Use the Dynamic Duo of Hoshin Kanri and OPEX to Boost Business Agility
Updated: Nov 26, 2018
Increasing business agility is the name of the game in today’s rapidly evolving markets, yet remains an elusive goal to many in the manufacturing community. One key to improving an enterprise’s capabilities in this space is to ensure that it’s strategy deployment, classically known as Hoshin Kanri, and its OPEX programs are working synchronously to empower the entire organization to move quickly against change.
The recurring theme of sub-optimal strategy deployment has been present in many conversations I’ve had with manufacturing executives recently, many of whom have concerns over their organization’s ability to execute their strategy in the manner originally envisioned. Adding further to this debate, functional managers in these businesses are often quite defensive about any notion that suggests they’re not diligently pursuing the business strategy to its absolute letter, and state most emphatically they are meeting or exceeding every KPI set against the strategic goals handed down by leadership at the beginning of the year.
Paradoxically and somewhat ironically as I’ll explain in this post, both sides are often accurate at the same time. At the heart of the matter are the native mechanisms within the business used for strategy deployment and operations excellence. Let’s first examine the subject of strategy deployment before moving on to OPEX.
Hoshin Kanri and its Typical Implementation
Hoshin Kanri, a Japanese transliteration that means “compass direction” (hoshin) “deployment” (kanri), has its roots in Japanese Samurai Warrior culture, where records dating back to the 17th century indicate a deep appreciation for the understanding and deployment of strategy (1). Applied to mid-Twentieth Century Japanese manufacturing, the stunning successes achieved spurred the global assimilation of this methodology into most corporate cultures as we know them today.
While every company will contribute its own interpretive nuances to how Hoshin Kanri is employed, a general model of its standard usage can be inferred through a distillation of publications over the last two decades by representatives of major corporations. This standard model has been recently well-articulated by Zairi and Erskine (2). Figure 1 summarizes the complete Strategy to Execution footprint, which necessarily contains: a) a Strategic Planning Office, which interprets company vision, mission, and values into time-phased objectives and measures; b) a Total Quality Management (TQM) Office, or more
simply “Quality”, which is responsible for translating objectives into discrete process and functional management activities, and c) a Hoshin Management Office, which is responsible for process, technology, and business structure change management. This office is commonly referred to in many companies as the ‘Continuous Improvement’ and/or ‘Business/Value Chain/Supply Chain Transformation’ office.
Figure 1: Strategy to Execution Standard Model (adapted from Zairi and Erskine 2)
Within the Hoshin Office, focus is set exclusively on translating strategies into specific action plans and corresponding measures to track progress against established business targets. Usually occurring within departments, managers of these functions set long range and annual plans. Discordant policies are adjusted at this time and the focus then shifts to specific staff and project team actions, where every individual in the organization is tasked to develop their own annual plan to help meet the business targets and subsequently gain supervisor approval for each plan element.
In this manner, the value of Hoshin Kanri manifests itself as the key mechanism by which the energies and focus of an entire organization are concentrated on the critical few tasks that have been judged by leadership as essential to the successful execution of the business strategy. Whether or not an enterprise practicing this approach is ultimately successful at the end of the annual cycle in meeting its targets is not exclusively within the domain of how well the Hoshin Office works, and it is a mistake for leadership to rely exclusively on this Office for success or failure.
The effectiveness of Hoshin Kanri is directly related to an organization’s competency in key functional areas. Many potential disruptors exist, with the most common ones listed below:
· Poor internal communication by leadership, leading to organizational confusion
· External change forcing leadership to make too many mid-course corrections
· Lack of central Project Management Office focus on the critical few KPIs, leading to too many pet projects
· Short-term focus on cost management at the expense of long-term growth objectives
· Goals not completed grounded on real data or good understanding of business process control authority
· Poor quality insights into customer needs, leading to poor KPI development
· Lack of understanding on The How, or poor efforts on The Build, to establish durable solution sets
· Myopic focus on deficiencies and gaps at the expense of excellence objectives which bring growth and competitive advantage
The remainder of this post is devoted to an examination of key activities that every manufacturer must perform well in addition to the competent practice of Hoshin Kanri in order to increase the chances to reach the success.
OPEX Management Systems and Execution Capability
For the purposes of this discussion, the following are the important capabilities that an Operational Excellence Management System (OEMS) must deliver:
Capability to detect and quickly respond to both external and internal forces of change
Agility to deliver products/services to customer/market at the correct price, time and location
Capability to rapidly introduce new innovation value to lead the market and open new markets
Capability to enable sustainable innovation and value through effectively leveraging people and technology.
A company’s ability to develop these products from its OEMS depends, however, on the state of maturity of its processes: the maturity of its Hoshin program, how processes are built and kept evergreen, how data is managed, and how continuous improvement is governed. Figure 2 below is a summary of what has come to be known as “The Operational Excellence Journey.” While there are a multitude of interpretations in the literature on what a company faces during this journey, the summary here largely agrees with most other journey charts and includes what in my experience have been the relevant work streams that are synergistically interconnected and therefore must be included, at a minimum, in an enterprise maturity roadmap on this subject.
