Microelectromechanical Systems

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. Payne's 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