Analog Devices

Analog Devices, Inc.

Background Analog, from 1981 – 1996, experienced growth, stagnation, and suffered its first loss ever. During this time period, management decided to implement a corporate scorecard to try to meet the needs of the changing market. From 1983-86, Analog was having problems with quality of production – on time deliveries were under 60%, process yields were below 10%, and customers were complaining. Management wanted to implement TQM but gave it to HR instead of hiring additional people. The process did not get beyond managers reading books. Analog sales and revenues were stagnant and at a time when the rest of the industry was growing. In 1986, Analog hired a VP of Quality and Productivity Improvement. Other managers were still skeptical of the process mainly because of a perception of a conflict between quality goals and financial performance. The VP had a theory called the Half life concept that stated that any process could experience a 50% reduction in defects when submitted to legitimate QIP during a consistent time frame. Goals were created from customer expectations and the half life process. Managers laughed at the goals but Analog pushed through anyway. The scorecard was placed on a single sheet for ease of viewing. They also changed from strategic planning every five years to every year planning a five year strategic plan. Each division created its own scorecards at various levels and put more emphasis on non-financial measures that they felt they could impact. Even though the scorecard was in place, financial performance continued to degrade, but the scorecard looked better. Management said that the losses would have been worse without the scorecard. Management began to change to modify the culture due to the financial dip. They wanted to create a customer orientation. The president also became more active in the process. However, QIP focused on cutting costs and most managers felt that cost had been reduced as much as it could be. They felt they should be focusing on revenue enhancement. Then, Analog started experiencing high growth and profitability but quality measures were declining.

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1965 by Stata and Lorber, both techies, with OP amps 1969 acquisition with digital capabilities in the AD/DA area, went public, 70’s introduction of new products hybrid Ics, high speed components and TV ckts, CMOs and had many subsidiaries.

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1983-1986 TQM by HRM failure

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Serious process problems due to diversification of products, IC product directly tied to the process in terms of design rules, layout, process, packaging, and testing.

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1986 Schneiderman Quality VP, Half life, decrease at constant rate so that a log plot provides a linear decrease

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Scorecard with specific and aggressive targets presented, no management support

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Divisional scorecards followed, measurement is key of success focused on process and cost reduction

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1980-1990 Sales growth, scorecard improvement, losses in 1990 due to market, layoff 10% employees

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1987 Product orientation was introduced Jerry Fishman -> critical success

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1991 40% products were new in just 5 years

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TQM culture in place by Schneiderman but no focus on value

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Analog was product oriented and not customer oriented

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1990 Stata got involved making improvements everybody’s responsibility

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1988 Gral Mgr of Semiconductor Division - Suttler grew through management ranks into QIP. Measurement helps improvement, and then it becomes obsolete loosing its value.

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Value growth tied to QIP, involved people into strategy development

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Capabilities employee turnover 7%, with 90% ramp-up within 3 months.

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$300M in new products with 45% gross margin

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Critical area being DSP

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Business drivers supported by objectives

Current Situation With the changing of personnel, a new VP, Suttler, came into play. He grew up in Analog and, while originally a skeptic, saw how QIP could work. He believed there was a performance paradox – all performance measures will eventually degrade, therefore the measures must keep up with improvements that are made. This guy noted that QIP had worked fairly well at improving wealth reducing activities, but it doesn’t naturally cause wealth creation activities. With this in mind that added Hoshin Kanri to the scorecard. This idea, from Japan, focuses improvement on one or two breakthrough objectives, but is hard to do. It did seem to help with on time delivery for platinum products and sales from new products. They began focusing on planning to help in wealth creation using a program from Hewlett Packard called the 10-step planning methodology. This changed planning from centralized to multiskilled teams within the organization that would actually implement the plans. These plans are now more important than the scorecard. Using Hoshin, specific goals are now translated into specific and measurable objectives. Analysis Analog has obviously been through a long process of developing tools to help them control their business. They started with the correct end in sight, but lost focus due to lack of commitment from management. The measures were primarily financial at first but grew to include non-financial measures later. As the financial performance of the company continued downhill, they became convinced that QIP was not working and needed something else, like Hoshin even though the QIP measures were improving. While part of the problem is financial, the big problem is that their focus changes too often. The scorecard is supposed to give the overall big picture, not just pieces. Recommendations

They need to focus on what they want. Hoshin is a good start on the individual pieces but they can’t lose focus on the QIP measures either. What they need is BALANCE, especially in what niche they will play. If they go to mass production they need to focus on optimizing their process If they want to diversify their products they need to concentrate on process flexibility and a force of designers with multiple capabilities to support the different processes Product focus marries them to a product They should study their current core competencies and decide based on those what products best serves them. DSP is definitively a very good decision because of the acquisition gave them capabilities in the digital and analog arena.