Enterprise Strategic Planning

1. Enterprise Strategic Planning Developing the organization’s strategy and deploying it throughout the organization

2. Aligning Strategy with Process Metrics This is a process for ensuring alignment among the organization’s performance measures, strategic plans, improvement projects, and budgets. The items in grey will be covered in session 7. • Establish the organization’s key goals • Establish KPIs associated with the organization’s key goals, and measure performance in these • Develop and deploy the enterprise strategy to the process level • Establish process measures (if not already existing) • Enterprise KPIs are then recalibrated and aligned with process-level metrics • Once the metrics are aligned at all levels, process improvement projects can be identified • Budget must be allocated aligned with the process improvements needed to achieve the strategic goals. This is why it is critical to align the budgeting process with the strategic planning process BA 553: Business Process Management

3. Types of Strategic Planning • What is the Purpose of Strategic Planning? • To identify and define strategic gaps and breakthrough goals which the company is committed to achieving. • Why Undertake Strategic Planning? • To focus and motivate all employees to achieve the changes needed to achieve and sustain a leadership position in the marketplace. • How do you Undertake Strategic Planning? • Option 1 – The Traditional Approach: Management by Objectives • Option 2 – Hoshin Planning Approach: proven to be more successful than the traditional approach BA 553: Business Process Management

4. The Importance of Employee Involvement • There are many methods for conducting strategic planning in organizations • In most cases, the strategic plans are developed by senior management, and deployment only involves the higher management levels • Those at the lower levels of the organization are not involved in identifying their strategic goals, and often are not even informed of the goals after they are developed • This makes it difficult (or impossible) for employee actions to be aligned with the organization’s key goals From: “Dilbert - A Treasury Of Sunday Strips: Version 00” by Scott Adams, (Andrews McMeel Publishing 2000) BA 553: Business Process Management

5. Hoshin: Definition • The word Hoshin is formed from two Chinese words - “Ho” meaning method or form; and “Shin” meaning shiny metal showing direction or “compass” • Combined together, it stands for “methodology for strategic direction setting” • It is a management system that emphasizes customer focus, process management, employee participation and knowledge-based decision making • Its aim is to align people, activities, and performance metrics, from the highest to the lowest level in the organization, with strategic priorities BA 553: Business Process Management

6. Hoshin Planning at Texas Instruments • Improvements achieved at Texas Instruments Semiconductor Group using Hoshin planning included: • Reduction in missed committed delivery dates by 75% in one year. • Reduction of manufacturing cycle times by 60% in two years. • Reduction in customer returns by 70% in two years. • Reduction in product defect levels by 65% over two years. • A significant increase in market share against some of the toughest competitors in the world. BA 553: Business Process Management

7. Characteristics of Hoshin Planning • Enables alignment of organizational goals with changes in the external environment. • Identifies and communicates the vital few strategic gaps that must be closed to achieve market leadership. • Provides a linking between annual objectives and strategic priorities. • Enables measures of daily activity to be linked to measures of strategic outcomes. BA 553: Business Process Management

8. Introduction of Hoshin Planning in the U.S. • Hoshin Planning was first implemented in the United States in the 1980s by Hewlett-Packard • The success achieved using Hoshin Planning by Hewlett-Packard, Intel Corporation, Texas Instruments and many other companies has resulted in its increasing use by organizations seeking ways to achieve high performance levels • Hoshin Planning was first developed in Japan and played essential role in helping many companies achieve the coveted Deming prize • Hoshin Planning is one of many names given to this improved strategic planning methodology. Others include management by planning and key objectives planning BA 553: Business Process Management

9. MBO vs. Hoshin Planning BA 553: Business Process Management

10. Why Change From MBO? • Inconsistent with a participative or empowering work environment • People have no input to the measures they’re being evaluated against • Inconsistent with a learning organization environment • No documentation of learning about why measures were not achieved • No sharing of learning, either up the organization or across functional boundaries • Inconsistent with process approach • No link between daily activities of employees and strategic goals • Addresses symptoms only - no examination of root causes to discover and eliminate systemic problems • Focuses on results, not the process used to achieve them (no understanding of why targets weren’t met) BA 553: Business Process Management

