Strategy Deployment: Hoshin, PDCA & Drucker

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In another chapter from the book of simple concepts that are difficult to implement comes the story of strategy deployment.  Over the years, I have seen some great business plans that failed to deliver because of the inability to stay focused and drive them into the organization.

Hoshin kanri is a process focused on setting direction, developing plans, and managing implementation.  Progress on the plan is continually reviewed to understand when adjustments are needed to achieve success.

There have been many books written about Hoshin Kanri that cover the subject in great depth.  And since I could never adequately cover the topic in detail in a short blog post, I’ll try to hit on what I consider to be the high points of the process.

Hoshin & Drucker

Much of the hoshin process appears to be aligned with Peter Drucker’s method of strategy deployment.  I have always considered the strength of Drucker’s approach to lie in his technique of continually asking a few simple questions to get people focused on what’s truly important.

What are we trying to achieve?
How are we doing?
What are we doing about it?

Hoshin Kanri follows a similar approach through the application of the Plan-Do-Check-Act (PDCA) cycle to business planning.  Deploying strategy requires an obsessive focus on the few high-level objectives that are critical to success.  Utilizing Drucker’s simple questioning technique within a PDCA framework helps maintain focus by increasing understanding of the following:

PLAN:  What are our objectives?
DO:  What are our plans to meet objectives?
CHECK:  How are we doing?  Are our results meeting objectives?
ACT:  What are we doing about it?

Another benefit of PDCA in strategy deployment is that it drives home the idea that business planning is not a once per year exercise.  It is an ongoing process that needs continual reflection and adjustment to succeed.  There is no "new" plan each year - there is only a new revision that has been adjusted to account for progress and changes in the environment.

Deploying Strategy

 The initiatives that are developed from the business plan also go through the PDCA process to assure they continue to progress.  When doing the CHECK on each of the initiatives, the team should follow the general approach listed in the exhibit.  By creating the initiatives, the team is predicting that completing them will result in meeting one or more business objectives.  Because of this, it is important to review whether the initiative is progressing as planned and, if so, whether or not it is driving the desired results.

Although the Drucker questions appear simple, the answers can get fairly complex.  The key is to provide enough time to reflect on the answers in order to keep people focused on objectives.  The effectiveness of leadership, after all, lies in the ability to simplify complexity.  Whether using Hoshin Kanri or some other method, it is critical to utilize some type of framework that enables this to occur.

The Smarter Company

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When discussing the most innovative and successful companies over the last decade, people will most likely mention names like Apple, Facebook, Google, or RIM.  These companies are known for utilizing innovation in products, processes, services, and technology to give them a distinct advantage over their competitors.

But how do these companies maintain their edge?  Are the people who work at Apple or Google really any smarter than those who work at other organizations?  It's no secret that these companies have their pick when it comes to recruiting, but is that what keeps them more innovative and profitable than other companies around the world?  In my opinion, yes . . . and no.

It Takes More Than Talent

I will never downplay the importance the talents of people to a company's success.  Companies like Google and RIM are staffed with very smart and talented people which has undoubtedly helped them to introduce highly successful products year after year.  But without the leadership, culture, and systems that encourage and support innovation, there would be no way to consistently turn the ideas of these people into commercially viable products.

I have worked with a number of companies throughout my career and met many highly talented people who, for a variety of reasons, were unable to utilize their talents effectively.  In contrast to companies like Apple, the cultures and systems in many of the companies for which these people worked interfered with their ability to use their creativity.  The really sad part of the story is, the longer this went on, the less the people were willing and able to be innovative.  It's as if the ability to innovate atrophies when not used or developed over time.

It's the Company that's Smarter

The difference between the average company and a company like Apple, for instance, is that the leaders at Apple understand that innovation is a key to their success and they've created an environment that encourages creativity.  They have remained focused on creating a culture that fosters the use and continual development of team member creativity, and aligned systems to quickly turn their ideas into products.  In my opinion, this makes Apple a smarter company than most.

It is strange to think that a company would hire someone because of their talents and allow barriers to exist that prevent the person from utilizing these talents, but it happens fairly often.  It's not intentional, but for a variety of reasons, the environment in many companies encourages behaviors that interferes with success.  Mismatches in purpose, strategies, and values lead to confusion, frustration, and de-motivation of employees, interfering with sustained levels of success for the company.

