, the automotive industry might have not pounced on the price point in their negotiations with ADI and ADI might have been able to sell the technology at a higher price and therefore increasing their margin especially during the early development period. As it was, the current technology then was so much more expensive that any price distinctively lower than (but still within a good margin for ADI) should capture enough market share in the automotive industry. Later on, as the MEMS division managed to get a better yield, they could certainly afford to offer a more competitive price. If I were Mr. Payne, I might have given a different set of numbers in my prediction just to ensure higher margin for the company, especially early in the development of the technology. As the years went by, the MEMS division kept on missing its yield and profitability target and the top management were getting increasingly frustrated with Mr. Payne’s less than stellar performance. Yet it is a lso noted that Mr. Payne might be facing a lot of pressure from many different directions. His direct boss, Mr. Weigold, for example, was not really sure about the potential of the product. On the other hand, the
facility in Wilmington was also nearing full capacity, which resulted in everyone fighting for any resources available. If I were Mr. Payne, I might have come clear with the top management (especially since Mr. Stata and Mr. Fishman continued to step in against Mr. Weigold intentioni to close the product line), about all my concerns regarding the operations with the hope that they might be able to help. As it was, Mr. Stata and Mr. Fishman from the top management was more under the impression that Mr. Payne was not feeling accountable for his numbers. Mr. Weigold Joining ADI 1992 as the division head of Transportation & Industrial Products Division, of which the MEMS was a part, Mr. Weigold was not really sure about the future of the MEMS technology, and he was unable to see a clear path to profitability. Based on what little he knew at that time, it was reasonable for him to want to close down the product line. Hired most probably for his expertise in management rather than technical field and not having any special attachment to the MEMS development, I believe that Mr. Weigold did what he thought was best at that time. He was not meant to be the spearhead of change. His job was to make his division work, and he did manage indeed to win short-term price concession from Siemens. He did eventually manage to make the MEMS work and even realize profit when he was handed back the MEMS division from the leadership of Mr. Stata in 2000. Despite a totally different style of leadership compared to Mr. Stata, Mr. Weigold succeeded to manage the division toward increased productivity and efficiency such that it reached almost $100M in revenues with an operating margin of approximately 12 % by 2002. I think that the only thing I would have done differently if I were Mr. Weigold would by my approach to Mr. Payne with regards to his failure to meet the target efficiency and profitability. It is possible that a less combative approach might have enabled Mr. Payne to work with Mr. Weigold towards a better efficiency and prevented Mr. Payne to miss his target again and again. Mr. Fishman
Right at the beginning, being still impressed by Mr. Payne leadership, Mr. Fishman put a lot of faith in the MEMS development. As years go by without profit being realized from the product, however, Mr. Fishman became more and more concerned about the profitability of the business. If I were Mr. Fishman, I might have been more strict with the timetables that I give to Mr. Payne and pay more attention to the things he was and was not doing to improve profitability and efficiency of the division. The other thing that I might have done differently if I were Mr. Fishman would be not to make so firm commitments about improvements of the MEMS business to the shareholders after protest regarding the mounting MEMS losses. I might have tried convincing the shareholders by pointing out the long-term potential of the technology rather than by sheer numbers alone. In this, of course, I suppose Mr. Fishman is also limited in his perspective as a business manager rather than a founder with a vision for the future. Mr. Stata As one of the co-founders of ADI, Mr. Stata had some firm ideas on the direction that he liked the company to go to, and he really wanted the MEMS to succeed. If I were he, I might have come down and tackle the problem myself sooner, once I realize that Mr. Payne is not delivering his promises with regards to efficiency and profitability. Mr. Stata recognized the need to give the product line it’s own separate
division to ensure a direct financial support from the management that will not affect other division, and also the need for a separate facility in which the division can really get down to work in increasing its efficiency. The investment in the new facility paid off when the yield started increasing to a level that points towards profitability. I would also like to highlight the way that Mr. Stata’s teambuilding approach in his
leadership style helped keeping up the morale within the division at times when it was mostly viewed as an unprofitable business within the company, and I respect his decision to step back from operation once he saw that the division is already moving towards the right direction. Question 4 The MEMS had a slow start with many years being unprofitable. However, the technology had helped ADI to get a toehold in the huge
automobile industry, which would provide a big demand for a significant portion of what ADI produces. With the ever-increasing complexity of the safety features in automobiles, it is likely that demand for MEMS products will continue to grow as well, ensuring long term growth for ADI as a whole. Given these two factors, I would say that MEMS was a success. As long as ADI maintain it’s commitment to quality and efficiency, the business is
likely to be able to maintain the level of profitability required to recoup its losses.
