In 1987, by his own account, Arthur Schneiderman built what he would later call the first balanced scorecard. He was vice president of quality and productivity at Analog Devices, a maker of integrated circuits, and an experienced examiner for the Baldrige quality award.
His corporate scorecard kept the high-level financial measures Analog’s executives were used to. Beside them it put measures of quality, grouped, as Robert Kaplan later described it, into three more areas: customers (on-time delivery, lead time, defects that customers found), manufacturing (yield, defects per million parts, cycle times) and employees (absenteeism and lateness). Many came with aggressive improvement targets set by a method Schneiderman had devised, the half-life method, based on how quickly the gap to a goal is cut in half.
Analog went public with part of it. In 1988, Schneiderman wrote, the chief executive, Ray Stata, published the company’s five-year non-financial scorecard for 1987 to 1992 in the Sloan Management Review, committing in print to specific improvements in delivery, yields, defect levels and cycle times. Analog came within days of putting the whole scorecard in its annual report as a regular feature. It cancelled at the last minute, out of concern that “Wall Street” was not ready.
In 1989 Kaplan, a Harvard Business School professor, came to write a case about the improvement method. While visiting, he found the scorecard. In 1990 he was a consultant to a research project on performance measurement at Nolan, Norton & Co., led by David Norton, in which executives from about a dozen companies met throughout the year. Schneiderman gives the date of his talk to the group as July 19, 1990.
Kaplan described the end of it in a 2010 paper. Asked how the company was doing with its quality metric and corporate scorecard, Schneiderman said that every quality measure on the scorecard had improved dramatically. He also noted that Analog’s stock price had decreased by nearly 70 percent during the previous three years.
The company, Kaplan wrote, had failed to turn better manufacturing and delivery into more sales and higher margins, and the scorecard’s lack of any link from its quality gains to customer outcomes “likely contributed” to the loss. Kaplan and Norton took a lesson from it: a measurement system had to link operational improvements to customer and financial performance. The participants spent 1990 trying the scorecard in their own companies, and in January 1992 Kaplan and Norton published “The Balanced Scorecard: Measures That Drive Performance” in the Harvard Business Review.
Schneiderman read the same years differently. In a 1999 article titled “Why Balanced Scorecards Fail,” he plotted Analog’s percentage of late shipments against its stock price over seven years and found what he called a good correlation, running the wrong way: as delivery got better, the stock dropped. After 1993, he wrote, delivery got worse and the stock rose to a split-adjusted peak of around $100 in 1998. He offered two explanations, the semiconductor business cycle or a lag of more than five years, and said settling it required analysis that remained “unconvincing.” Management, he concluded, had to take the link between the two sides of the scorecard on a “leap of faith.”