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In today's business environment, any organization that wishes to exceed customer expectations and stay competitive needs a long-range strategic plan. This plan must be forward-looking, visionary and achievable, while at the same time striving toward continuous improvement of the organization's key business processes. The organization must, in effect, keep "both hands on the wheel" to move forward successfully. The hoshin strategic planning process in use at Hewlett-Packard Co. has been highly successful in meeting these requirements.
The hoshin process is, first of all, a systematic planning methodology for defining long-range key entity objectives. These are breakthrough objectives that typically extend two to five years with little change. Second, the hoshin process does not lose sight of the day-to-day "business fundamental" measures required to run the business successfully. This two-pronged approach provides an extended period of time for the organization to focus its breakthrough effort while continuously improving key business processes day to day.
The hoshin methodology provides:
Hoshin ensures that everyone in the organization is working toward the same end. The plan is hierarchical, cascading down through the organization and to key business-process owners. Ownership of the supporting strategies is clearly identified with measures at the appropriate level or process owner within the organization.
The hoshin process fits under the umbrella management philosophy of total quality management. The plan-do-study-act process improvement cycle enters repeatedly in the plan's development, implementation and review.
Using the PDSA cycle in strategic planning ensures that:
The hoshin process, which has evolved somewhat since its inception, was first used at Hewlett-Packard in 1976 at YHP, the company's subsidiary in Japan. The Japanese words hoshin kanri can be generally interpreted as direction (setting) management for the entity. The words nichijo kanri can be interpreted as daily (fundamental) management for the entity. The blending of these two methods is key to the success of the hoshin process.
The basic premise behind the hoshin plan is that the best way to obtain the desired result is to ensure that all employees in the organization understand the long-range direction and that they are working according to a linked plan to make the vision a reality. The second aspect of the plan is that there are fundamental process measures which must be monitored to assure the continuous improvement of the organization's key business processes. In essence, all are heading in the same direction with a sense of control.
The process includes:
The review of the plan's progress follows the PDSA cycle, and it applies to all levels of leadership within the organization. In the hoshin process, there are two kinds of planned organizational activities: breakthrough activities and business fundamentals or key process-monitoring activities, also known as the business fundamentals table.
The organization should have a clear statement of purpose. In other words, what added value do customers receive via the products or services offered? Also necessary is a long-range vision: Where is the organization headed in the next five to seven years?
Breakthrough activities are those directed at achieving significant performance improvements or making significant changes in the way an organization, department or key business process operates. These activities are typically directed at overcoming the critical business issues the organization will face in the next two to five years. In the broadest sense, these issues may relate to profitability, growth or market share; toward a specific issue such as a quality problem; or in support of a new product or service introduction.
To articulate clearly what needs to be done, the organizations should develop a mission statement. The statement should address what is to be accomplished (the business objective) with a measure of accomplishment (the overall goal) within a given time frame (when). The mission statement describes what the hoshin plan needs to accomplish.
All specific improvements or changes to be made by the organization should contribute directly to the business objectives. These are the hoshin strategies chosen by the leadership team. Each strategy has a strategic goal and process performance measures to continuously monitor performance on each individual strategy. This ensures that the hoshin strategies are being properly carried out and progressing toward their individual strategic goals. If all strategies are successfully accomplished (all strategic goals met), the overall hoshin goal also will be met.
Realistically, however, most of the organization's time must be devoted to keeping the business running, i.e., carrying out the value-added activities of the key business processes that fulfill the organization's purpose. The monitoring of these day-to-day value-added activities needs to occur in all parts of the organization. This is how the process owners are able to take real-time corrective action for continuous process improvement (known by the Japanese as kaizen). These selected monitoring points are the business fundamental measures, and together they comprise the business fundamentals table.
The BFT information is collected using process performance measures that reflect the progress of individual process activities (or steps). The PPMs are placed at steps within a key process to ensure that the value-added steps of that process are indeed being performed at the correct time and rate, as well as with the required quality level. These are essentially the performance measures of the organization's key business processes.
Breakthrough activities can only really be carried out when the business fundamental activities are under reasonable control. If the BFT is under control, some of the time still available should be devoted to continuous process improvement. After achieving this state of continuous process improvement, the organization has time to perform breakthrough activities.
To some extent, the amount of time spent on breakthrough activities is self-regulating. If an organization is struggling to bring key business processes into control, the key business issue for which a breakthrough is needed may be to "bring the BFT into control." This will result in delaying or postponing a more lofty hoshin objective but is an essential first step for long-range success (the vision). As the BFT is brought into greater states of control, more of the organization's time is spent working on the strategies to reach the hoshin objective.
The key point is that most of the breakthrough activity should come from time previously spent on out-of-control BFT items. Dedicated teams will need to provide some focused effort, but the amount of time will depend on the complexity, technology and expertise required by the strategies supporting the objective.
In the hoshin process, strategic planning is systematized: The format of the plans is unified via standards. The standardization provides a structured approach for developing and producing the organization's strategic plan. The structure and standards also enable an efficient linkage of the strategic plan through the organization. This ultimately leads to an organizationwide understanding of not just the plan but also the planning process.
