Good capitalism, bad capitalism and hoshin kanri

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Hoshin has deep roots in capitalism, good and bad.

A historical orientation to hoshin begins, believe it or not, with Peter Drucker’s MBO or Management By Objectives. MBO famously makes all managers accountable for achieving specific performance targets. In the U.S., these targets tend to be quarterly targets published in corporate guidances to Wall Street. Bad Capitalism.

Of course, this is the last place on earth you might expect to be the origin of hoshin, which is often referred to as Management By Means, in order to differentiate it from Drucker’s MBO. But the truth is, the Japanese fell in love with Drucker first, in the mid-1950s. This was the same time that they were studying TQM with W. Edward Deming and others, learning to listen to customers and empower workers. Good Capitalism.

The Japanese Union of Scientists and Engineers (JUSE) first awarded the Deming Prize in 1951.

  • For those of you who are interested, JUSE is also the source of Six Sigma, which Motorola encountered in a joint-venture in Japan. The entire Six Sigma curriculum, including the roles known outside of Japan as black belts, master black belts, green belts, yellow belts, executives and champions, etc., first appeared as part of the JUSE TQM curriculum. Lean manufacturing consultants attach different names to essentially the same roster of roles. Nothing new under the sun.
So how did the Japanese reconcile their affections for Good Capitalism (Deming and TQM) and Bad Capitalism (Drucker and MBO)? In 1958, in response to the MBO craze, JUSE added a “quality policy” criteria to the Deming Prize, obligating future Deming Prize winners to document how they formulate, deploy and review quality-related strategy. [Pause for dramatic effect.]
In 1961-63, Toyota implemented TQM and won a Deming Prize. This is where it gets interesting. Toyota’s interpretation of “quality policy” included cost as well as quality targets. I cannot demonstrate this definitely, but it stands to reason that Toyota found that a system for formulating and deploying quality targets would work as well for formulating and deploying cost targets. Because, in 1961-63, Toyota invented target costing and cost deployment. Whatever Toyota’s thinking might have been at the time, target costing effectively linked TQM to financial as well as quality management all the way down to the front line. Within each production cell, we see standard work around takt time and SWIP (the most refined of all financial targets for labor and materials management) as well as task and sequence (which are process quality targets).
In the same TQM implementation, Toyota used the hoshin method of catchball to reorganize itself into a highly matrixed or cross-functional organization. It later used hoshin’s cost and quality targets, deployment and catchball to reorganize its entire supply chain. To my mind, it is because of Toyota’s linking of what later became known as “hoshin kanri” to cost control and organization redesign that Toyota deserves to be credited with inventing the standard approach (or what should be the standard approach) to hoshin kanri. (It wasn’t until 1965 that Bridgestone Tire codified and named the now widely adopted practice as “hoshin kanri” or “policy deployment”.)
And that is the early history of hoshin in a nutshell. In 1989, the first book on hoshin kanri in English was published by Bob King. In 1991, Productivity Press published an English version of Japanese case studies, edited by Akao. Many American companies have been exposed to hoshin without knowing it, through a variety of sources, including the Six Sigma fad (under the name of “breakthrough strategy”), the Harvard Business fad of the “balanced scorecard,” the Malcom Baldrige Award, and–most recently–through “agile” organization. (Today’s agile organizations are essentially copies of Toyota’s matrix of projects, programs, value streams and corporate functions. See, e.g., Christopher Meyer, Fast Cycle Time.)
Unfortunately, implementations of hoshin (under any name) can easily go dark. If the leadership culture is not transformed from Bad to Good Capitalism, hoshin can become a ruder, harsher form of MBO. The tool is only as good as the leaders who wield it.