Analog Devices, Inc.
Essay title: Analog Devices, Inc.
1. Strategy in the second half of the 1980s: Having innovative, high-quality products and being a reliable, responsive supplier.
2. (1) Benefits of the “half-life”: it will encourage the company to reduce cost and defective rates. The total quality of the production has been improved.
(2) Limitations of the “half-life”: it focuses only cost, not revenues. The quality goals and the company’s goals were in conflict. Half-life made the whole company centered on the quality improvement, while other key factors were ignored.
(3) The half-life is not the same for all processes. It depends on the complexity of the process. There are two dimensions to complexity: technical and organizational. Technical complexity is high for new technologies, where part of learning process is related to understanding and refining that technology. Over time, as the technology matures and its use becomes more routine and familiar, technical complexity declines. Organizational complexity arises when a process has linkages to processes outside of its boundaries. These processes may be internal or external to the organization. The linkages may be one-way, one-time or interactive, routine or requiring real-time negotiation. So processes can run the full organizational gambit, from completely self-contained to cross-functional or cross-organizational. As the cultures, goals and objectives of the various players come into potential conflict, the rate of improvement will be expected to slow.
(4) Differences between the half-life concept and the experience curve concept: the experience curve, like the half-life, is also an empirical observation. It states that for each doubling of cumulative experience, real unit cost drops by a constant percentage. Half-life deals with defects, not cost. The half-life method, on the other hand, predicts that the rate of decline of defect level is constant over time. The experience curve is a purely empirical observation and is not based on any underlying theory. On the other hand, there is a theoretical basis for the half-life model.
3. The conflicts that exist between the QIP measures and the measures reported by the financial system: the goals of the QIP were not reflected in the financial system and the financial system can’t be used to measure the QIP results. The QIP measures the defects level, which is not reflected in the financial system. Financial statement numbers should be believed because these numbers would be used publically and they are the measurements of the company’s total performance. Actually, the QIP measures and the financial system could be reconciled. For example, warranty expenses, defective returns, or penalty for not meeting customers’ requirements can be added to the financial statements to reflect the QIP measures.
4. (1) The usefulness of the information contained in the corporate scorecard: a comparison of revenue, revenue growth, profit, ROA, new products elements, and QIP elements could be seen from the scorecard for the actual numbers and targeted numbers. These scorecard measures are related with the strategies of the company. For the element of financial, revenue growth and ROA can be used to measure the growth of the company, which reflected the goal of the company. ADI also set a strategy to prove customers innovative products, which could be reflected from the element of new products. Quality control is the focus of the strategy of ADI during 1986~1990, which was reflected in the part of QIP. ADI was trying to be a reliable, responsible supplier during that time. This was reflected in the scorecard too.
(2) Financial measures in a company are usually standardized. Each department will use the same elements. Normally, this measurement could also be used to compare with the competitors. Nonfinancial measures are not as sophisticated as financial measures. A lot of companies were driven by changes in nonfinancial areas. These nonfinancial elements will eventually impact the companies’ financial performance. However, it is very possible that company will fail to incorporate the nonfinancial measures into their executive level performance reviews because