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I fail to see the difference between hoshin kanri and the strategic planning we used to do. What am I missing?

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Probably nothing – any tool holds the same potential for bureaucratic nonsense if not used with common sense, and hoshin kanri (HK) more so than others. Toyota is a global automotive manufacturer that asks the right questions, and has developed a number of tools to bootstrap its learning. Yet, with any new tool coming out of Toyota we should careful about how it translates to other environments. HK has been around for decades and used to be known as policy deployment – the risk of interpreting it as cascading objectives from strategy planning is very real.

I’m by no means an expert on hoshin kanri, but the CEOs I work with do try to use some aspects of it for their own internal questioning and direction. From their perspective, what would distinguish HK from the strategic planning they used to do (to varying degrees)? The four main aspects that come to mind are:

  1. Customer gemba focus: starting the thinking and planning process with a hands-on understanding of customer issues and figuring out where we could benefit our customers further.
  2. What do we need to improve? HK targets should be clear, concrete improvement targets as opposed to wishful thinking “what we’d like to do.”
  3. Gemba control points: where will we see on the gemba that our HK efforts are bearing fruit – do we know exactly what we’re looking at and do we have the right visual management in place so that everyone can see the same?
  4. Clear PDCA topics for every middle-manager: The high-level change must be broken up into small, every day operational changes, which will be middle-management’s job to carry out. To do so, and to learn, we have to make sure these smaller changes are carried out within a PDCA framework to learn together.

CEO Struggle Points

True customer focus is rare and difficult. Listening to customers is hard and hearing them is even harder, particularly since what they say they’d like is rarely what they really want (and are ready to pay for). In figuring out what “following customers” really means, most CEOs struggle with four distinct intents:

  • What customers say they’d like: Customers want always more of everything, and then you find out that when you offer it to them, they simply ignore it. This doesn’t mean we should ignore what customers tell us, but that it should be taken with some caution.
  • What they really use: In any product or service, customers really use a small part of functionalities (although different customer groups might use different ones, hence the need for good segmentation). Figuring out what customers really use is a full-time gemba effort. A good place to start is customer complaints where customers make an effort to educate us about what they try to do with the product or service.
  • What we’d like to do: Every organization, whether large or small tends towards inward looking wishful thinking -- politics make that unavoidable, as staffers are eager to anticipate what their bosses would like and to present it to them as their idea (or get consultants to do so). This is not necessarily a bad thing. As Henry Ford once quipped, if he’d listened to his customers he’d have tried to come up with a faster horse. Still, being clear about what we’d like to do is important to surface many hidden assumptions in the hoshin kanri process. Groups are always, always tempted to dress their collective wishful thinking in rational clothes to make it more palatable to themselves and stakeholders – watch out for that one.
  • What partners expect from us: No organization is an island and there are plenty powerful players from shareholders to regulatory bodies to key suppliers who have their own ideas of what we should do and pressure us into doing so. They’re not always wrong, and they sometimes have the clout to push their agendas forward– spelling it out clearly is an important step to understand (and withstand) the pressure.

These four circles rarely intersect and the CEO and her team must keep these questions in mind as they walk customers’ gembas and their own operations. There are no 100% conclusive answers, ever, and the world out there changes faster than we can change, so this is an endless open question. Yet, if we get this wrong upfront, the hoshin plan will be nothing more than a formal exercise to validate senior management hunches, rather than a true attempt to ask ourselves the hard questions and look for hard answers.

Once customer issues are clear(er), the second trick to HK is to express these in terms of improvement challenges. For example:

  • Reduce warranty claims by half
  • Shut down a stock-holding warehouse
  • Reduce total cost of one product by 10%
  • Double the number of accepted suggestions

Certainly, certain HK goals will be about doing something new, but most HK goals will be challenging improvements that will force us to do something radically better. In general, HK goals should be some form of step improvement in quality, security, flexibility, or productivity. Sure, some new offering activities will also be part of the hoshin plan, but I’m always suspicious of any plan that doesn’t squarely highlight aggressive improvement challenges. Real innovation capability stems from hands-on operational know-how and before we try new tricks we’d better be sure we master the olds ones and deliver on our existing promises before making new ones.

Thirdly, the exercise remains boardroom paperwork unless it’s brought to the gemba. How will we see at the workplace that the needle is moving on our HK goals? How will we involve every one in seeing the same thing? Visual management is a core element of HK in terms of physical control points. If we’re talking about halving the warranty claims, where is the war room devoted to warranty claims and following progress? If we’re shutting down a warehouse, can we go there and look among the racks to understand the inventory reduction strategy and how fast we’re going about it?

Gemba control points are a key difference between HK and strategic planning because we don’t rely on financial reporting to have some notion of whether the plan is going well or poorly. Also, control points are a key tool to communicate to others what we’re trying to do. As the saying goes “what gets measured gets done,” but, more to the point, “what the boss looks are regularly gets paid attention to.” Gemba control points are half the battle in making real improvement happen.

PDCA vs. Action Plans

The final HK specificity I’d insist on is the difference between PDCA activities and action plans. The temptation with “strategic deployment” or “policy deployment” is to establish clear goals (or clear wishful thinking – often hard to make the difference) and then build action plans, which frontline managers will have to execute. As I suspect from your question, you’ve had experience with those and you know how things turn out.

The hoshin kanri process, as I understand it, is fundamentally different in that it asks each manager for a PDCA activity related to the larger goal. There is no intent to add all these activities and somehow reach the goal from the sum of our actions. We understand these problems are complex and that something fundamental will have to change to get this order of result (if it was easy, we’d done it before). The aim of PDCA activities is to learn piecemeal to understand the problem better.

In the obeya room, we’ll see the indicator corresponding to the high level improvement goal (quality, security, flexibility, productivity, innovation) and then several PDCA activities (often written up as A3s) that look into different aspects of the problem. What tends to happen is that after exploring and discussing the issues, the team usually sees the leverage point they need to invest on – mostly with training – that will change the way the process works and thus what results it delivers.

In the previous examples, by exploring various instances of warranty issues, we’ll finally figure out the main weakness of our products and do what it needs in terms of value analysis in production and value engineering in development to improve things. To shut down the warehouse, we’ll have to figure out which scheduling practices lead to storing products – mostly to do with procurement habits and wrong forecasting guesses and so on. The point is that the goal is not achieved through the execution of an action plan but through discovering what the real weakness is in our existing knowledge and processes and tackling that.

Hoshin kanri is not specific to lean or Toyota – it became popular in Japan back in the 1950s. The intent then was to realize that each person was an expert in their (admittedly narrow) field and to somehow use the power of collective thinking to turn the firm into the best in its field.

The idea is to focus on shared goals, to make sure everyone understands these goals and to involve the management line in the planning of how to achieve these goals (as well as making managers accountable for their part of the plan.) Nonetheless, just as with the strategic planning we all grew up with, the make-or-break aspect is whether we’ve identified the correct business issues. Expressing business problems in terms of improvement goals is a safeguard against management wish fulfillment and a true instrument for learning: as we try hard to improve, we’ll understand far better the real terms of our business. As you correctly surmised, HK can have the same drawbacks than old fashioned strategic planning if not rooted in customer gemba and the spirit of kaizen.