Hoshin Kanri and Policy Deployment – Demystified

Companies routinely struggle with how to link new found Lean approaches to their traditional annual strategic and tactical planning.  It seems our usual annual business planning continues to drive an “islands” mentality in the form of functional goals that get in the way of a value-stream based team approach to improving business processes.  As a consequence, it is difficult for managers and supervisors to see the need for cross-functional improvement initiatives that don’t directly support their objectives.  What can result is there being no clear reason to support cross-department objectives, and consequently, a low level of support for the necessary actions.  In a worst-case scenario, your functional-focused improvement objectives can cause out-and-out warfare between the Lean implementation team and departmental managers.  Let us take a look at a solution to these common business problems.

A simple method to align the organization’s improvement plans as embodied in Hoshin Kanri may be the answer to align Lean practices with traditional planning cycles.  Never heard of Hoshin Kanri?  If not, you have this in common with most Western businesses.  How about Policy Deployment or Management by Objectives (MBO)?  These should seem more familiar, as in most Western business literature Policy Deployment has come to replace the Hoshin Kanri term and is generally interchangeable.

Hoshin Kanri: Its Origins and Useful Examples

As you might suspect, Hoshin Kanri as a term has its origins in the Japanese language:

ho           =            direction, side.

shin        =            needle.

hoshin    =            a course, a policy, a plan, an aim (in Japanese this can also mean

“direction needle” or “compass”).

kan         =             control, pipe, tube.

ri             =             reason, logic, principle.

kanri      =             administration, management, control, charge of, care for.

Hoshin Kanri in its best English translation is “Policy Deployment.”  Most books on management use Policy Deployment as the name for Hoshin.

Hoshin is a structured, team-based planning process to address what Peter Drucker (in his book, The Practice of Management) calls the three basic business questions:

What is our business?

What will it be?

What should it be?

Not surprisingly, the Deming wheel of PDCA (Plan, Do, Check, Act) is one of the underpinnings of Hoshin.  The classic parts to the PDCA cycle can be envisioned as a circle with these four elements as described in Hoshin Handbook, Second Edition by Pete Babich:

Plan:

1. Examine present status.
2. Identify improvement areas.
3. Establish performance measures.
4. Understand the root cause(s) of current performance.
5. Identify solution alternatives.
6. Select and schedule solution.

Do:

1. Conduct training on the new solution(s).
2. Implement scheduled action(s).

Check:

1. Compare actual results to expected results.
2. Understand the root cause(s) of all deviations to expected results.

(note:  some scholars have dubbed this step “study” to clarify this is not a “check the box” activity; rather a careful study of what has happened)

Act:

1. Resolve immediate issues.
2. Document and standardize all gains.
3. Conduct training on all new processes.
4. Reflect on lessons learned.
5. Go back to the Plan step (to repeat the cycle).

If you go all the way back into the 1950s you will find that Hoshin also owes its roots to MBO, introduced by Peter Drucker in his landmark book, The Practice of Management.  Once again, a great “Japanese” idea is found to have its foundation in Western management theory, albeit they applied the idea in creative ways to make great ideas work even better.

Iterative and collaborative planning is the key in building your plans

Catch ball (or ‘Nema Washi’ in Japanese) is a definite stamp of methodology that is practiced by the Japanese who have perfected Hoshin.  The idea is to start at the top and establish a few over-all objectives.  Then create alignment with each department’s objectives, starting with the top-most department and functional heads at the start.  As full alignment around a few key objectives is completed, the cycle continues within each department or functional area.  Ultimately this is the method used to connect area/department objectives with the lowest-level teams in Lean organizations; Kaizen circle teams.  These low-level teams may also be thought of as “quality circles,” “self-directed work teams” or whatever naming convention your company has hit on to describe the natural work groups that actually do the real work to create and deliver your products and/or services.

Further definition of Hoshin Kanri and its main components is found on page 21 of Hoshin Handbook, Second Edition by Pete Babich with the following five elements suggested:

A system of forms and rules that provides structure to the planning process.

The five elements of a complete Hoshin Plan include:

1. The Business Fundamentals Plan documents daily work.  Based on the company’s Mission, it describes what the business is.
2. The Long-Range Plan documents how the company expects to operate in the future.  Based on the company’s Vision, it describes what the business should be.
3. The Annual Plan documents the key activities that must be accomplished this year in order for the company to achieve its Long-Range Plan and Vision.
4. Review Tables compare actual results to expected results and document changes to the plans.
5. Abnormality Tables document “out of the ordinary” occurrences and facilitate the root cause problem removal.