Becoming Smarter

So how do leaders make their companies smarter?  How do they create the type of environment that enables people to utilize and develop their talents in a way that leads to success?  It obviously depends on a company's particular circumstances, but involves addressing one or more of the following areas:

• Purpose:  Be clear and consistent on the company's fundamental purpose.  Why it exists, what need it fulfills for its customers, and why it is different than other companies that serve the same markets;
   
• Strategies:  Determine, clearly communicate, and implement the best way for the company to compete in order to be successful (i.e., achieve its purpose).  Will it compete on the basis of innovative products and services?  Low costs?  High quality?  Assure that the company's culture and systems are aligned with the chosen strategies;
   
• Values:  Identify the company's personality.  Be very clear on the DNA of the type of employee who will make the company successful in the achievement of its purpose;
   
• Hiring:  Take time to hire the right people with heavy emphasis on a person's fit within the organization's culture.  Make sure that, once hired, they are able to utilize their talents effectively;
   
• Train/Develop People:  Continually develop the collective skills of the company's team in support of its business strategies;
   
• Foster Teamwork:  Identify and remove the barriers to teamwork on a continual basis in order to get the organization acting as one and focusing on common objectives;
   
• Value & Respect People:  Assure that people feel respected and valued for their contributions to the company's success.  Create systems and develop leaders that will encourage participation in the achievement of objectives:
   
• Continually Refine Environment:  Develop and refine the company's culture to assure it is aligned with business strategies.  Assure that the environment encourages, rather than hinders, implementation of the strategies.

I don't believe that a company needs to be innovative in order to succeed.  It is much more important for a company's offering to be "right" than "fast."  With that said, however, the faster a company can offer a new product or service that is right, the more successful it will be.  Determining the strategies and assuring that all internal systems and values support the implementation of the strategies will make the company smarter.

So to answer to the question:  I don't believe that the people at Apple or Facebook are any smarter than those at other companies, but I do believe that Apple and Facebook are smarter than other companies.

Is Strategic Planning Dead?

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The Wall Street Journal ran a story last week on the downfall of strategic planning.  According to the article, companies learned during the recession that flexibility and quick decisions are more important to a business than planning, and that strategic planning as a practice is becoming outdated.  I hope anyone who decides to scrap a company's strategic planning process based on this article clearly understands the ramifications before doing so.

As I read the article, I found that the authors pointed out many of the misconceptions of the strategic planning process more than the problems with the concept itself.  People often mistakenly utilize the process as solely a financial review and confuse strategic planning with budgeting.  The article mentioned several examples of companies that realized during the recession that they were not reviewing sales and spending numbers often enough to react to quick changes in their markets.  By itself, this realization makes perfect sense as the last two years has been characterized as the worst since the Great Depression.  With that said, however, the need to stay on top of budgets has nothing to do with the value of an effective strategic planning process.

Strategic Planning 101

Strategic planning is a process by which an organization defines its strategy to successfully achieve its fundamental purpose.  The outputs of the process include high-level objectives (critical improvement areas) and initiatives (action plans to address the barriers that prevent achievement of the objectives).  It is a valuable process to assure the organization understands its strategies to improve its competitive position and be successful for many years into the future.

Periodic review is required to (1) assure that the initiatives are progressing as intended; and (2) assure that the initiatives - if they are progressing - are actually resulting in achievement of the high-level objectives.  For example, an organization may create an initiative to change its ERP system in order to support the objective of improving inventory management.  If the new system is implemented but inventory turns do not improve and stock-outs continue to delay shipments, it may be that the ERP system was not the problem and, therefore, should not have been an initiative.  The management team needs to revisit the inventory management system in order to determine how to improve the situation (e.g., identify other initiatives that will result in achieving the objective).

There is no single approach for strategic planning that will work for all organizations.  The process must be tailored to the specific circumstances and culture of each company.  The depth, frequency, and type of review will be different for everyone, but it must still be done if the organization is to become and remain successful.

Remember the Future

Eliminating the strategic planning process will only serve to increase the number of attention deficit disorder (ADD) companies that already exist.  The short-term behavior that has severely weakened so much of western business will continue, resulting in a continuation of dramatic swings in earnings and share price.

Let's be clear - I am not discounting the value of quick decision-making to a business.  Problems occur, though, when "quick" becomes "careless."  A company can benefit from continually focusing on speeding up decision-making without sacrificing quality.  Improving information systems and training can speed up decision-making without putting the company at risk.  If this is what a company needs, though, it will become evident through the planning process.  Those who believe that strategic planning is a slow process that does not add value are not doing it correctly.  If the process is too slow and is not helping the business grow and succeed, it needs to change.

The leader is responsible for assuring that the organization survives the short-term so it can succeed in the long-term.  Quick decision-making and frequent reviews can help take care of the short-term while effective planning (and successful implementation of the plans) is the key to taking care of the long-term.  Stop strategic planning and you might as well forget about the future of the company.

Being Lean is Not Enough

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One of the hottest trends in business over the last few years has been lean.  Most of the Fortune 50 companies currently claim to be doing lean and the market is flooded with training and consulting companies touting the benefits of the approach.  I recently Googled the term lean+business and received 30.1 million results.  It appears that we're presently in the midst of a lean blitz.

Don't get me wrong, I think lean is a strategy from which virtually every company can benefit.  It is a great way to gain control over processes and improve quality while reducing costs.  Throughout my career, I helped many companies implement lean and have seen some great benefits as a result.

