Hoshin Planning Issues and Resolution

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1 Published on Quality Digest ( Hoshin Planning Issues and Resolution Figure out what to do after you figure out what to do Published: 03/16/2012 Forrest Breyfogle - New Paradigms In my February column, "Avoiding Company Decline," I described how part of a corporation's economic slide could be attributed to organizational scorecards or dashboards because they are often ineffective in promoting the most appropriate behaviors. In this column, I will show how creating and executing strategic planning statements also can contribute to a company's decline. Organizations often create an annual strategic plan to provide direction for the year. Figure 1 shows sample wording of one company's statement, as posted on the Internet. Our company's objective is to maintain its position as one of the leading manufacturers of connectors, PC enclosures, and other precision components, and to successfully develop products and market them for use in network communication and consumer electronic products. A number of strategies have been developed to attain this objective: Develop strategic relationship with industry leaders By working closely with top-tier PC and IC companies, our company is able to predict market trends accurately and introduce new products ahead of its competitors. Focus developing global logistic capabilities This enables our company to respond quickly and efficiently to the customer's requirements around the world. Expand production capacity Our company currently has production facilities in Asia, Europe, and the United States. Expanding its existing production capacity increases economics of scale. Achieve further vertical integration Further integration of the production process allows our company to

2 exercise better control over the quality of its products. Maintain technologically advanced and flexible production capabilities This increases our company's competitiveness relative to its peers and allows it to stay one step ahead of its competition. New products Our company will leverage its manufacturing expertise and continue to move into new areas of related business. Figure 1: Corporate strategy Hoshin kanri, also called hoshin planning or policy deployment, is a technique that can establish a structure for implementing executive-defined strategies. However, the wording of strategic statements, as illustrated in figure 1, can lead to executions that are very team dependent. In addition, these statements can also lead to activities that are not healthy for the organization as a whole. Before elaborating more on the issues and providing an alternative methodology, let's consider the objectives and execution of hoshin kanri. In Japanese, "hoshin" means direction and shining needle (i.e., compass), while kanri means management. Hoshin kanri means management and control of the organization's direction needle, or focus. An approach for implementing hoshin planning In hoshin planning, the organization's mission is deployed in every operational unit. Missions are generally deployed along organizational lines. A mission deployment divides the statements into lower-level essential activities to achieve the mission. When deploying an activity down one level, the activity becomes that level's mission, which can then have further segmented activities. Backand-forth mission-development discussions, called "catchball," involve give-and-take until consensus is reached. Each mission statement leads to the creation of a business-fundamental planning table, which contains the mission, key activities, owners, and performance measures with action limits. (For more about this concept, see my book, Integrated Enterprise Excellence, Volume II Business Deployment: A Leader's Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard.) Each activity in a business-fundamentals planning table typically has two to four performance measures (PMs) with action limits, i.e., multiple measures that are used to prevent optimizing one measure at the expense of the overall process health. The objective of a business-fundamentals planning table is to maintain performance. This is the document in which tactical decisions are captured. The essence of breakthrough planning is significant improvement. Strategic decision making involves formulating the right question for developing the long-range plan (i.e., strategic plan). Long-range planning is documented in the hoshin kanri planning table. Hoshin kanri is not to be used to figure out what to do; it is a plan-implementation process that picks up where other planning processes stop. Hoshin kanri is used to help organizations deploy and execute what they want to do.

3 Deliverables are the tangible results of job or task completion. Gantt charts contain plots of the expected start date and completion date for each deliverable. In hoshin planning, deliverables are associated with breakthrough plans. Breakthrough plans are formulated from the organization's vision of the future. Translating organizational vision into a long-range plan encompasses five, 10, or even 20 years, has few year-to-year changes, and has limited deployment with wide communication. The hoshin planning annual plan table has specific long-range plan steps that should be accomplished during that current year, keeping in mind that critical-area deployment can significantly change from year to year. Issues with hoshin planning and resolution When considering hoshin planning's components and its breadth, one can quickly conclude that the implementation effort for hoshin planning would require a great deal of resources. Reference books describe examples of successful uses of hoshin planning for policy and mission deployment; however, what is lacking in these descriptions is how to use hoshin planning methods effectively to deploy other concepts, such as performance goals, cost reduction goals, and other, more analytical topics. The qualitative and interactive nature of the hoshin planning methods can be slowed to a crawl when a company uses these methods to deploy numeric goals. There is so much more at stake for each participant that the time and resources needed to come to agreements may increase dramatically. In addition, the following describes some significant negative implications of hoshin planning's implementation: The direction of work activity could significantly change when there is a change in executive leadership or its direction. The time could be lengthy and resource needs could be large to incorporate executive directional changes into an enterprise hoshin planning system. Missions and strategies should cascade throughout the organizational chart. An organizational change, company purchase, or spin-off that redirects focus could lead to confusion and frustration. Targeted performance-measure action limits can lead to the wrong activity. This format for establishing action limits does not systematically address process shifts and other situations, which can be addressed only through charting. Performance-measure action limits, such as red-yellowgreen stoplight scorecards, can lead to much firefighting. Because of these hoshin planning issues, organizations can benefit from using an alternative methodology, Integrated Enterprise Excellence (IEE). The nine steps of the IEE system are shown in Figure 2. One should note that with the IEE system, strategic planning is step five, not step one. Figure 2. Integrated Enterprise Excellence (IEE) business management system

