Beyond Management by Objective: A Look at Hoshin Kanri (Part 2)

Hoshin Kanri (HK) is a method for translating long-term vision into manageable methods and actions. But beware conflating Hoshin Kanri with the ‘right way’ to do MBO - here's why. Part II in the Beyond MBOs series in The Deming Files.

Editor’s note: This article builds on ideas first introduced in a column written by Kelly Allan and Ken Craddock in July 2011: "Organizational Sabotage – The Malpractice of Management by Objective." Readers requested that the authors write additional columns on the topic, especially in regard to "what to do instead of MBO", and "is there a right way to do MBO?"

This is the second of two columns written by Ken Craddock to answer the question "what to do instead" by exploring the value of Hoshin Kanri in the context of Dr. Deming and Dr. Drucker. Click here for Part 1. Kelly Allan’s columns will follow in a few weeks and address "Is there a right way to do MBO?"

Hoshin Kanri Applied

It was suggested in Beyond Management by Objective: A Look at Hoshin Kanri Part I that hoshin kanri (HK) is a viable method for translating long-term vision into manageable methods and actions. Another benefit of HK is that it fits well within the framework Dr. W. Edwards Deming’s System of Profound Knowledge (SoPK). (For more information see the Deming Files series which elaborates on SoPK.

Rather than one-way downward communication of the current model of management-by-objectives (MBO), hoshin kanri relies on ‘catchball’ to gain two-way consensus on the deployment of targets and long-term strategy in a team environment.

Please keep in mind that Dr. Deming was always concerned about the negative impact of "targets." In MBO, targets take on a make or break mandate – hit the bull’s eye or fail. In HK, targets are different and are respectful of Deming’s concerns. In HK a target is something we believe we can achieve because we have examined our methods and processes, and we believe we are capable of achieving the targets perhaps via continual improvement –and without the negative, destructive impacts that come when methods are not considered. In other words, in HK we believe we can hit the target –perhaps not the bull’s eye, but we’ll be within the rings of the target.

In Japanese organizations using HK a planning team is created at each of three levels: executives, middle managers, and unit bosses. This process is vertical rather than horizontal, and it entirely involves strategic planning, not just implementation orders handed down from on high. The HK strategic planning framework is based on a version of Shewhart’s PDSA (Plan-Do-Study-Act) cycle. In HK it is: FAIR (Focus, Align, Integrate, Review).

‘Catchball’ comes from baseball - and it means just that - tossing ideas and plans back and forth between planning teams from all three levels. The Japanese use two terms to describe their plans: black and grey. ‘Black’ means set in stone, agreed upon by all parties, to be implemented. ‘Grey’ means under development, to be refined, still open.

Long-range targets are included as strategy at the top of the organization in this process (Focus). HK requires that just a few long-term strategic programs (1-3) be selected for achievement in the current year. This tight selection requires real strategic thinking and prioritization on the part of top executives. The executives on the top team must answer the tough question, "What must be done now in order to open strategic possibilities in the future?" Deming used to say, "Every system must have an aim." In other words, the aim must come first. The system is designed and created to achieve the aim. Professor Drucker made similar observations.

The next step is the assessment of the means to achieve the targets and the deployment of both (Align). The Align step creates a plan to bridge the gap between what a company is today and what it should be in the future. It includes active participation. Most importantly, through the two-way feedback process hoshin planning includes what MBO wastes most of all – organizational knowledge, experience, and creativity.

In HK the few long-term objectives must be integrated within daily management and achieved THIS year (Integrate).

The key upper-level benefits of HK include the:

• integration of financial goals with operating goals
• achievement of interim steps toward long-range competitive strategies on a regular and short-range basis
• real options for keeping decisions flexible for the future, and
• creating the infrastructure necessary to co-ordinate and integrate skills and resources.

At the middle level the two-way process gives middle managers strategic participation, the flexibility (i.e. discretion) to work towards the achievement of agreed long-term objectives in ways that they see are most effective for the business, overall. This also relieves some of the undue pressure of being in the middle.

The key lower-level benefits include:

• transparency
• clarity of expectations
• continuous training
• a common language for involving everybody in the strategy, and
• being true to Deming: elimination of exhortations and slogans to work harder --and elimination of arbitrary targets from above

Hoshin Kanri vs MBO

Hoshin Kanri brings long-range strategy implementation to the operating level where MBO does not. It forms a two-way street. HK thwarts destructive arbitrary targets via thorough examination and by asking the ultimate reality-check question – ‘By what means?’ In contrast, MBO as practiced sets arbitrary targets, avoids the reality-check questions, and focuses on short-term compliance –that unfortunately leads to the long-range failure.

Some USA managers have conflated hoshin kanri with the ‘right way’ to do MBO. It is not. Among the serious defects of MBO is the tendency of top management to focus on results to the exclusion of process or methods and on financial measures to the exclusion of operational realities. MBO is annual, judgmental, and does not get integrated into the next round. One result of the MBO can be that a bonus is awarded – or it is not and the employee or manager is fired. With MBO learning about what did not work (and why) is not valued nor preserved within the organization.

If you're not hitting your targets, does your company value information about why?

A quick note on the annual nature of the assessment of progress: there is nothing magical about a 12-month cycle. It may be that our agricultural heritage with its annual cycle continues to manifest itself in our thinking and planning. In any case the annual cycle has become the defacto way to be in sync with other organizations throughout the world.

With HK the results are the outcome of system-wide efforts. The end-of-year audits are never used to judge or to blame. Instead, these reviews focus on the key long-range strategic steps – ‘What has been achieved this year? What has been learned this year about the aim? What needs to be done next?’ Each top level review begins the next annual planning cycle. HK is about the future, not the past. With HK it is about system learning and improving to get better results, not about results lifting - or ruining - individual careers.

Thus, hoshin kanri ensures a living future for the workers and for the firm. So, what are you waiting for? The living future requires leadership.

Copyright 2011 by Ken Craddock.

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Editor’s Note: The columns published in THE DEMING FILES have been written under the Editorial Guidelines set by The W. Edwards Deming Institute. The Institute views these columns as opportunities to enhance, extend, and illustrate Dr. Deming’s theories. The authors have knowledge of Dr. Deming’s body of work, and the content of each column is the expression of each author’s interpretation of the subject matter.