One of the benefits of working in industry for decades is the accumulation of knowledge. I’ve made mistakes, learned from masters of their craft, and perhaps gained some wisdom along the way. The primary purpose of this article is to share what I have found to be key insights with regards to three critical phases of Hoshin Kanri/Strategy Deployment; crafting Breakthrough Objectives, developing an X-Matrix & Annual Improvement Priorities, and conducting Strategy Reviews. The secondary purpose is to engage the community in an effort to share/discuss and broaden our collective understanding around the subject.
Here is what a notional Strategy Deployment architecture looks like to me:
The process begins with developing the organization’s True North; the10-20 year vision. Most organizations have a fully matured True North, so I’ll assume that is the case for the readers of this article. With True North established, we can begin thinking about what the organization should accomplish over the next 3-5 years – the critical few Breakthrough Objectives that will lead us closer to our True North.
Crafting Breakthrough Objectives
I’ve observed some companies setting their strategic objectives via a popularity contest. That is, executives throw some ideas up on a white board, then provide each leader with a few sticker ‘dots’ to vote with; the ideas with the most ‘dots’ win. Perhaps a better way to craft our Breakthrough Objectives is to begin with a blank sheet of paper and apply A3 thinking to the challenge.
Albert Einstein was quoted as saying, “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.” If we thoroughly understand the organization’s current situation (quantitative, not qualitative), and we can articulate the future condition (what does ‘good look like’ 3-5 years from now?) with indisputable facts and data, the gap will become unambiguous.
Our analysis should be detailed; probing deeply into the right issues. We should avoid conducting too much ‘naval gazing’ – that is, comparing ourselves to ourselves. External comparisons and considering the voice of the customer are critical inputs. Be clear about what we know and how we know it, along with what we don’t know and how we can come to know it. If our strategy deployment looks like a group of leaders locked in a room for a day, brainstorming, voting, and producing an X-matrix that gets filed away in a secure location, I’m guessing that our results are less than stellar.
There seems to be two major struggles with regards to crafting effective BTOs: 1) limiting the breakthrough objectives to the critical two or three that will lead to major step-function improvements in performance, and 2) deciding what NOT to do. According to my research, and coaching from my sensei-tachi, the companies that execute well at Strategy Deployment do both very well. Of the two, deciding what NOT to do is the most difficult – I’ve been coached not to expect the organization to “get it” until about the third year of the annual cycles. As they say, your mileage may vary.
The breakthrough objectives and associated annual improvement priorities become the full-time job of the best people in the organization. They are also great avenues for ‘stretch assignments’ for emerging leaders. Our role, as leaders, is to create the conditions for success; this mindset embodies the principle of respect for people. If we assign additional objectives to already overloaded people, are we setting them, and the organization, up for failure?
The 3-5 year Breakthrough Objectives should include specific measurable targets. For example, a 200% increase in new products launched by the end of 2023, grow revenue by $400 million with an EBIDTA of >/= 16% by the end of 2022, or win the David Packard Excellence In Acquisition Award in the year 2024. Motherhood and apple pie objectives, like ‘increase customer intimacy’ or ‘improve employee engagement’ are not specific enough to have any idea of ‘what good looks like’ or how to achieve it.
Well-crafted BTOs consider organizational contribution. Let’s say we have four divisions in our organization. Do we expect all divisions to contribute equally to a given BTO? Should one division have a higher contribution ratio, due to their unique market/customer challenges? One size does not fit all, in most businesses. Best practice includes creating a contribution matrix; clearly defining which business element has responsibility for executing a given BTO, and how much they are expected to contribute to the overall objective.
Developing the X-Matrix & Annual Improvement Priorities
Once we have spent the time and effort to carefully craft our Breakthrough Objectives, we can move toward developing our X-matrix (or matrices) and Annual Improvement Priorities (AIP). I’ve observed many variations on the X-matrix. My sensei-tachi have consistently coached around four primary elements, situated in the 6 o’clock, 9 o’clock, 12 o’clock, and 3 o’clock positions; Strategies, Tactics, Process, and Results. There are hundreds of examples on the internet; find one you like and try it. If our goal is to create a learning organization (it should be), we will prioritize entering into the PDCA cycle; to get as many spins of the cycle as quickly as we can. We don’t let perfect get in the way of better.
