By Frank Deno

A high performance culture is the result of high performance actions. An organization should strive to implement actions which deliver the desired performance and assess the results of these actions on the culture. If these actions are successful, performance targets are achieved and a high-performance culture ensues. The pursuit of performance gains starts with defining an effective vision and mission, strategic planning and setting goals. Often organizations plan effectively and fail to act on their plan to achieve their goals, leading to poor performance. Hoshin Kanri is a method that addresses the need to act on and achieve planned goals.

Hoshin – expanded from business management expert Peter Drucker’s management by objective (MBO) theories through the efforts of fellow methodology gurus Edwards Deming, Walter Shewhart, Homer Sarasohn and Joseph Juran – has been successfully implemented in many of Japan’s and America’s highest performing companies including Bridgestone, Fuji, Texas Instruments, AT&T, Boeing, IBM, Motorola and Toyota.

Critical Behaviors for High Performance

Leadership must take steps to close the gap between today’s performance and an organization’s vision. This sounds simple, but in reality it is difficult. People seem to need either a crisis or goals to achieve extraordinary outcomes. Research shows that performance-focused management practices can increase performance by at least 30 to 40 percent, according to Julia Graham in the article “Developing a Performance-Based Culture” (the Journal for Quality and Participation, Spring 2004). Hoshin combines long- and short-term planning methods with quality and objective management methods to produce a plan-do-check-act (PDCA) cycle.

Organizations interested in implementing Hoshin need to have established concepts, tools and methods associated with quality management, including:

• View work activities/duties as a series of work processes.
• Empower those closest to the work (and the external customers) with the authority to make decisions related to their work.
• Align all employees around organizational goals and priorities.
• Believe that people are naturally “good” and want to do a good job.
• Continual improvement of products, services and work processes.
• Use regularly quality improvement tools and methods.
• Recognize the interdependency among people and functions that necessitate a team approach to work and problem solving.

In addition, according to Lori L. Silverman in the article “From Vision to Action: Taking Policy Management to the Work Group Level,” there are two management systems fundamental to Hoshin – daily and cross-functional management systems.

• Daily Management System: This system deals with the operation and monitoring of micro work processes. It supports identification of task level work, creation and improvement of task level work processes, supports subject matter experts, provides communication to management and cross functional work team, and provides a work environment that encourages participation and involvement.
• Cross-functional Management System: This system is the improvement of processes spanning the entire organization; addressing issues such as quality of a product or services. Lean Six Sigma is one example of a cross-functional management system. The cross-functional management system is critical to the management of the organization’s vision and mission, identification and management of cross-functional work processes, and issues and cross-functional work process improvements.

Implementing Hoshin: Business Fundamentals Plans

Hoshin extends MBO theories with the PDCA process. PDCA encompasses both planning and managing to achieve the goals set forth in the plans. The combination of planning and management through PDCA is what differentiates Hoshin from other planning or management methods. There are two Hoshin plan categories – business fundamentals plans and breakthrough performance plans. The first to be examined is business fundamentals plans.

Business fundamentals plans document how the organization functions today and how it will maintain current levels of performance. It is critical to understand that business fundamental plans do not define performance improvements or how to improve on current operations. In other words, business fundamentals plans address how the organization will continue to operate at its current level of output if nothing changes. Following the “Pareto principle,” approximately 80 percent of the organization will be applied to achieving business fundamentals. Though this sounds easy, the difficulty comes in deciding what the organization will not do, since it is typical for an organization to plan 120 percent of its capacity to achieve just the fundamentals.

The key elements of the business fundamentals plans are identifying mission, key activities and owner, and performance measures; establishing performance measure action limits; and conducting periodic reviews.

Mission

The organization’s mission needs to address the following questions:

• Who are our customers?
• What are their needs?
• How do they measure our performance?
• What are our products/services?
• Do we exceed customer expectation?

Once these questions are answered, a simple and memorable (quotable) statement is built to represent the mission. This is the mission statement. Another key activity differentiating Hoshin is that it requires the decomposition of the mission at each level of the organization – causing the mission of each business function to align itself with the overall mission of the organization. This decomposition is done through a process of “catch ball,” where the upper level mission is handed down to a lower level unit, the lower level unit evaluates which piece of the mission applies to the unit and derives its own mission statement. The unit’s mission statement is then delivered to the upper level unit to ensure agreement. This process is iterative until the upper and lower level units agree in the decomposition of the mission. Next, what was the lower level unit now becomes the upper level unit and the process begins with the next lower level unit. This continues until the entire organization has decomposed the top level mission statement.

Ownership

Catch ball also can be used for decomposing any critical Hoshin plan element – including identifying ownership. The initiator and receiver in the catch ball process are the element owners (i.e., mission, vision, activity or any other object of planning). It is critical that the initiator and receiver are individuals, not roles or business units. Defining owners forces clear accountability; without ownership the organization suffers from diffused accountability. Diffused accountability results in no one accepting responsibility for success or failure.

Measuring Performance

Measuring performance answers the questions: “How do I know I am doing a good job?” and “How do I know the organization is healthy?” Business fundamentals plans focus on maintaining normal operations; normal needs to be quantified so that achievement of normal can be verified. Normal can be defined by previous performance. In stable operations, process normality yields outputs that fall within three standard deviations to either side of the average output 99.7 percent of the time. When operations are not performing normally, as defined by the lower action limit and upper action limit, the health of the organization is in question. To return to normal, the business needs to take some action. It is important to understand action limits are different from goals. Action limits are set by the performance of a process, while goals are chosen more arbitrarily. Action limits are used as performance measures in business fundamentals plans, and goals are used in breakthrough performance plans.

