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 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. Paynes less than stellar performance. Yet it is also
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 its 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. Statas 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 its commitment to quality and efficiency, the business is
likely to be able to maintain the level of profitability required to recoup its
losses.