Figure 2: OPEX Maturity Phases for a Typical Manufacturer, Including Hoshin Kanri Practice
The Hoshin Office, as it interacts with other critical business functions, clearly stands out in this chart as an enabling methodology to manage change and help clarify what to do. By functional value it naturally is employed within the “Do-Loop” of each of the other Competencies. Another way to look at the relationship between Hoshin and OPEX is that, while Hoshin is a top down, or vertical process, OPEX is a cross-functional, or horizontal process. One other aspect that stands out is that the Hoshin Office, as a methodology and conduit of the business strategy, is only as effective and impactful as it is allowed to be. For instance, if a business were to be plagued with functional and data silos, this situation would very likely hamper the Hoshin Office from group collaboration and performance management, two essential components of a healthy Hoshin Kanri system. I have found this to be huge pain point in supply chains which are experiencing rapid change in demand and technology – change that is often too fast for business teams to anticipate and/or develop a response. The result being these enterprises are forced into a crisis management mode.
One key reason that many enterprises are still in the Conscious Evolution phase of the OPEX Journey is the energy barrier required to accomplish the required improvements in critical business processes to move to the next maturity phase. Step change transformation is often hugely draining on an internal organization and can be made nearly impossible to accomplish if an organization is being continuously leaned out for overhead control purposes, leaving little time or mind-share for subject matter experts and continuous improvement managers to be impactful. Unfortunately, this is an all too common situation. Only organizations who engage an external partner or develop an internal group to focus exclusively on the optimizations required to advance an organization are the ones who have moved along the curve into the Progressive Optimization space and beyond.
Examining the bell curve in Figure 2, which is based on interviews with several research companies as well as recently published articles, the majority of all companies reside within the ‘Conscious Evolution’ phase of the OPEX Journey. In this phase, although collaborative processes are in place, functional and data silos are still in existence. As noted above, this means that a large number of companies today are likely seeing a disruption in their strategy deployment process.
The Role of Hoshin Kanri and OPEX Programs in Boosting Business Agility
As I stated at the beginning of this article, increasing business agility is of critical importance today. Agility, to begin this part of the discussion, is quite simply the response capability of a system in the face of change. Businesses experience change from both external forces (e.g., market demand, technology, competition, etc.) and internal forces (employee turnover, technology, process migration, etc.). These forces are like gravity – they are always present and never-ending. Any enterprise is therefore continuously morphing, however imperceptibly, every hour of every day. Sometimes there are large and sudden changes that catch enterprises off-guard (e.g., loss of a key account, a key supplier goes out of business, or an influential executive suddenly departs). Most of the time, change is incremental. All change, big or small, must be actively managed by an enterprise in order to maintain consistent quality of current products and services while continuously improving the overall enterprise. This requires acute focus, which is only gained by a robust performance management program that has both leading and lagging indicator metrics embedded within an enterprise control tower dashboard to serve as the ‘eyes’ of the company to both external and internal change.
Hoshin Kanri’s strengths as a core practice for strategy deployment are made even more potent when proven TQM and Lean Six Sigma tools and practices are synergistically combined with the Hoshin backbone to drive the changes in business execution contemplated by the business strategy. Hoshin practice alone, however, is not sufficient in and of itself to drive business agility. Being normally employed after annual targets are agreed upon does not allow Hoshin to provide leadership with insights on whether or not annual targets have been set with the best knowledge available, and this deficiency may therefore cause multiple mid-year corrections as the enterprise is impacted by significant change which might possibly have been anticipated – and thus planned against. At the beginning of this article, I referred to management’s discontentment with their organization’s ability to execute their strategy. Perhaps the biggest reason I’ve seen is over-reliance on Hoshin Kanri at the expense of OPEX. This mistake is common and could otherwise have been remediated with a more functional performance management program.
An OEMS provides horizontal benefits across functions and, in its finest stage of deployment, is designed to specifically address an enterprises’ capability to manage the types of change discussed in this article. OEMS, therefore, is ideally complementary to Hoshin Kanri in that it can specifically inform leadership on looming changes, both external and internal, which might otherwise have disastrous impact on a company should these not be anticipated and planned for. Figure 3 illustrates how an OEMS agility dashboard and Hoshin Kanri can be deployed in a complementary way to provide an enterprise the competitive advantage of both detection and adaptation in the face of constant change. To fulfill the four missions of OEMS highlighted earlier in this article, extra functionality must be added to the corporate dashboard to include visibility into both external and internal changes. Leading and lagging metrics on key change factors are included in this new functionality to keep the business informed at the highest level possible.
Figure 3: OPEX & Hoshin Kanri Working Synergistically to Boost Business Agility
Revisiting my observation at the beginning of this article regarding functional leaders feeling they are working to execute perfectly against the business strategy, the key is in how KPIs are established and translated within the business. From Figure 3, the observation can be drawn that without the missing puzzle piece of an Agility Dashboard, functions may execute Hoshin flawlessly, be able to show metrics to demonstrate such, yet miss the target if the original business goals and objectives are under-informed of critical information that might otherwise be made available.
The link between Hoshin Kanri and OEMS is substantial and is where business process meets business intent. Should any process be found lacking, Hoshin Kanri is an effective change management tool to make the necessary alterations. Neither Hoshin nor OEMS, however, should be relied upon solely for business execution excellence. Imagine a motor boat without a motor, or a motor without a boat. Enough said.
1. Hoshin Kanri – Definition of. www.businessdictionary.com
2. Zairi, Mohamed; Erskine, Alan. "Excellence is Born out of Effective Strategic Deployment: The Impact of Hoshin Planning" International Journal of Applied Strategic Management.