The First Balanced Scorecard
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THE FIRST BALANCED SCORECARD
The first balanced scorecard was created in 1987 at Analog Devices, a mid-sized semiconductor company. This e-book chronicles its development over the period of 1986-1992. . It resulted from a logical process that started with Analogs written Corporate Objective, which articulated its strategic commitment to its five major stakeholder groups: communities, customers, employees, stockholders and suppliers. Gaps in stakeholder satisfaction provided the external perspective, and were mapped into required process improvement to provide an actionable internal perspective. The resulting Corporate Scorecard provided a rallying flag for efforts that led to dramatic improvements in customer satisfaction and operating efficiency, the focal points of Analogs strategic objectives, and contributed in part to a hundred-fold increase in shareholder value. It started during his stay at analog from 1986 to 1992, at this time he was the owner for non-financial performance measurement and the balanced scorecard. The main objective was to provide periodic data that will demonstrate how performance measurement can be link with the overall objectives and corporate strategy in other to improve the organizational infrastructures.
The development process involves a three (3) phase or stages:
The first phase is the gestation period which is between 1986/1987: developing the five year plan, which include the defining the drivers of success, organizing for success, linkage to the annual business plan and refining the scorecard.
The second phase includes internal communications: spreading the word, The CEO goes public: 1989 Sloan Management Review Article and External communications: telling the ADI Story.
The third phase includes Evolution of Analogs balanced scorecard: 1987-1990 and Analogs version of the strategy map: 1987-1990.
STAGES IN DEVELOPING SCORECARD
Step 1. Set Overall Strategy and Primary Drivers
Individual Metrics. Individual metrics should be linked and controllable. Key performance indicators must have strong and clear linkage with the organizations vision, strategy, and goals. They must be owned by those who will be accountable. Finally, individual metrics must be measurable, with easily tracked available data. “Make sure that each key metric is measurable, controllable, and focused.”
Metric Sets. When utilizing a set of metrics, make sure they are balanced and focused. Key performance indicators must be balanced to include financial and nonfinancial metrics, as well as leading and lagging indicators. Performance should be assessed on the “vital few” key performance indicators, not the “trivial many” indicators.
When dealing with a set of metrics, there is need for setting appropriate targets. Targets must be set appropriately so that they are a stretch, but achievable; they should be reviewed frequently.
Organizational Entrenchment. Another area of importance is organizational entrenchment, which should be cascaded up/down so that achievement of lower level key performance indicators ensures the organization reaches its goals. It is also critical to achieve organizational buy-in, which requires that each organization accepts the metrics and targets.
Step 2. Filter to Vital Few Indicators
It was time to filter down to the “vital few” key performance metrics, which can be a challenging step in the process for fleets that track a large amount of data. The BSC suggests fewer than 15 key indicators, so this was