11. Hoshin Planning and the Process Enterprise • Organizational success depends on the united efforts of all employees. • For employees to be partners in achieving organizational objectives, they have to understand what the objectives are, why they are important, and how they can help achieve them. • The traditional “command and control” style of management and a relatively chaotic work environment result in employees not understanding the whole of which they are a part. • This lack of systems thinking results in employees focusing on the tasks they are assigned without an awareness of how their tasks relate to the organization’s objectives. • Organizations that involve the workforce in strategic planning create a framework within which all employees can work together to optimize their activities with the success of the whole organization in mind. BA 553: Business Process Management

12. What Does Hoshin Planning Look Like? • Hoshin Planning deploys the voice of the customer, not just profit goals. • Hoshin Planning deploys breakthrough strategies. • Hoshin Planning controls the means and methods, not just the results. • Hoshin Planning is a continuous management process, not a calendar-driven system. • Hoshin Planning emphasizes frequent reviews up and down the organization. • Hoshin Planning is not tied to performance appraisals. BA 553: Business Process Management

13. Hoshin Planning: Impact in the Trenches • Establishes priorities for local project planning and resource allocation. • Demands active, bottom-up involvement in proposing budgets and targets. • Resources are allocated to support plans for improvement, not based on last year's budget. • Ensures corporate visibility at even a local level, since all projects contribute to targets (aligning vectors). • Motivates all participating employees by making clear their link to the core business and to customers - total involvement. BA 553: Business Process Management

14. Hoshin Planning Benefits • Deploys the company vision/mission • Achieves breakthrough by aligning vectors • Provides a disciplined process to achieve total customer satisfaction • Integrates the activities of organizational groups • Enables company-wide participation in planning • Increases communication across departments • Provides a common language • Provides a systematic process for continuous process improvement • Increases flexibility and responsiveness to change BA 553: Business Process Management

15. Hoshin Planning: Factors that Contribute to Success • The company vision is aligned with customer needs. • One (and only one) business planning system is used. • The Hoshin Planning cycle is aligned with the budget cycle. • Resources (both people and $) are committed to implementing the improvement plans. • Participation of all levels of the company, both in planning and in setting targets (catch ball process). • Targets are set based upon an understanding of both how they will be achieved and the limits of process and organizational capabilities. • Management demonstrates a tangible commitment to open and honest communication, on-going education, and meaningful recognition. BA 553: Business Process Management

16. A Strategy-Aligned Process Enterprise • Imagine an organization where the president communicates the vital few strategic priorities, and every person participates in defining how his or her work provides a measurable contribution • Imagine an organization where everybody knows the methods to follow to guarantee that the organization will meet its objectives • Imagine an organization where employees integrate daily management with contributions towards the long-term strategic priorities • Imagine an organization where each manager routinely communicates deviations from plan to enable diagnosis and timely corrective action • Imagine an organization where the key business systems and organizational design routinely adapt to changes in the environment • Imagine an organization where every employee understands and participates in developing plans to improve performance by improving the work processes and the organizational culture Bechtell, M., The Management Compass: Steering the Organization Using Hoshin Planning, New York: AMA Membership Publications, 1995 BA 553: Business Process Management

17. Future Direction Hoshin Management (plot voyage) All ports of call Current Course Next port of call Functional Management (set course and speed) Daily Management (run the ship) How to Conduct Hoshin Planning BA 553: Business Process Management

18. Management Roles in Hoshin Planning • Daily Management • Necessary activities for each department within the organization to undertake in order to operate effectively. • Functional Management • Activities at the corporate level needed to achieve company objectives for quality, cost, delivery, etc. • Hoshin Management (Hoshin Planning) • Coordination of corporate level activities to achieve the president's annual policy and meet organizational long-term objectives. BA 553: Business Process Management

19. Participation by all managers Focus on process Individual initiative and responsibility Catch ball understanding Focus on root causes Quality first No tie to performance appraisals The Seven Principles of Hoshin Planning King, Bob, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989. BA 553: Business Process Management

20. Hoshin Planning Principles Defined Participation by all managers • Every manager is asked to give his/her input to the company's five-year vision • Participation in planning helps create ownership and acceptance of the plan • Process gives top management valuable insights from lower organizational levels, and often sufficient cause to adjust the plan Individual initiative and responsibility • Managers are responsible for setting and evaluating their own personal goals • The goals that are established are aligned with the goals of the rest of the organization • Each manager knows what to expect of related functions in measurable terms • Reduces the likelihood that unrealistic commitments will be made which might negatively influence organizational performance BA 553: Business Process Management

