Analog Devices: 1986-1991

The First Balanced Scorecard^©

by

Arthur M. Schneiderman

One current model, borrows from a framework developed in System Dynamics and popularized by the proponents of systems thinking and organizational learning: the causal-loop diagram.  It superimposes this diagram on a fixed framework that spans the financial-customer-internal-learning and growth system of classification.  It then provides a generic causal linkage: "by doing/improving this (a learning and growth metric), we improve our internal processes as evidenced by improvement in this (an internal process metric), which in turn improves this customer requirement (a customer metric) which leads to improved financial performance (a financial metric).  Analog took a more holistic view in developing the one slide summary of its balanced scorecard story.

Analog's tool for telling the scorecard story originated in 1986, upon my return form Juran's Impro 86 (see Evolution of Analog's Strategy Map).  I was inspired by a booth and presentation given by Texas Instruments' Hiji Japan wafer fab.  I summarized their story on a single slide and than created a fictitious version were I adapted the original to Analog's largest, and a strikingly similar, wafer fab.  The message was clear: here's a possible future state for Analog, and ... someone's already there.  This instantly reduced my proposal from a consultants pipedream to a realistic possibility.  The excitement that these two slides produced, prompted me to create a third version which applied to Analog's IC operations in total.

Over the next few weeks, this slide evolved into a two slide version:  the first describing what was possible by 1992 (which I called the External Perspective), and the second one addressing how we could do it (which I called the Internal Perspective).  The combination of possibilities, the resulting opportunities and the required framework served as the basis for this early story.  In January of 1990, I combined the previous two slides onto a single slide, pared the drivers down to the vital few and added the three business objectives.  By April of 1990, the external perspective had to be broadened to include the newly emerging requirements of price and responsiveness.

  My final version of this slide, created in April of 1990, provided the visual for many presentations:

The symbol in the upper left hand corner of this slide is the QIP logo (see: The QIP Logo).  Throughout my tenure at Analog, the management group continually asked and re-asked the question "what are the most important things that we need to do to delight all of our stakeholders, taken as a group?"  The highest common denominator of the many answers to that question always remained the three business objectives stated on this slide.  And over that period, the principal bottleneck in achieving those business objectives was customer satisfaction.  

Now today things might be different at Analog.  More than a hundred fold increase in stockholder value (that's right folks, 11/2/90 stock price: 15/16ths (split adjusted), 6/19/00: 98 ) has been created and customers are lining up to buy their products (leadtimes on some released products are being quoted in years, rather than weeks).  So employee satisfaction, given the tight labor market and the allure of current batch of high tech startups, might have risen to the top of the list.  But then, it was the customer, the customer, the customer.  We also knew that customers were choosing suppliers on this elusive basis called value.  The biggest challenge we faced was defining what they meant by it, and that marked the principal way in which the scorecard story evolved between 1986 and 1991.

But we also began to recognize that there was not a simple connection between what we had identified as the external levers (the importance weighted gaps in meeting customer requirements) and the internal levers (the internal processes having the greatest effect on closing these gaps).  The stumbling block in making the connection was the absence of a one-to-one relationship between internal and external levers.  In other words, the internal lever could not be actuated independently.  For example, a person working on yield improvement knew that their efforts would impact several external levers.  They also new that those working on other internal initiates could do the same.  They audit trail became muddy and so did the resulting story.

As a system dynamics student since the early 1970's, I was well aware of causal-loop diagrams.  But I believed then (and believe now) that they are of very limited value in clarifying these types of multiple relationships.  Furthermore, and most importantly, they gave no indication of the strength of the relationships.  And so I turned to one of the of 7 Management and Planning (7MP) Tools developed in Japan in the late 1970s: the Matrix Diagram.  It allowed me to pictorially capture not only the existence of a relationship, but also its strength.  The needed decoder ring was that a circle-within-circle was used to symbolize a strong relationship, a single circle alone was for a moderate relationship, a triangle represented a weak relationship and a blank cell corresponded to in insignificant or nonexistent one.

This matrix proved invaluable in telling the scorecard story.  Ask that same person who's working on yield improvement "why are you doing this?" and they'll likely tell you: 

"By improving yield, and reducing yield variability I'll be helping to improve our delivery performance and helping us to grow in new, cost competitive markets.  Also, it will help the manufacturing people reduce lead time since they'll be better able to plan production.  And the quality folks tell me that low yields and high yield variability is an important contributor to our defects.  All of these improvements will make our customers happier and they'll want to buy more of our products.  The more they buy, the more money we'll make and the faster we'll grow.  And the more Analog makes, the bigger my quarterly bonus and when we add that new fab, I'll have a good chance of promotion to fab manager."

Now to me, that's the telling of a great scorecard story.