Most Hoshin Kanri authors readily acknowledge that no two companies use exactly the same forms and every element exactly as suggested.  Each company needs to work through the process and develop an adaptation that works best in their situation.

Getting Started in the Application of Hoshin Kanri

Initial Hoshin (Policy Deployment) Plans.  The top-line goals and objectives for the business is a great place to start.  If your company has formed a guiding coalition or steering committee as part of your Lean program I suggest starting here (see my previous article for more on your Guiding Coalition in the Lean Culture Department in the October 2003 issue of APICS Magazine).  Using these critical few objectives to start with, add the missing elements of your level one Hoshin Plan and then rapidly move through the same process with the top executive’s direct reports to complete the level two plans.

Setting first-year expectations in adopting Hoshin begs the question: “should you start here, with a fully detailed business plan to get started?”  The authors (and I heartily agree) caution new adopters to start out slow and not try to seek perfection on the first attempt (avoid trying to “boil the ocean”).  In fact, the referenced authors suggest that the first year in Hoshin deployment may consist primarily of collecting data for the following year’s process performance measures (PPMs) while pursuing only a few Hoshin objectives initially.  So, if you are new to this process – give yourself a break and just focus on a very few objectives and detailed plans at first.  As the organization builds its skills the process can be steadily expanded to include all elements.

There are two basic forms of Hoshin Plans:  Business Fundamental and Breakthrough Plans.  The earlier example of “Initial Hoshin (Policy Deployment) Plans” are typically “breakthrough” in nature – identifying the critical improvements that are desired in the future.

Business Fundamental Plans are those that will maintain performance and seek incremental improvements.  These cover 80% to 90% of the company’s day-to-day work to “run the business.”  Typically, each department or functional area will have responsibility for these plans.  The Hoshin gurus suggest we set “action limits on the measures in the Business Fundamental Plans” – the point at which mandatory management intervention is made if goals stray outside the upper and lower limits.  These limits delineate when management needs to intervene to make corrections – and possibly divert effort on long-range improvements temporarily so that current performance can be brought back in line.

Breakthrough Plans (long-range) and Hoshin Annual Planning Tables are for the “big hairy, audacious goals” that require major efforts to make them happen.  Hoshin Annual Planning Tables serve as a “scorecard” method to show planned actions and measured results in a column-style format.  Using “Red-Yellow-Green” in these tables can be useful to highlight areas to focus on during reviews later in the deployment process.

Breakthrough Plans and the associated planning tables can be large or small in scope.  They may be large in scopes, such as revamping the entire marketing and sales organization or introducing totally new products and services.  They also can be fairly limited in scope – such as deploying Total Productive Maintenance to reduce unexpected delays in processing customer orders.

Fully detailed business plans should consist of the kinds of things listed on page 52 of the book, Hoshin Handbook, Second Edition by Pete Babich, summarized here:

• Description of the company mission.
• Description of current company performance.
• Description of core competencies and how they address customer needs.
• Description of internal and external forces impacting the future.
• Description of strengths, weaknesses, opportunities, and threats (SWOT).
• Long-range plan: What things must be accomplished within three to five years.
• Annual plan: What must be accomplished this year.

Upon completion of the level one plan, it is typically the responsibility of the top executives’ functional staff members to lead the completion of the process downward through the remaining layers of the organization.  How much time is needed varies by company.  A big consideration is the amount of data available to build initial objectives that have solid PPMs.  PPMs take two primary forms – customer driven PPMs and internally driven PPMs.

Establish initial PPMs for all areas.  Customer driven PPMs include customer satisfaction surveys, complaints and other things that are direct measures of customer satisfaction on the speed, quality, and cost.  Internally driven PPMs are those indicators of our internal process effectiveness, such as the number of calls answered the first time, hold times, defects per million opportunities, on-time shipments and the like.  These are all leading indicators for future customer satisfaction and serve to keep us focused on the right things during the day-to-day operation of the business.

A balanced mix of leading and trailing PPMs are important.  It is critical that there are quantifiable measures to track so that improvements can be validated as part of the PDCA cycle described earlier.  These measures must balance one-another as well – so that the organization does not focus too much on one facet of performance.  An example is focusing on cost – to the detriment of process quality.

