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Analog Devices: 1986-1991

The First Balanced Scorecard

by

Arthur M. Schneiderman

Phase 1: 1986/1987 - The Gestation Period

Linking to the Annual Business Plan
It was pretty obvious that the QIP Strategic Plan, by itself, was insufficient to assure achievement of our overall strategic objectives.  It would be too tempting, because of the daily press of other business, to delay QIP implementation, given that the only checkpoint was years away.  So in August of 1987, I proposed a modification to our traditional annual planning process (see August 1987 Benchmark Planning Proposal), whose output we called the "Benchmark Plan."  Where it got that name, no one seems to know.  It had nothing to do with benchmarking as practiced today.  The plan was typical of most companies annual business plan and dealt principally with the annual financial budgets of the various business units.  

One slide in that presentation, I called the Quarterly Performance Audit.  This was the prototype of Analog's first Balanced Scorecard (c. 8/20/87):

The basic idea in creating the scorecard was to integrate financial and non-financial metrics into a single system in which they did not compete with one another for management airtime.  Prior to this scorecard, the financial and non-financial results were reviewed in separate meeting agenda items.  Whichever came first on the agenda was perceived as the higher priority.  By combining them this unproductive tension was greatly reduced (see How the scorecard became balanced).

My proposal was adopted and we proceeded to use it as the template for our FY1988 (November through October) Benchmark Plan.  The resulting "Scorecard," as it quickly became known, became the first "official" balanced scorecard (c. fall, 1987)

Note that this scorecard contained financial (revenue, revenue growth, profit and ROA), customer (on time delivery, leadtime, outgoing PPM (quality)), internal (cycle time, yield, process PPM, cost, employee productivity), and learning and growth (new product intros, new product bookings, new product booking ratio (% bookings from products introduced in the most recent six-quarters), new product average 3rd year revenues (average revenue in third year after into), time-to-market and employee turnover).  These constitute all of the elements that today's scorecard promoters deemed essential to an effective balanced scorecard.

As part of the annual planning process, each division and sales affiliate generated there own version of the scorecard.  My job was to make sure that they all added up to the corporate plan and that that plan was moving us at an acceptable rate (based on my half-live model, of course) toward our long term goals.  As an additional integration step, starting with Q1 1988, the scorecard and its associated metrics were included as a regular section in the "Red Book," Analog's internal report of quarterly results.

Development of metrics proceeded in parallel with that of the scorecard.  What emerged from was a disciplined approach to performance measurement.  The following slide summarized the state of our measurement system (c. 1987):

The metrics in the yellow boxes existed by the time we deployed our 1988 scorecard.  Most of the remaining metrics were developed during FY1988.  Note also that the symmetry of this slide shows the implicit balance between financial and non-financial measures that was always present in Analog's scorecards.

The continuing interplay between metrics definition and Analog's scorecard can not be understated.  For example, it quickly became apparent that Analog had two, very different businesses: integrated circuits and assembled products.  Consolidating process PPM results for these businesses to the corporate scorecard would be mixing apples and oranges.  Therefore later corporate scorecards tracked these two businesses separately.  

Measuring overall employee turnover, an assignment given to the HR Advisory Committee, proved relatively straightforward.  Dividing the total turnover into its voluntary and involuntary components, on the other hand, was extremely difficult.  Yet this division was essential in order to identify root causes and corrective actions, as well as to set appropriate goals.  This problem eventually led to the elimination of this metric from the scorecard, not because it was unimportant, but rather because we found it to be unmanageable.

A similar problem existed with the creation of new product development metrics.  I will not get into that here, suffice to say that we found it necessary to supplement our scorecard metrics with a revenue model that tracked individual products rather than aggregate numbers.

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1999-2006, Arthur M. Schneiderman  All Rights Reserved

Last modified: August 13, 2006