Business Planning and the 85-15 Rule

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A problem organizations commonly encounter during the annual planning process is overloading the plan with too many initiatives.  Although this shows a lot of enthusiasm and energy during the development of the plan, it often results in frustration and disappointment during the year as people get overloaded and confused by too many priorities.  Good intentions don’t always lead to good results.

When applied correctly, the A3 planning process can greatly aid in the development of a plan that provides clear and focused objectives for the team.  And integrating the Plan-Do-Study-Act (PDSA) cycle into the process can enable the energy – and clarity – to continue throughout the year.  A key to making the process successful, however, is to create a plan that focuses 85% of the organization’s effort on meeting current year targets and 15% on breakthrough improvement.

85% Effort = Maintain

The first step in creating an effective annual plan is to obtain clear understanding and agreement on the targets that need to be achieved during the year.  And generally, these targets should be set at a point equal to the capability of the company’s processes and systems.  As long as processes are maintained at current levels, the targets can be achieved.  Although unforeseen problems will undoubtedly occur throughout the year, they can largely be handled through the company’s meeting rhythm and kaizen process.

This is what I often refer to as the day job.  It involves putting effort toward maintaining the current level of performance and meeting company commitments.  As a general rule, assuring process capabilities are maintained to a level that meets targets should require about 85% of people’s effort.

15% = Improve

As important as it is to put forth the effort to maintain process performance and meet targets, if no energy is directed improving performance, it will only be a matter of time before the company is passed by competitors.  Step-change or breakthrough improvement must be a strategic focus if it is to become a reality.  To assure this happens, the annual plan should include breakthrough objectives that require about 15% of the organization’s effort.

The breakthrough objectives come from a thorough reflection of the company’s past performance and future direction.  A clear understanding of the big problems – i.e., where the organization’s performance needs to significantly improve – must be established in order to comprehend the root causes that need to be addressed.  Examples could include enhancing a weak product development process, establishing a system for coaching and developing future leaders, or significant improving safety performance.

During the year, an unforeseen problem can surface that affects current process capability and meeting targets that will require significant effort to address (e.g., a significant quality problem, repetitive machine breakdowns, or a rash of safety problems).  In situations like this, when the normal meeting rhythm and kaizen process will not be enough to address the situation, breakthrough improvement may be required, and a decision needs to be made whether or not the organization is going to undertake the effort.  If so, people need to be clear on which breakthrough projects may be delayed to maintain the 15% focus on improvement. 

Kaizen for Leaders

Confusion between the maintenance and improvement efforts often leads to the development of an unachievable plan.  There will always be distractions attempting to interfere with maintaining the 85-15 balance, so continued PDSA is required to maintain clarity and focus.  This is basically kaizen at the leadership team level, where annual targets and improvement needs represent the target conditions and the plan (breakthrough actions) and priorities – become the countermeasures.

Improvement Requires More Reflection; Less Justification

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Using an A3 for business planning is one of those practices that, like many aspects of lean thinking, is simple but not necessarily easy.  Although the basic process tends to make sense to people, success requires those involved to exhibit certain behaviors that are so different from the norm that most plans produced by the process result in nothing more than business as usual.

Making Problems Visible

There are few people who will argue with the concept of making an organization's problems visible.  Understanding the role that KPIs or the boards and lights associated with an Andon signal play in problem-solving efforts is not difficult.  What does tend to be difficult, though, is applying the same type of thinking to the company's higher-level planning processes.  An organization has little chance of improving performance if its leaders can't agree on the problems they need to address.

In The Birth of Lean, Taiichi Ohno is quoted as saying that kaizen continuously requires people to, "assume that things are a mess."  Since business planning is fundamentally kaizen at the organizational level, we've got to create the idea that things are always a mess.  To do this requires that targets are clearly visible and people feel free to openly and honestly reflect on performance against the targets.

During business reviews, it is not uncommon for teams to spend significant effort justifying the performance gaps rather then accepting them and reflecting to understand the reasons that drive the gaps.  This is not surprising given the way many organizations to recognize and reward people.  When rewards are based on meeting targets rather than addressing problems, people will fight to justify results.  The crazy thing about this type of behavior is that most people recognize it - we just don't tend to do anything about it.

Moving the culture away from justification and toward reflection requires recognizing that the company's systems and practices may be driving the wrong behaviors.  There is always a mess, and it's got to be okay to recognize and openly admit it in order to free  people up to drive improvement.

It's difficult to say that any single component of business planning is more important than another but without adequate reflection, the organization will fail to recognize its biggest problems and will never move beyond mediocrity.  Time and energy spent justifying results is waste, and the sooner we replace it with open and honest introspection the sooner we can bring the big gains into reach.

Using ORID to Guide Business Planning

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Having worked with many teams over the years utilizing A3s to deploy strategies, I am always looking for ways to make the process clearer and more logical.  As with any type of learning, what helps one person connect the dots and better understand the process does not necessarily work with another.

I’ve noticed recently how well the hoshin A3 aligns with the ORID (Objective, Reflective, Interpretive, Decisional) method of questioning.  Based on the Socratic method of learning, ORID is a structured conversation focused on getting a team to arrive at decisions based on the information available.

The process starts with clarifying and understanding the information available, and through a series of questions, guides the team to make decisions based on reflection and interpretation of the information presented.  When applied to business planning, the decisions are the actions or projects to be implemented over the coming period.

Specifically, the ORID stages include the following:

• Objective:  Covers the facts available to the team, including data and evidence related to the topic being discussed.  This stage requires avoiding personal feelings or opinions about the situation and keeps the discussion as objective as possible to calibrate the team’s understanding of the facts;
• Reflective:  The team discusses how they feel about the facts.  This lets team members relate their personal feelings about the information available to the group, including how they feel about the team's performance in the current period (did things go well?  did they go as expected as expected?  could performance have been better? etc.);
• Interpretive:  Focuses the team’s energy on interpreting what the facts mean to the organization or the problem at hand.  The interpretive questions move the team to begin identifying potential causes of the current situation or reasons why objectives were or were not achieved.  The output of this stage is a list of areas needing to be addressed to improve performance in the coming period;
• Decisional:  Specific actions or plans based on the previous stages of discussion.  The actions are focused on addressing the problem(s) identified or developing the plan for the coming period.

The ORID technique can be fairly complex in that it requires a facilitator who can keep the team focused on a specific stage without letting the discussion bleed into the next area phase.  For example, it is perfectly natural for people to want to reflect and interpret the situation – or even make decisions - before the facts are clearly understood, and the facilitator must be able to keep the group focused on an objective review of the information before moving on to next phase (similar to Stephen Covey’s principle of seeking first to understand, then to be understood).

ORID and Business Planning

ORID questioning is perfectly aligned with the A3 for business planning.  As shown in the exhibit, the A3 generally follows the ORID process in moving a team from current year performance to an action plan for the coming period.  Sticking to the phases helps the team deploy strategy by clarifying the facts and building a plan based more on logical thinking than individual opinions and operationalizes a Plan-Do-Study-Act (PDSA) approach to improving performance.