ANALOG DEVICES INCPart A

Leading manufacturer of Integrated circuits Technology leader and was first to market

many innovative products From 1981 through 1996 company experienced

both growth and stagnation achieving record profits and first ever loss

Extremely robust MCS Total Quality Management (TQM) ADI’s corporate scorecard was recognized as

management best practice

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Q1. WHAT WAS ADI’S STRATEGY IN THE 2ND HALF OF 1980’S?

Problems faced in mid 80’s Growing inventory Increase in defect level of product

ADI’s strategy in 2nd half of 80’s Emphasis on quality QIP : Half-life by implementing TQM Scorecard

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TQM OUTCOME

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Parameter Measured improvement

On time delivery Increased from 70% to 96%

Cycle time Decreased from 15 weeks to 8 weeks

Average yield Increased from 26% to 51%

Defects in products shipped

Decreased from 500PPM to 50 PPM

Q2A. EVALUATE HALF-LIFE CONCEPT.

Q2B. WHAT ARE ITS BENEFITS & LIMITATIONS?

Q2C. HOW IS IT DEVELOPED FOR DIFFERENT PROCESSES?

Q2D. HOW IS IT DIFFERENT FROM EXPERIENCE CURVE CONCEPT?

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Benefits of half – life:

Limitations of half life concept Difficult to determine half life as it is dependent on

technical and organizational complexities Calculated based on historical data which may not

give a very clear picture

HALF-LIFE AS A TOOL BENEFIT

Goal setting tool Rational determination of future performance

Diagnostic tool Benchmarking improvement efforts against best practice for processes of similar complexity

Measure of organizational learning

To make comparisons with alternative methodologies.  

IMPLEMENTATION OF HALF-LIFE

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Half Life Learning Curve

Rate of decline of defect level is constant over time

With doubling of cumulative experience the unit cost drops by a constant percentage

Concept generally deals with defects

Concept generally deals with cost

Defect reduction owing to a root cause being eliminated and subsequent tackling of the next root cause

Cost reduction owing to the same action being performed repeatedly

Q3A. IDENTIFY THE CONFLICTS THAT EXIST BETWEEN QIP MEASURES AND THAT REPORTED BY FINANCIAL SYSTEMS?

Q3B. WHICH NUMBERS SHOULD WE BELIEVE ?

Q3C. CAN THEY BE RECONCILED ?

The major conflicts between the QIP and the financial measures are:- ADI’s incentive and performance evaluation

systems were based on the financial measures only QIP measures emphasized on the cost reduction

whereas the financial measures were more inclined towards revenue enhancement

QIP measures were more useful for evaluating the performance of the cost centers whereas financial measures could more effectively capture the performance of the profit centers

QIP measures were not given much importance as these are mere avenues to achieve higher financial measures

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Q4A. CRITICALLY ASSESS THE USEFULNESS OF CORPORATE SCORECARD.

Q4B. WHAT ROLE DOES EACH MEASURE PLAY IN STRATEGY EXECUTION?

Q4C. WHAT SHOULD BE THE RELATIVE IMPORTANCE OF FINANCIAL VERSUS NON-FINANCIAL MEASURES?

Scorecard is a blend of financial v/s non-financial measures.

ADI’s corporate scorecard assesses the performance of the company on Financial, New products and QIP measures by comparing targeted value with the actual value.

Role of each measure:-

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Financial

Revenue Help determine the financial performance of a company and also how effectively assets are employed

Revenue Growth

Profit

ROA

Non-financial measures are used at low levels for task control

Financial measures are used at high levels for management control

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New Products

NP introduced Help determine the pace of innovation at ADINP bookings

NP breakeven

NP peak revenue

Time to market

QIP

On time delivery Help measure the operational and human resource effectiveness of ADI

Cycle time

Yield

Defects

Employee productivity

Turnover

Q5. EVALUATE THE MANAGEMENT PLANNING & CONTROL SYSTEMS AT ADI DURING 1990-95 IN LIGHT OF ADI’S STRATEGY IN 1ST HALF OF 1990’S

In period 1990-95 the emphasis shifted from cost reduction (QIP) to wealth creation

New dynamic measures were introduces to measure performance

Hoshin became a guiding philosophy

Complementing ADI’s scorecard, key success factors were introduced to measure milestones related to companies business plans

New planning system was introduced where planning was done by teams rather than being done centrally 16

Q6. DO YOU AGREE WITH THE COMPENSATION PHILOSOPHY OF ADI?

Compensation not linked to the performance on the scorecard ,as the performance measures change quickly owing to the dynamic environment

Senior management compensation was based on stock price performance

For all other employees compensation linked to revenue and the operating profit

Hence, individual performances were not appreciated

So we do not agree with the compensation philosophy.

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Q7A. DESCRIBE ADI’S STRATEGY AS OF 1996.

Q7B.HOW SHOULD SCORECARD & OTHER MANAGEMENT SYSTEMS CHANGE IN 1996 TO BEST FIT THE STRATEGIC NEEDS OF THE COMPANY?

Analog was pursuing a four pronged strategy in 1996

Expand traditional SLIC business

Increase the market share in the DSP IC market

Pursue growth opportunities for system level signal processing IC’s

Leverage core technology to develop innovative products

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Managerial compensation can be linked to EVA.

THANK YOU 22