Beyond Management by Objective: A Look at Hoshin Kanri (Part I)

Ken Craddock

Dr. W. Edwards Deming said MBO as practiced was a deadly disease, writes contributor Ken Craddock. But what's the alternative? Hoshin kanri, argues Craddock. Here is why.

Editor’s note:Kelly Allan and Ken Craddock wrote a column entitled "Organizational Sabotage - The Malpractice of Management by Objective." The column was posted July 7, 2011:

The column was widely read and distributed and many readers requested that the authors write additional columns on the topic, especially in regard to "what to do instead of MBO", and "is there a right way to do MBO?"

PEX Network is pleased to announce that each author is providing additional columns. Ken Craddock is providing two columns on "what to do instead" by exploring the value of Hoshin Kanri in the context of Dr. Deming and Dr. Drucker. Part 1 is below. Part 2 will follow in the new year and then Kelly Allan’s columns will be published and address "Is there a right way to do MBO?"

The Unexamined Infatuation: MBO

The continuing infatuation by top management for MBO (Management-By-Objective) can destroy the loyalty of even dedicated employees, and cause employees to leave as soon as they get a chance– say, when the recession ends. Indeed, if history is our guide, firms that resort to MBO struggle more to recover from a recession. MBO causes their experienced employees to be the first to leave because of the treatment they received via MBO. In some firms this is happening already.

The current MBO system does not work. Dr. W. Edwards Deming said MBO as practiced was a deadly disease. Every organization requires leadership, not edicts from on high. As practiced, MBO replicates a managerial attitude that predates MBO and that can be traced back to the Taylorist split between thinking and doing. MBO creates a few winners and a lot of losers and doesn’t create a sustainable way to manage. Individual executives may be ‘winners’ if those under them are able to achieve the objectives. However, MBO causes people to resort to short-sighted actions which may be damaging to the firm longer term.

An alternative to MBO was developed in Japan and is called hoshin kanri (HK). It actually seems more true to what professor Peter Drucker described as MBO than the way MBO is practiced in most organizations. HK seems to work well in Japanese firms and Western firms that have adopted it.

With HK the time horizon starts with a 5-10 year vision, which is supported by 3-5 year applications that are realized via 1-year action rollouts. Each time horizon is assigned to planning teams at each of three levels – executives, middle managers, and unit bosses. However, the vision has to be first clearly articulated throughout the organization - at every level. Both Deming and Drucker were strong proponents of such communication.

A misunderstanding of HK is that it is complex

This misunderstanding comes from the fact that HK is often applied in very large organizations which have a great deal of complexity. HK can handle great complexity. Thus, typical examples of HK showcase how HK can handle complexity – not that HK is complex. It is not, and HK scales well from small to large organizations.

With HK, success depends on forthright communication up and down and throughout the organization, making everyone a winner and making the system accountable (as both Deming and Drucker advised).

As the specific actions (of how to achieve the long-term objectives) are developed at each level, they are sent in draft form to the next lower level in the hierarchy for the assessment and development of implementation means. One of the most important questions at each level is – ‘Can this goal be met at all?’ This is a key question that is seldom asked in the typical MBO organization. "Meet the goal or else" is the usual MBO expectation.

MBO as practiced creates fear not sustainable success

In a recent survey, 59 percent of Harvard Business Review readers (mostly U.S. managers) indicated they worked in a firm where there was a clear separation between strategy development and implementation. This separation is between executives (C-level), who develop the strategy, and middle managers, who are expected to implement it. Under MBO direct reports seldom dare ask the key questions about whether the goal can be met or what negative unintended consequences to the firm might result from a single-minded goal.

Within MBO, meeting the numbers without reliable processes to make that happen may get the manager promoted because his team met the numbers, but when this practice is continued for a longer time, it erodes coordinated action to get repeatable results.

Let’s take a closer look of just one negative dynamic that is set up by MBO. There is a widespread belief among senior managers, for example, that they should not be involved in any way with how the managers (who report to them) get the required results. Why? There are many reasons, but one is the belief is that the senior manager’s involvement undermines the authority of the line manager which in turn confuses the worker as to who is in charge.

But if the senior manager does not enquire as to how the line manager is getting results, he or she is bypassing the issue of sustainability. Deming asked, "By what method?" If the senior manager believes the line manager should be left alone with an objective to meet ‘by any means necessary,’ then, the question "By what method?" is not asked. Furthermore, methods are not examined for flaws or improvements, and as a result the meeting of objectives becomes a one-off event –rather than a repeatable event.

For each worker, then, this lack of a method often means a superhuman effort will be required –every month, every quarter, and every year. No wonder the best workers and managers want to escape such an environment; they cannot get support to put into place smarter ways of working. If necessary, they must by-pass or even destroy the system in which they work to meet the short-term objectives –over which they had little or no influence in identifying in the first place.

MBO destroys a functional system

Many employees may be surprised to discover that they are not part of any functional and sustainable system. Why? Because when executives believe in ‘star performers’ they tend not to recognize the power of the system in which people work. For those executives, it is ‘management by results’ (another form of MBO). They won’t invest in improving the capability of the system. If the top executives do not understand systems, then the recognition of ‘stars’ who meet objectives will result. Thus, MBO and the notion of the "star performer" can go hand-in-hand and undermine the sustainability of any system within the organization.

Designing and creating a viable system to meet the needs of the customer requires executive strategy and implementation. Establishing long-term objectives requires planning and analysis. The key questions are: Are managers engaged in creating methods that will produce results on a consistent basis during the coming years? Or are they rewarded and promoted on the basis of meeting the past quarter’s or past year’s numbers? Thus, the current practice of MBO can become an instance of, as Deming put it, "Driving by looking in the rear-view mirror."

Part II of Ken Craddock's look of Hoshin Kanri will run early in 2012.

Copyright 2011 by Ken Craddock.

Editor’s Note: The columns published in THE DEMING FILES have been written under the Editorial Guidelines set by The W. Edwards Deming Institute. The Institute views these columns as opportunities to enhance, extend, and illustrate Dr. Deming’s theories. The authors have knowledge of Dr. Deming’s body of work, and the content of each column is the expression of each author’s interpretation of the subject matter.