As a practical matter, it’s useful to pick critical measures that reflect both leading and trailing indicators of future performance.  Customer satisfaction survey results or quality complaints data are examples of trailing indicators of our past performance.  Today’s first-time capability data and hold-times in customer service are good leading indicators of future customer satisfaction.  The reason why is this: if current internal measures are steadily improving, it is a logical hypothesis that future levels of customer satisfaction and quality concerns should improve as well.

Check, Check, Check

Periodic Review is a critical element of the Hoshin process, the “check” step in the PDCA cycle.  The organization must commit to regular reviews of the plan’s results despite the urgency of day-to-day business operations.  This, my friends, is where most companies blow it.  It is easy, in the quest to handle day-to-day business, to justify not taking the time to rigorously do the “check” part of the Deming Wheel mentioned earlier.  Don’t allow this to happen, plan the time and stick to your guns when reviews come around – it would be a shame to waste all the hard work up to this point for a lack of discipline.

Process implementation procedure, forms, and case study examples are the next part of this two-part article.  In the next installment of Lean Culture, we will take a deeper dive into some real objectives and take a closer look at what each level of the Hoshin Plan might look like based on a real company’s work in progress perspective.

In the March 2006 installment of Lean Culture, we covered part one of this two-part series exploring how to meld together your implementation of Lean with strategic planning.  Here we will continue into a case study of how to apply Hoshin in conjunction with the deployment of Lean Six Sigma.  Our case study company is one of largest Taft-Hartley insurance and retirement benefits providers in the United States.

Background

This company’s management in cooperation with its unionized workforce elected to aggressively begin deploying Lean Six Sigma early last year under the guise of their “Customer Service First” (CSF) program to improve service levels, quality, and turn the tide of years of shrinking membership by growing their membership in the health and welfare funds.  Given their tightly regulated industry and limited choices of their target market it has not been necessary to focus on customer service and winning new business in the past.  Planning was strictly a top-management-only game and frankly, it used to serve them well.

That has all changed in recent years – they “enjoyed” the same hammering all defined benefit funds have endured since the bubble burst in 2000.  To compete and win against emerging competition and alternatives to what they offer it is now necessary to re-think everything they do.  This includes finding new ways to cascade planning and ownership of continuous improvement downward to all levels of the business.  The balance of this article focuses on their plan for deployment.

Suggested Process and Responsibilities in Deploying Hoshin Kanri

Starting with Steering Committee for the CSF initiative, the process and responsibilities for Hoshin are broken up and detailed below.  The iterative planning that then takes place at every level of the company thereafter follows a nearly identical process.

First is the mission statement for the business overall:

“We, as a unified team, are committed to providing exceptional service for our participants, local unions, and employers while remaining a family-oriented organization.

Every day, each of us must recognize the responsibility we have been given to provide benefits, and we strive to positively impact the quality of life for our participants and their families with dedication and integrity.”

This is followed by their vision which is summarized here:
To Achieve Our Mission We Commit To:

1. All employees sharing a common vision.
2. Pay benefits promptly and accurately the first time.
3. Answer all correspondence accurately, quickly and in an understandable manner.
4. Treat all callers as an opportunity to make a positive impression.
5. Establish an annual business-wide plan.
6. Improve the eligibility process to ensure the accurate processing of all claims.
7. Empowering our employees to make changes that improve our services.
8. Treat all employees with respect and compassion; employees are involved in decisions.
9. Improve our relationship with our members.
10. Eliminating unnecessary procedures and regularly review our processes.
11. Providing employees with appropriate training to help us transform our business.

The top three objectives for 2006 are: increasing measured customer satisfaction by 50%, measured quality by 50% and adding 10,000 new members to the health and welfare rolls.  Each department is expected to have two or more objectives that tie into these company objectives with an added objective to develop all the people in the business as well.  As things continue forward in the CSF initiative, it is mandatory that each area ties its strategic activities to on-going and future Kaizen and Kaizen circle teams.

Initial customer satisfaction surveys have generated useful baselines and feedback on a periodic basis for progress in improving upon measured customer satisfaction.  Quality baselines and metrics and on-going measures have been more difficult to establish, some Kaizen teams have been successful in creating low-level quality baselines and measures.

Managing a big risk for success is critical – engaging 600 people quickly in continuous improvement.  There has been a valid and on-going concern about how to get key managers, supervisors, employees and virtually all functional areas of the business involved with CSF quickly.  Since new skills in Lean Six Sigma and other Operational Excellence tools and techniques must be learned before full involvement can occur, a “train the trainer” strategy to a solid team of in-house trainers and facilitators has been completed over the last nine months.  This team is charged with leading and facilitating the agreed-upon process improvement methods.

