ANALOG DEVICES INC

Part 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) ADIs corporate scorecard was recognized as management best practice

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

Problems faced in mid 80s Growing inventory Increase in defect level of product ADIs strategy in 2nd half of 80s Emphasis on quality QIP : Half-life by implementing TQM Scorecard
Plan

Act

Do

Check

TQM OUTCOME
Parameter On time delivery Cycle time Measured improvement Increased from 70% to 96% Decreased from 15 weeks to 8 weeks Increased from 26% to 51%

Average yield

Defects in products shipped

Decreased from 500PPM to 50 PPM

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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?

Benefits of half life:

HALF-LIFE AS A TOOL Goal setting tool BENEFIT Rational determination of future performance Benchmarking improvement efforts against best practice for processes of similar complexity To make comparisons with alternative methodologies.

Diagnostic tool

Measure of organizational learning

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

IMPLEMENTATION OF HALF-LIFE

Half Life Rate of decline of defect level is constant over time

Learning Curve With doubling of cumulative experience the unit cost drops by a constant percentage Concept generally deals with cost

Concept generally deals with defects

Defect reduction owing to Cost reduction owing to a root cause being the same action being eliminated and performed repeatedly subsequent tackling of the next root cause

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:ADIs 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 NONFINANCIAL MEASURES?

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

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

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New Products

NP introduced
NP bookings NP breakeven NP peak revenue

Help determine the pace of innovation at ADI

Time to market
QIP

On time delivery
Cycle time Yield Defects Employee productivity Turnover

Help measure the operational operational and human resource effectiveness of ADI ADI

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

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 ADIs 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
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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 ADIS 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 ICs Leverage core technology to develop innovative products

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Managerial compensation can be linked to EVA.

CUSTOMER
1.Non- conformities 2.Adhoc-requests 3. Customized solution 4. Customer satisfaction

FINANCE
1.Growth 2.Growth through old & new customer 3. EBIT 4. Profit margin 5. Operating result

ADI Inc.

INTERNAL PROCESS
1. Contractual conflicts. 2. Deviation from budget. 3. Update web report. 4. Procurement

LEARNING
1. Training 2. Employee development 3. Personal turnover. 4. Customer base

THANK YOU
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