The problem I'm having is that lean is being oversold to business.  Consultants and practitioners are promoting lean as if it is the cure for all of a company's problems.  I have gotten into many discussions over the years with people who are disappointed when leaders don't place lean at the very top of the company's priorities.

Part of the Picture

Lean can be a valuable part of the company's overall strategy.  The critical word here is part.  There are other elements of a corporate strategy that are just as - if not more - important depending on the company's individual circumstances.  In the most simple example, a company can be highly successful with lean but go out of business if it is not offering products or services that people want to buy.

However strategic planning is specifically conducted, the process should generally include an analysis of the four high-level objectives that are necessary for success:  (1) People/Leadership Development; (2) Process Improvement; (3) Product/Service Development; and (4) Market Development.  There are times when one or more of these areas will need extra focus, but unless all are analyzed on a regular basis, the ability to understand which areas are in need of attention is limited.

Strategic planning requires an assessment of the company's situation to understand where the current barriers are to achieving success at any given time.  The barriers can be weaknesses that interfere with success, or opportunities that can help the company grow and improve performance, but they will become evident during the process of understanding and evaluating the four high-level objectives.  The analysis helps senior leaders understand where the company's focus (in terms of investment and resources) needs to be in the coming one to three years (or beyond, depending on the normal planning horizon).

Let's Maintain Perspective

The point here is not to oversell the benefits of lean, and to understand why executives don't necessarily put it at the top of the company's priorities.  As an initiative, lean can directly support the process improvement objective and indirectly aid product/service development, but to truly help an organization succeed, it is important to understand that it may be end up being something other than the top priority.

Saturn Crashes

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It was very disappointing to hear the news about Roger Penske pulling out of the deal to acquire GM's Saturn division. Of all American automakers, I believe Saturn had the best chance of transforming into the type of organization that could compete with Toyota, Honda, and Hyundai, and it's really too bad to watch it go down without a fight.

At one time, Saturn was a very interesting company. It started in the mid-1980s completely isolated from the poisonous culture of General Motors as a way for the company to compete with Toyota and Honda. They utilized a separate dealer network, built a new factory in Tennessee, and hired a completely new "non-auto industry" workforce. The division also focused on creating a positive customer experience - something for which GM has never been known.

It Should Have Worked

The idea was good; the implementation was mediocre; and the strategy over the last 15 or so years was extremely poor. At some point, the infinite wisdom of GM executives kicked in and interfered with the development of the company. GM management decided to virtually stop the division's development of new vehicles and bring it into the company's fold. As a result, Saturn lost any of the benefits it once had and entered a death spiral from which it had no chance of escaping. The interesting experiment quickly became the stepchild of the company, and was strategically lost among the other GM divisions.

My disappointment with the latest news is that I don't believe the bad habits that Saturn has most assuredly developed since being rolled into GM's culture have been around long enough to be ingrained into the Saturn culture. It probably would not take very long to move the company back to its roots and create the type of culture that is necessary to compete with other automakers.

To survive in today's market, an automaker must be able to quickly develop new models that people want to buy while improving quality and lowering costs on a continual basis. Given the decisions and actions over the last several years, however, I don't believe that this is possible at GM because there are just too many cultural barriers in the way. The people at Saturn should know what it's like to be a small, flexible company, though, and separating it from the mother ship would give it the opportunity to rebuild without the interference of GM management.

To succeed, Saturn would need to have a flat organization structure that is light on management and heavy on leadership, innovation, and teamwork. It is not rocket science, but is only possible if the people in charge have the vision of what a customer-focused, flexible organization looks like, and the attention span to stick with it through good times and bad. I don't think GM has such a vision - but I was hoping that the Penske Group did.

When I hear people within GM say that Saturn was never viable or necessary, I can't help but think about the parallels with Hyundai Motor Company. Originally created to build cars for Ford, company management decided in the 1970s to design and build their own cars. In the mid-1980s, the Excel became the company's first car sold in the U.S. - a small, fuel-efficient model that, to be honest, was very poor quality. But the company stuck to its vision and continually improved its product offering and quality and is now a serious competitor in the global market. This could have been Saturn had GM management been patient enough to not interfere.

Just Make It Quick

The senior leaders at GM have failed in their ultimate responsibility as stewards of the company. General Motors has a colorful and interesting history that has been a major part of Americana for more than 100 years. The company that employed hundreds of thousands of Americans (and affected exponentially more), and includes the likes of William Durant and Alfred Sloan, has steadily declined through arrogance, greed and poor decision-making. As a native of Detroit, the situation makes me very sad and very angry.

Company officials announced that, with the collapse of the Penske deal, Saturn will close its doors by October, 2010. As sad as the news is for the U.S. auto industry, a quick exit may actually be better than the type of slow, lingering death that Oldsmobile and Pontiac have experienced. As we look to the future, though, I have to wonder whether a similar fate awaits Chevrolet, Cadillac, GMC, and Buick.