Because MEPD, a self-contained division of SMA, achieved a profitable operating margin of 6.5% in 1990, is seems clear that they have survived an industry shakeout in the micro-electronic and telecommunications market. However, this is short of their targeted goal of 25-30%, which they achieved just five years earlier (see Appendix 1). This mediocre performance is the result not only of an industry downturn but also profound organizational and structural problems at MEPD.
Due to increased competitiveness in the telecommunications market, MEPD has focused more on the new commercial electronics market and has established a major market position with its technological capabilities in product development and manufacturing. This dynamic, complex, and unstable environment changed dramatically during the 1980s (see Appendix 2). The demand for low-cost microelectronic components has attracted new suppliers resulting in fierce price competition and an evolution towards a commodity business. Price competition, customers' demand for extensions of existing product lines, new products built to their specifications within shorter delivery lead times and stricter quality standards have put the division in a position where it needs to re-align itself strategically, operationally and organizationally in order to compete.
To maintain and increase operating margins, MEPD needs to launch new technologically superior products in order to charge premiums and to be cost efficient in its manufacturing processes. While the various departments are organized in a highly differentiated, functional structure, the lack of integration has led to the "functional chimneys problem" where the functional groups are uncooperat ...