Each AIP should spawn its own A3, with clearly defined owner, actions, timing, and anticipated results. I find it impossible to check for adherence (are we executing the actions when we committed to doing so?) and sufficiency (are we getting the results we anticipated?) without a plan (existence). The output from the A3s can be mapped to an annual plan matrix, to support the monthly review by executives. I’ve observed that some X-matrices include a variation of an “annual plan matrix’ element incorporated into the 3 o’clock (-ish) position, while others use an annual plan matrix independently as their primary monthly management tool.
If the A3 is developed using the A3 thinking process (reference “Understanding A3 Thinking” by Sobek and Smalley), the owners will have discussed with all impacted persons prior to finalizing the A3. To the extent practicable, the A3 owner will incorporate the inputs from those impacted. By doing so, the A3 owner creates the conditions for success by gaining the insight from the organization and garnering support from those who will influence the eventual outcomes.
The cascade of Annual Improvement Priorities, vertically and horizontally throughout the organization, requires time and effort to maintain consistency and trajectory. One of my mentors was fond of saying, “Sometimes, you have to go slow to go fast.” When we take the time to fully mature our BTOs and AIPs, performing the cascade and catch-ball effectively, sufficient execution is more likely – in my experience. There is a certain level of rigor required to be successful. I’ve been coached that a lack of rigor is the second most common failure mode for strategy deployment.
There’s a bit of a “translation” of higher-level AIPs to the lower level AIPs, and further down to individual project plans and further “decoded” into daily management targets. Monthly revenue at the BU level might translate to # of units/day produced on the factory floor, as an example. Taking the time and effort to design the system provides clear line of sight by all within the organization is wicked hard, but necessary. With regards to measures, consider using a combination of both leading and lagging measures.
For our revenue example, consider measuring the sales funnel at key points, as those opportunities will travel down the funnel to become bookings that blossom into beautiful revenue. Measuring the capture rate at various funnel stage gates might give you insights that could help improve your performance long before the trailing revenue measure is reported.
Once an organization has deployed their strategy, it’s critically important to conduct monthly strategy reviews to check for adherence and sufficiency. The lower level performance “reports to” the next higher level, and so on up the organization. Each layer examines their own performance, and that of the layer(s) below, to check for adherence to plan and sufficiency of results. Should a gap arise, the organization conducts problem solving and enacts countermeasures to get back on track. Leaders are routinely asking the action owners, “What can I do to help you succeed.” Best practice is to separate the strategy deployment reviews from the operational reviews, to maintain focus.
Consider the timing of the strategy reviews, and schedule lower tier reviews prior to higher level reviews, such that performance can be reflected upward in a logical sequence. We employ our leader standard work to conduct monthly strategy reviews…we don’t do weather reporting; we check for adherence and sufficiency. Leaders focus on the gaps, checking for understanding and coaching problem solving. Building the problem solving muscle of our people supports the development of a learning organization. We look for solutions – not scapegoats (Moog Inc. culture booklet).
Applying the necessary rigor to perform meaningful monthly reviews, across all layers of the organization, is not an easy challenge. Conducting monthly reviews translates into 12 opportunities to course-correct over the course of a year. Waiting to review strategy until the end of the year is a recipe for failure. Been there, done that, got the t-shirt.
Lastly, conduct an annual review of the process as well as the organization’s performance to the strategic plan; SDCA. A structured reflection is good practice and supports the continuous improvement mindset. Create a Hoshin planning calendar. Get the dates and times on busy executive’s calendars well in advance. Plan sufficient time to conduct structured reflection, such that the organization may improve upon the process before starting the planning for the upcoming year. One book that I frequently use as a hoshin/ strategy deployment reference (littered with dog-ears from frequent use) is the 1997 classic, “Beyond Strategic Vision: Effective Corporate Action with Hoshin Planning” by Cowley and Domb.
So…what do you think?
What have you seen that works, and what lessons have you learned through the years? What do you do differently – and why? Even after all my years of service in the manufacturing and service industries, I still feel like a Padawan learner. I’m curious and open to new ideas, and have zero pride of authorship. Let’s share and learn together.