This brings us to the question: “How do we go about planning business-wide involvement without creating a nightmare of conflicting objectives, resource constraints and otherwise getting in each other’s way?”  The answer is using Hoshin Kanri to address the on-going problem of how to get everyone involved so that no one is left out, and is given appropriate direction, goals, and measures.

Hoshin Kanri addresses the need for effective planning that:

• Is driven by and understands customer needs (present and future).
• Balances daily management with strategic objectives.
• Identifies the critical few objectives.
• Evaluates resource constraints.
• Establishes performance measures.
• Develops detailed implementation plans.
• Identifies ownership and accountability.
• Conducts regular reviews of progress.
• Continually improves the process of planning.

Deliverables and Timing of Deployment

Initial Policy Deployment Plans.  Commence top-line and second-level Hoshin Goals.  The Steering Committee has established initial actions.  Starting there is now necessary to add the missing elements and then rapidly moving through the process with the COO’s direct reports over the first 30 days.  Upon completion of levels one and two, it will be the responsibility of the senior staff members to lead the completion of the process downward through the remaining layers of the organization.  This process is expected to continue through the first three months of deployment.

Part of the process is identifying PPMs for each part of the business at all levels.  These take two primary forms – customer driven PPMs and internally driven PPMs.

There are two basic forms of Hoshin Plans: Business Fundamental and Breakthrough Plans. 

In the calendar year 2006 there will only be a focus on the top four Hoshin goals already established for 5S, customer satisfaction, quality and adding new members.  Getting each manager to focus on specific objectives this year tied to these goals and leveraging the Kaizen teams is the focus for this 2006.

Periodic Review is a critical element of the Hoshin process.  This is already being practiced by the Steering Committee and must be expanded to include all levels of management.

Process implementation procedure and forms. There are many standard off-the-shelf forms that can be used.  Below is a sample of the information from the Steering Committee used to get the process underway for one of the key objectives – gaining more members.

Hoshin Long Range Planning Table Elements

Situation:

The business is losing market share and needs to reverse the long trend of slipping membership in the health and welfare rolls.  Service levels are not up to the levels they should be.  Action is needed to become more effective in securing new business to secure the future of the business.

Objective owner: COO

Key objectives, based on situation:

1.0 Research the options and launch a business-wide initiative to improve performance and attract more new members for the health and welfare fund.

PPMs (Goals)

1. Increase membership by 10,000 health and welfare participants by YE 2006 from the baseline.
2. Improve measured performance in quality and customer satisfaction by 50%.

Key strategies to achieve this objective:

1.1 Charter and lead a marketing and sales process improvement initiative.

PPMs (Goals)

1. Create a comprehensive marketing plan that is updated quarterly.
2. Track leads generated – need at least 500 leads to be generated and converted to quotes to achieve the objective.

1.2 Charter and lead a member marketing Kaizen team to provide information to the marketing team and support the customer satisfaction measure goals.

PPMs (Goals)

1. Create a baseline. Begin tracking changes with subsequent surveys – 50% improvement targeted.

• Charter Kaizen teams to improve speed, quality and cost in priority areas of the business.

PPMs (Goals)

1. Charter at least 20 focused Kaizens in 2006 tied to department and business objectives.

A Work in Progress

In a similar manner, each of the key objectives is being further detailed with appropriate situation statements, objectives and PPMs as was done for all the top-level objectives.  In turn, each subsequent assigned objective owning function repeats the process.  This continues iteratively through all levels, ending with the specific actions that will occur at the point of attack in each area – in this example the field service team who works directly with the unions and employers would be the final level of planning and action.

Deployment Plan Details

Below are the steps for deployment that are being followed:

• Create top-level planning tables for Steering Committee and the COO.
• Start and complete initial planning tables – key staff.
• Update performance appraisal/job description criteria to include Hoshin and CSF program support and activities that generate results (measured progress toward goals, redeployment plans as appropriate).
• Second and third-tier plans – all department heads.
• Create a special Hoshin Table that identifies the key measured objectives for Kaizen and Kaizen circle teams in all areas.
• Commence monthly Hoshin reviews – key managers with Steering Committee.
• Complete Hoshin Plan with all departments and areas included.

Reference Texts:

1. Beyond Strategic Vision – Effective Corporate Action with Hoshin Planning by Michael Cowley and Ellen Domb, ©1997
2. Hoshin Handbook, Second Edition by Pete Babich, Published by Total Quality Engineering, ©1996