4 Definitions for the terms used in figure 2 are: Satellite-level: Used to describe a high-level, IEE business metric that has infrequent subgrouping or sampling. Short-term variations, which are caused by typical variation from key process input variables, will result in control charts that view these perturbations as common cause variability. This metric has no calendar boundaries, and the latest region of stability can be used to provide a predictive statement for the future. Not everyone uses the same letter descriptors for SMART. My preferred descriptors are S specific, significant, stretching; M measurable, meaningful, motivational; A agreed on, attainable, achievable, acceptable, action-oriented, actionable; R realistic, relevant, reasonable, rewarding, results-oriented; T time-based, timely, tangible, trackable. 30,000-ft-level: A key process output variable (KPOV) or Y variable response used to describe a high-level project or operation metric that has infrequent subgrouping or sampling so that shortterm variations, which might be caused by key process input variable (KPIV) perturbations, will result in charts that view this variability as common cause. It is not the intent of the 30,000-ft-level control chart to provide timely feedback for process intervention and correction because traditional control charts do. For example, 30,000-ft-level metrics are lead time, inventory, defective rates, and a critical part dimension. A 30,000-ft-level individuals control chart can reduce the amount of firefighting in an organization when used to report operational metrics. As a business metric, 30,000-ft-level reporting can lead to more efficient resource utilization and less game-playing with the numbers. Benefits of the IEE system include: The front end of the IEE system, steps one and two, form the foundation from which organizational improvement efforts are built. This creates a structure that is long lasting. The value chain in step two describes what an organization does and how it will measure that effectiveness. Strategies are created in step five and are in direct analytically-determined alignment to what is important to a business, i.e., the financials, unlike commonplace strategic planning. identifying high-potential areas in step six for targeting improvement efforts lead to projects that are most beneficial to the system, as opposed to creating projects, which might appear beneficial from a silo perspective but have little value from an enterprise point of view. Creating improvement projects in step seven, which have alignment to high potential areas that positively impact strategies. These strategies are then aligned to the financials and 30,000-ft-level operational goals. With these high-level performance metrics, there is an owner who is demanding timely completion of projects in his area that are to make a positive impact toward achieving the processes' agreed-to objectives. The structured assessment in step eight of how completed improvement projects affect the enterprise goals. Successful, completed improvement projects would change value-chain processes, which would improve an organization's 30,000-ft-level metrics. These high-level operational metric improvements would then lead to a benefit for the enterprise's satellite-level financial metrics. The feedback loop is from step nine to step three, not step one. This looping creates a Dr. W. Edwards Deming plan-do-check-act (PDCA) improvement system for the enterprise as a whole. In my opinion, many of the problems that have recently occurred in our economy are because of an antiquated business management system that companies are using, which often leads to very unhealthy behaviors. The IEE methodology provides a systematic framework for not only overcoming these organizational management shortcomings but also helping corporations,

5 government, and nonprofits move toward achieving the three Rs of business doing the right things, and doing them right, at the right time. About The Author Forrest Breyfogle - New Paradigms CEO and president of Smarter Solutions Inc., Forrest W. Breyfogle III is the creator of the integrated enterprise excellence (IEE) management system, which takes lean Six Sigma and the balanced scorecard to the next level. A professional engineer, he s an ASQ fellow who serves on the board of advisors for the University of Texas Center for Performing Excellence. He received the 2004 Crosby Medal for his book, Implementing Six Sigma. him at forrest@smartersolutions.com 2012 Quality Digest Magazine. All Rights Reserved.