This also holds true for the methodology used to review and track the plan's progress. This built-in standardization enables the organization to evaluate decisions made by the organization's leaders and to gauge the effectiveness of selected strategies. Because the review process emphasizes not only results but how decisions are reached, the organization can identify successful decision-making methods and practices. The review methodology is essentially a built-in benchmarking process for the organization's decision making.
As an additional benefit, the review methodology can help identify areas of opportunity for the future. These opportunities can be used to modify failing strategies or point to the next hoshin objective to be pursued. This identifies the next mission to be accomplished as the organization strives for the vision.
These opportunities for the future, coupled with the benchmarking aspect of the review methodology, are the vehicles for organizational learning at all levels.
The hoshin planning process is cyclic, following the PDSA improvement cycle. In particular, the review of the plan for the year just completed is the information source for next year's plan. This is a "study" step in the process, and it begins in the middle of the cycle. If this is the first year of the hoshin planning process, reviewing last year's plan in the following format will help the leadership, and the organization as a whole, transition to the hoshin methodology.
Each objective has a hoshin review table, with all supporting strategies listed. For each strategy, use the PDSA cycle to measure the progress against the goal set at the beginning of the year (plan). In addition, record actual results-to-date (do). Note any discrepancy between the results and the plan (study), and state the impact on the strategy for the coming year (act). Complete such a review both for the objectives that were successful and those not attained or incomplete.
For those objectives that were completed successfully, perform an analysis to determine what went right and to determine if the supporting strategies and performance measures initially established were truly appropriate. Also, note any exceptional results and how they were obtained. This step is critical to capturing knowledge of how to "far exceed" and transfer that knowledge to the organization.
For each objective that was not attained, determine the reasons for the deviation. Typically, the analysis consists of the detailed supporting data of all strategies associated with the objective. The strategy owners also should identify what their teams would have changed to have been more successful in the year just completed as well as for the future. This looking back and ahead to the future is the key to improving organizational learning. It can greatly benefit the organization in identifying future opportunities.
Annual reviews start generally about the same time in all departments and are initiated by process owners who were involved in last year's plan. Starting at the lowest level that has plan ownership, the review is completed and the information passed up the organizational structure (management levels). Each level then uses the review tables from previous structures (management levels) to complete its own review. Discussions between the different structures of the organization are very important and should result in consensus on the review table results.
In addition to listing objectives from the previous year's plan, the review table can call attention to important issues for the coming year. Because the review table moves up the organizational structure, it is a vehicle for bringing important issues to the leaders' attention. When the review reaches the senior management team, the hoshin review tables highlight the areas in which the organization made significant progress and attained the identified goal, and where changes should be made or more work is needed.
The review is completed using information from:
The senior management team can determine if last year's critical business issues and business objectives (which were selected to address the issues) are still appropriate for the coming year. This also is the time to make sure the organization is providing value to its customers as described by the purpose. Last, is the vision for the organization still appropriate for business conditions?
Senior leadership is ultimately responsible for establishing the strategies, goals and process performance measures to address the organization's issues for the coming year. Some organizations have been successful at using issue teams or management quality teams. These teams consist of the functional managers and senior leaders most involved with a particular issue. Together, they formulate objectives and strategies to best address the critical business issues at hand.
The organization's leadership should be convinced that successfully implementing the selected strategies will make it possible to achieve objectives and resolve issues. (This is the "act" step of the PDSA cycle.)
The annual plan, as its name implies, is the "plan" step in the PDSA cycle of the coming year. Keep in mind that the breakthrough plan may (and should) span more than one year. This year's plan documents what needs to be done this year, and it is not necessarily all that needs to be done. That is why a good hoshin plan is fairly constant for a few years, with only minor modification to the strategies.
Record the organization's objective and strategies in the annual planning table. The APT is then passed down to the next organizational structure. This provides direction and hierarchical linkage to the plan's highest level. The hierarchical linkage attribute of the hoshin plan occurs because of the pass-down process of the plans at each succeeding level.
At each level, the APT from the next higher level is used to develop an APT for that level. Each group simply uses the strategy and strategic goal (or PPM) from above as its objective and goal. Each department or process owner selects the strategy (to be used as its goal) most appropriate to the group's expertise or technical strengths. In this way, the organization's critical issues filter down through the organization, with each level contributing where it appropriately and most effectively adds value. At each succeeding level, strategies are owned, expanded and turned into implementation plans that contribute to reaching the objective and the overall goal.
This is the cascading attribute of the hoshin planning process. It is a very important step in empowering the organization. As each succeeding level accepts its portion of the plan, it has been involved in the plan's development by adding detail where it can best contribute and add value. This is also how the organization buys into the plan; it now has some ownership of the plan itself. The hoshin methodology is a strategic planning process with the built-in ability to empower the organization.
