The difference between hoshin kanri and strategic planning

Probably nothing – any tool has the same potential to become bureaucratic nonsense if it is not used with common sense, and hoshin kanri (HK) even more so than the others. Toyota is an automaker that asks the right questions and has developed many tools to start its learning. Even so, with any new Toyota tool we should be cautious when looking at how it works in other environments. HK has been around for decades and used to be known as policy deployment – the risk of interpreting it as cascading strategic-planning objectives is very high.

I am no expert in hoshin kanri, but the CEOs I have worked with try to use some aspects of hoshin kanri in their own management. From their perspective, what distinguishes HK from the strategic planning they used to do? The four main aspects that come to mind are:

1. Focus on the customer's gemba: start the reflection and planning process with some understanding of the problems customers face and find out where we could benefit our customers the most.
2. What do we need to improve? HK targets should be clear, concrete improvement objectives, not closed-minded “what we would like to do” thinking.
3. Control points at the gemba: where will we see, at the gemba, that our HK efforts are bearing fruit – do we know exactly what we are looking at, and do we have the right visual management so that everyone can see the same thing?
4. Make PDCA topics visible for every middle manager: High-level change must be broken down into small operational changes carried out every day, which will be led by the company's middle management. To do this and to learn, we have to make sure these small changes happen within a PDCA framework so that we learn together.

CEO pain points

Truly focusing on the customer is rare and complicated. Listening to customers is difficult, and hearing them is even more difficult, particularly because what they say they would like is rarely what they really need (and are willing to pay for). Trying to figure out what “listening to and following customers” means, many CEOs struggle with four distinct objectives:

• What customers say they would like: customers always want more of everything, and then you find out that, when you offer it to them, they simply ignore it. This does not mean we should ignore what customers tell us, but that it should be done with some caution.
• What they actually use: In any product or service, customers use a small part of the features (although different customer groups use different parts, hence the need for good segmentation). Finding out what customers really use is a full-time gemba effort. A good place to start is customer complaints, where they go to great lengths to teach us what they are trying to do with the product or service.
• What we would like to do: Every organization, large or small, tends toward inward-looking wishful thinking – politics makes it inevitable, since employees want to anticipate what their bosses would like and present it to them as if it were their idea (or hire consultants to do so). This is not necessarily a bad thing. As Henry Ford once quipped, if he had listened to his customers, he would have tried to create a faster horse. Even so, being clear about what we would like to do is important to bring to light many hidden assumptions in the hoshin kanri process. Groups are always, always tempted to dress up their collective wishful thinking in rational clothes to make it more attractive to themselves and to stakeholders – watch out for this factor.
• What partners expect from us: No organization is an island, and there are many powerful players among shareholders, regulatory bodies and key suppliers who have their own ideas about what we should do and pressure us to do it. They are not always wrong and sometimes have the influence to delay your tasks – understanding them clearly is an important step toward understanding (and withstanding) the pressure.

These four circles rarely intersect, and the CEO and his or her team must keep these questions in mind when they walk through customers' gembas and through their own operations. There are no 100% conclusive answers, there never have been, and the world out there changes faster than we can, so this is an eternally open question. Also, if we follow this wrong start, the hoshin plan will be nothing more than a formal exercise to validate senior management's hunches, rather than a genuine attempt to ask ourselves the hard questions and look for hard answers.

Once customer problems have been (are being) solved, the second trick of HK is to express this in terms of improvement challenges. For example:

• Cut warranty claims in half.
• Close the inventory warehouse.
• Reduce the total cost of a product by 10%.
• Double the number of accepted suggestions.

Certainly, some HK objectives will be about doing something new, but most HK objectives will be challenging improvements that will force us to do something radically better. In general, HK objectives should be some form of step-change improvement in quality, safety, flexibility or productivity. Of course, some new offered activities will also be part of the hoshin plan, but I am always suspicious of any plan that does not directly emphasize aggressive improvement challenges. Real innovation capability comes from practical operational know-how, and, before trying new tricks, we had better make sure we have control over the old ones and keep current promises before making new ones.

Third, the exercise never gets off the paper if it is not brought to the gemba. How will we see, in the workplace, that the work is happening in line with our HK objectives? How will we involve everyone so they see the same thing? Visual management is the central element of HK in terms of physical control points. If we are talking about halving warranty claims, where is the department devoted to warranty claims? If we are closing a warehouse, can we go there and look at the shelves to understand the inventory reduction strategy and how fast we are acting?

Control points at the gemba are a key difference between HK and strategic planning because we do not rely on financial reports to get some sense of how well the plan is going. In addition, control points are a key tool for communicating to others what we are trying to do. As the popular saying goes, “what gets measured gets done,” but, more directly, “where the boss looks is where attention turns.” Control points at the gemba are halfway to making real improvement happen.

PDCA vs. Action Plans

The last HK specificity I would insist on is the difference between PDCA activities and action plans. The temptation when it comes to “strategy deployment” or “policy deployment” is to set clear objectives (or clear wishful thinking – often hard to tell apart) and then build action plans, which frontline managers will have to execute. What I suspect from your question is that you have had experiences with this and know how things turn out.

The hoshin kanri process, as I understand it, is fundamentally different, because it asks every manager for a PDCA activity related to the larger objective. There is no intention of adding up all these activities and somehow reaching the objective through the sum of our actions. We understand that these problems are complex and that something fundamental will have to change to achieve this kind of result (if it were easy, we would already have done it). The purpose of PDCA activities is to learn, little by little, to understand the problem better.

In the obeya, we will see the indicator corresponding to the high-level improvement objective (quality, safety, flexibility, productivity, innovation) and then many PDCA activities (often identified as A3s) that address different aspects of the problem. What can happen is that, after exploring and discussing the problems, the team usually sees a leverage point in which they need to invest – mainly through training – that will change how the process works and, consequently, the results.

In the earlier examples, by exploring several instances of warranty problems, we will finally discover the main weakness of our products and do what is needed in terms of value analysis in production and value engineering in development to improve things. To close the warehouse, we will have to find out which practices lead to the accumulation of products – mainly purchasing habits, wrong forecasts, etc. The point is that the objective is not achieved by executing an action plan, but by discovering what real weakness exists in our current knowledge and processes and tackling it.

Hoshin kanri is not specific to lean or to Toyota – it became popular in Japan in the 1950s. The intention at the time was to recognize that each person was an expert in his or her (admittedly small) field and somehow use the power of collective thinking to make the company the best in its field.

The idea is to focus on shared objectives to ensure that everyone understands them and to involve line management in planning how to achieve them (as well as making managers responsible for their part of the plan). However, as with the strategic planning we all grew up with, the vital aspect is whether we identify the right problems. Expressing problems in terms of improvement objectives is a safeguard against management's wishes and the real instrument of learning: as we try to improve, we will understand the real terms of our business much better. As you rightly guessed, HK can have the same drawbacks as the old strategic planning if it is not rooted in the customer's gemba and in the spirit of kaizen.