Why Has USR Been So Successful Thus Far? Excellent engineering (data pump, modular design) Cheap, used equipment Strategic opportunism - but shed lily pads (or fork tines) when necessary Generalized problem solving capability Engineering team clearly focused on designing fastest modems

Has Its Success Also Created Vulnerabilities? Too many different markets and ways to compete (Ex. 4) Used equipment can be liability or asset High overhead (ex. 6) High inventories Loss of key employees Bureaucracy

To What Extent Is USR Flexible? Doubling of SKUs in 12 months Corporate customers place larger and more specialized orders Modems for different countries had to be tailored different standards Increasing commodization at the low end of market Shorter product life cycles (average is 6 months)

Four Types of Flexibility (John Zakin, VP of Sales and Marketing) Broader range of products New products introduced quickly Cover unexpected surges in demand Change the mix of products

Does USR Need 5 X 5? Is It a Good Idea or a Bad Idea? Good idea Access to bigger, more high value markets Less reliance on any single market Hedge bets (lose lily pad) Leverage engineering skills Bad Idea Too much variety Engineering and manufacturing may not be able to cope Risks of absorbing acquisitions Limited middle management talent to manage such variety Need new slack for experimentation

If USR Has a Manufacturing Strategy, Then What Strategic Choices Support It? STRATEGY COMPONENT Process technology Capacity Quality Systems Production/Inventory Systems Work Force Management Manufacturing Organization CHOICES Buy used equipment Run at capacity Inspect-in Push, freeze schedules, forecast Not highly trained Lean, organic structure

Who Should Move to the New Facility? Manufacturing Advantages Share manufacturing equipment Invest in SMT (higher quality, density) Disadvantages Reduce manufacturing’s influence Lose speed of new product introduction Lose design for manufacturing link

Who Should Move to the New Facility? (continued) Business Unit Advantages Each BU retains flexibility Each BU is focused Disadvantages High overhead Imbalanced work load Lose employee mobility between products

Who Should Move to the New Facility? (continued) Subcontract (What?) Advantages Keep USR at a manageable size Reduce internal complexity Disadvantages Lose marketing-R&D and mfg link Must learn how to manage supply chain

Closing Thoughts Can’t keep all options open forever (opportunism versus strategic flexibility) Dual operations strategy? Which function? Which business? Will organizational capability supercede technical capability as USR grows? Capability goals can get supplanted by financial goals

Update Continued to grow but mainly internally rather than by acquisitions Subcontracted the high products! Focused on marketing and R&D Manufacturing (commodity) was moved to new facility High employee turnover. By 1993, more than 50% of employees had worked for USR for 20 months or less

Purchased by 3Com in 1997 Re-emerged as an independent company in September Com also maintains a minority interest. Solectron Corporation, Accton Technologies hold interest Solectron Corporation manufactures U.S. Robotics’ products