The APT lists the objective to be achieved as well as the goals. (Note that if there is more than one objective, there are multiple APTs.) The APT also outlines the strategies to be used to achieve the objectives and indicates who will own each strategy. Most important, the plan includes strategic goals and PPMs for every strategy. These PPMs are specific measures that monitor, guide or measure performance and progress of the strategies. Thus begins the initial phase of the "plan" step of the cycle.
The PPMs should answer the question: How will I know whether a strategy is being implemented successfully? The PPMs could be multiple so that all important aspects of a strategy are measured. While planning generally cascades downward through the organization, coordination requires plans to be developed at each level in consultation with work groups above, below and laterally (interdepartmental or interprocess). For interdepartmental objectives, members from the involved departments or processes must work together to resolve the PPMs. For such projects, interdepartmental responsibilities should be clearly defined and documented in the annual plan.
The decision of strategy ownership is usually based on who has the greatest interest, influence or ownership in what must be changed. This plan details where the real process improvement or reengineering occurs. When strategy ownership is at the appropriate level within the organization, the strategy owner develops an implementation plan.
After all the previous planning has been coordinated and completed, perform the final phase in the "plan" step of the PDSA cycle. The implementation plan is a detailed tactical plan that lists the precise responsibilities of everyone involved in implementing a particular strategy. It is usually laid out in a Gantt chart (or timeline) format, which identifies: how (with what measure), by whom and when.
The implementation plan should include activities, timelines and checkpoints for specific events. The implementation plan is an ongoing decision-making tool; plot or note actual performance to plan alongside the planned events and checkpoints. The implementation plan should also include how and when the plan will be reviewed.
Developing an implementation plan usually requires coordination both within and between departments and process owners. Implementation plans are not just the responsibility of the individual completing the lowest-level annual plan. Each level in the organization has detailed responsibilities to ensure support for and successful completion of the organization's plans. This is how the "do" step of PDSA happens.
After implementing the plans (once again, the "do" step), begin the periodic hoshin review process. This is the review conducted at the highest level within the organization; it should include all leadership team members. Conduct APT reviews as often as called for in the plans, usually once per month for the BFT. Reviews of the APT should occur at least once per quarter, or monthly, if necessary for finer corrections at crucial times. The review should begin with the BFT snapshot, to gauge the organization's overall process control, then a review of the breakthrough plan.
The leadership team should review the BFT items on an exception basis with the PPM owner and process owner (department supervisor). Discuss only those items not in control. Data relating to these items should be directly available.
Because the BFT items were developed in cooperation with the process owners and supervisors, reviews of these items should give the leadership team a quick indication of how well a department or a process is performing. The table should detail an analysis of the deviations and corrective action.
For the APT itself, conduct a review of the supporting strategies, their PPMs and progress toward the overall goal using the hoshin review table. In some cases, the strategy owner and his or her team may be involved in these reviews. The final annual review is essentially a compilation and summary of the hoshin review tables accumulated during the year. This final review returns us to the "study" step described earlier.
The "study" step plays a crucial role in improving organizational learning ability. When actual performance and results are compared and a deviation-from-plan analysis is completed, those closest to the strategy make visible to the organization's leaders a great deal of information.
The strategy review's last step entails identifying the root causes of the deviation. In addition, the review should record the actions taken (the "act" step) in response to this deviation. The actions may comprise as many as three phases:
The APT describes what the organization wants to accomplish during the coming year (the mission) from a breakthrough standpoint on the way to a longer term goal (the vision). If, during the review process, new and unexpected developments arise or better ways are found for doing things, the plans should change accordingly. When this happens, document and highlight the reasons for the change on the review table. Once again, this helps the organization learn from the plan and improve the planning process for the next year.
The hoshin planning process is a very effective strategic planning process that follows the PDSA improvement cycle. For hoshin to succeed, the organization must undergo an effective analysis from both a business fundamentals and strategic planning standpoint. These analyses provide input for the plan. In addition, recognize that breakthrough activities can only occur when the BFT is in reasonable control.
Make sure to identify critical business issues facing the organization and select an objective and goal to overcome the issue. To develop a complete plan and to guide the organization, identify supporting strategies with measures and owners.
To implement the plan, take several steps. Detailed APTs at all levels provide guidance and linkage as well as drive the implementation plans. Assign clear responsibility for each item in the implementation plans. Remember, this is where the real change occurs.
Because significant projects usually require both intra- and interprocess cooperation, develop plans in a cross-functional, cross-departmental and cross-process manner. Extensive discussions within and between departments and process owners are vital to the success of the overall plan.
After the plans have been put in a final form and rolled out, continually monitor each strategy's progress using the established PPMs. Highlight any deviations from the plan on the review tables, which also record actions taken based on results. A strategy is completed when the strategic goal is obtained. Finally, summarize the PDSA cycle for the year in the annual review table.
The hoshin planning process helps an organization learn from both the problems solved and the business successes. This is fundamental to building a learning organization. Hoshin enables an organization to collect and study performance information about itself from both day-to-day and long-term measures. Last, it helps the organization think about where it is headed and the best way to get there, with both hands on the wheel.