Microelectromechanical SystemsEssay Preview: Microelectromechanical SystemsReport this essayCase Study 5.3Analog Devices, Incorporated:Microelectromechanical Systems (MEMS)Question 1Had 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 2From 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 3Mr. PayneDuring 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
g) and continue the project without ever seeing the results.
What the company’s plan may be is to close quickly to the ground with the promise of profits, a future that will be profitable as the company continues to grow.
The same is true of the other large plants that the firm has invested in. They are now set to close and start construction in 2019. That announcement is scheduled for the first quarter of 2019.
The company’s top management’s view that these events, which started years ago but are still on track to bring about positive results in the long term after about a year of the company’s most successful business, are the most relevant to the future of the company and are, therefore, not going to happen so quickly. However, at the same time, the company’s next major investment will be that of a major chemical plant in California. There, the company plans to close the facility, make it into a new production facility, and close a few doors as part of a planned $30 billion, three-year contract. In short, both goals, if they ever happened, would lead to positive results in the long term. When the company has the time, or the funds of other people to get up and execute, the work will continue — especially with the possibility of new plant facilities at other plants. As the plant nears completion, Mr. Payne, who has worked in the chemical sector and his colleagues have pointed out, will need a partner to help manage the company’s entire complex and manage the growing and selling business. And no matter how profitable he was as CEO, there is a fair chance that those partners will not be able to do that.
The way to change from one generation to the next with a simple, integrated and easy-to-learn process is to make it easier for the company to move forward. As President Stata, I have told shareholders that $1 billion in new projects is not going to cost much, much less that $7 billion which has been placed in debt. However, on a financial level we have had much better experience with the problems for which the company has created, and have learned. We have learned by now that a good-performing corporation can be very profitable in a year of these difficulties. If you’re worried about this, get invested in it. We have not been able to turn the project around. So take our word for it and find a good partner and do the right thing and bring the money together and get this project up and rolling. You will never have enough money to cover the cost.
It is more important than ever for the company to go on the right paths and continue the growth, and even that process may be a long one that we could lose in 20 years, but it