Picking accurate performance measures is crucial. Key measures are used to identify the health of the over all system: when measures exceed upper or lower action limits, some action must be performed to regain normality. This principle is the same for any process.

Performance Measure Attributes

Good performance measures have five attributes:

1. They are quantifiable and can be shown graphically. (“Pretty good” can not be shown graphically.)
2. They are supplied by customers.
3. Internal performance measures are leading indicators of customer performance measure.
4. Performance measures counterbalance each other in the generic categories of quality, cost, delivery and people.
5. Data collection should take no more that two to five percent of total resources.

The value in business fundamental plans is they break decision-making down to the lowest level by defining normal limits of operation. As long as processes are functioning in these limits, management does not need to focus on them. It can instead focus on breakthrough performance plan.

Implementing Hoshin: Breakthrough Performance Plans

The second Hoshin plan category is breakthrough performance plans. Breakthrough performance plans identify where the organization is going and how it will get there. The planning cycle for the breakthrough plan is:

1. Describe current situation.
2. Summarize strengths, weaknesses, opportunities and threats.
3. Reaffirm mission, vision, values and strategy.
4. Update long range plan.
5. Develop and deploy annual plan.
6. Evaluate results.

Business fundamentals plans decompose into sets of activities and measures, while breakthrough performance plans decompose into sets of deliverables (milestones along an implementation path). The further the plan decomposes, the greater the detail of the deliverables. The breakthrough plan is divided into the long-range plan and the annual plan. The organization’s vision is the basis of the long-range plan, just as the mission is the basis of the business fundamentals plans. The long-range plan is the basis for the annual plan, further following the method of PDCA through plan decomposition. The organization vision follows the same process of decomposition in the annual plan as the mission does in the fundamentals plans.

Long-range Plan

There are many theories and methods for determining vision. John P. Kotter prescribes in his book Leading Change that leadership is responsible for setting and sharing vision throughout the organization. In The Fifth Disciple, author Peter Senge asserts that vision should be shared and set iteratively (much like the process of catch ball). However the vision is derived, it must be clear portray an image of the future state of the organization.

The long-range plan conforms to the same format as the annual plan described below, but focuses on the state of the organization five to 20 years into the future. The effective long-range plan is not very detailed; it simply lays the foundation for being able to reach the organization’s vision. For this reason, the long-range plan does not vary much from year to year.

Annual Plan

The gap between the long-range plan and business fundamentals plan provides motivation for change. The long-range plan is the basis for the annual plan which identifies what must be accomplished this year to move the organization along the path to the future as specified in the long range plan. It is very detailed and lays the foundation for what must be accomplished in the way of improvement (change) and how success will be measured. Unlike the long range plan, the annual plan likely will change significantly from year to year.

The annual plan differs from the business fundamentals plan in several ways. The business fundamentals plan identifies how to maintain performance while the annual plan outlines how to improve performance. Approximately 80 to 90 percent of the organization is affected by the fundamentals plan, while only 10 to 20 percent of the organization is affected by the annual plan. The annual plan is deployed along issue lines, resulting in the owners of the annual breakthrough plans leading cross-functional teams instead of being organizational managers.

Though the purpose of the annual plan contrasts with the fundamentals plan, the structure and process is very similar. Breakthrough annual planning follows the same framework of decomposition through the catch ball process as does business fundamentals planning, with the resultant objectives ending in improvement projects. The missions and activities structure of the fundamentals plan become objectives and strategies in the annual plan. Objectives have performance measures much like the action limits of the activities defined in the fundamentals plan. The measures used in the annual plan are deliverables – tangible results of actions or plans. These deliverable also must be measurable; in other words, a before and after state must be quantifiable. Completing the annual plan leads to new business fundamentals plans in the following year bringing the organization full-circle in the PDCA cycle.

Periodic Review: A Distinguishing Factor in Hoshin

The periodic review is the most important and distinguishing factor in Hoshin planning. The periodic review answers the questions: “Are we on course?” and “Do we need to make adjustments?” Answering these questions facilitates the cycle of learning needed for change. The methodical process of periodic review also has the side benefit of reinforcing that what is being worked on is important.

The periodic review process is based on the PDCA cycle. It is common practice to review the business fundamentals plans first, followed by the breakthrough performance plans. The key steps in the review process are:

• Review expected results this period.
• Review actual results.
• Analyze the deviation between expected and actual results.
• Identify lessons and implications of actions this period.
• Review abnormalities this period and take corrective actions.
• Identify the next expected results using the catch ball process. (Next expected results start next cycle as expected results.)

Conclusion: Performance Is as Performance Does

Implementing Hoshin allows an organization to build a high performance culture and measure the progress of culture change toward a high performance. Following this process on a set schedule for each of the fundamental plans and annual plans throughout the organization ensures achievement of the business mission and progress towards the business vision. To adapt a line from the movie character Forrest Gump, “Performance is as performance does.”

About the Author:

Frank Deno is the Six Sigma deployment leader and manager of the enterprise process and quality management at the New York Independent System Operator. He has oversight responsibility for the deployment of Lean Six Sigma for operational excellence, as well as Design for Six Sigma for product excellence. He has more than 15 years of experience in the banking, software development and energy industries. Deno has a bachelor’s degree in mathematics and computer science and an MBA. He also has a change management certification. Contact Frank Deno at fdeno (at) nyiso.com.