21. Hoshin Planning Principles Defined (Cont'd.) Focus on root causes • As problems are identified, their root causes are sought • As root causes are identified and eliminated, the process is improved and standardized, leading to a sustainable increase in process effectiveness No tie to performance appraisals • The assumptions upon which Hoshin Planning is based is that system performance is a function of the system and not the individual, and is thus not tied to individual compensation Quality first • Quality in the process is stressed over profit • The rationale is that profit will follow from emphasizing quality • Hoshin Planning is based upon the viewpoint that providing customer value by means of quality is the basis for long-term success BA 553: Business Process Management

22. Hoshin Planning Principles Defined (Cont'd.) Catch ball • A communication analogy used to encourage open and accurate exchange of ideas • In catch ball, information flows both vertically and horizontally, i.e., the receiver catching a communication tosses it back to the sender to ensure correct interpretation and understanding Focus on process • Monthly and yearly numerical targets are used to evaluate processes • Factors which help the process better achieve the targets are enforced • Factors which hinder the process are examined for elimination BA 553: Business Process Management

23. 5-year vision 1-year plan Plan President’s annual audit Deploy to departments Audit Execute Monthly diagnosis Detailed implementation The Hoshin Planning System King, Bob, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989. BA 553: Business Process Management

24. The Six Steps in Hoshin Planning Step 1: The Five-year Vision The five-year plan sets the strategy the organization will use to achieve its long-term vision. It includes a few key objectives. A draft is created by top management, and then all other managers provide input to the plan. In this way, the plan is understood by all who will act on the plan. The five-year plan is reviewed and adjusted, sometimes as often as each year, to assure that it remains on target. Step 2: The One-year Plan Specific activities are outlined in the one-year plan. These activities flow from the five-year plan based on feasibility, environment, customer requirements, and past performance. The top activities are then reviewed by various subjective and objective means to determine the appropriate integrated plan of activities. Step 3: Deployment to Departments Measurable targets and methods are determined at this step. Prioritization of plans is accomplished by methods which maximize likelihood of success. Baseline measurements and expected goals are put in place using standard charts. BA 553: Business Process Management

25. The Six Steps in Hoshin Planning (Cont'd.) Step 4: Execution Simple tools are used at this step to provide detailed implementation and contingency plans. Because the individuals doing the work are putting the plan in place, they are being empowered to guide it to completion. Employees are thus encouraged to take remedial action when necessary based upon their own anticipation of contingencies. Step 5: Monthly audit Progress is assessed at this point to determine help and hindrances to the process. Workers review the control charts for trends in quality, cost, delivery and other key aspects. If necessary, problem diagnosis takes place to determine and eliminate root causes. Step 6: President’s annual audit This review of the previous year's results looks at target indicators of the process effectiveness. The annual audit focuses greatly on the processes, rather than the numerical targets. The purpose of the audit is improvement of the previous year's results. The updated vision and/or annual plan will incorporate the findings of this review. BA 553: Business Process Management

26. Hoshin Planning Example The following example is from a power generation utility where the Professor led a project

27. Hoshin Planning Example • This module provides an overview of a training session that was conducted by the Power Generation Division to help introduce Hoshin Planning to key stakeholders and to initiate the Hoshin Planning process. • The 60 participants in the training meeting included: • Division vice presidents • Corporate legal representatives • Corporate finance department representatives • Corporate human resource representatives • Management teams from all generation division plants • Front-line supervisors from selected departments • The trade union business manager • Trade union stewards • Plant planning group members BA 553: Business Process Management

28. Meeting Purpose • To provide participants with an understanding of Hoshin Planning principles and processes. • To understand the division’s strategic goals and establish primary plant level hard and soft objectives. • To identify concerns of all stakeholders associated with implementing Hoshin Planning. • To establish a top-level division Hoshin Planning implementation process. BA 553: Business Process Management

29. Meeting Agenda Session 1 - Leadership Group Guidance • In this session, division vice presidents provide information on the division’s strategic objectives and general guidance on the areas in which they recommend power generation plant objectives be established. BA 553: Business Process Management

30. Meeting Agenda (Cont’d.) Session 2 - Overview of Hoshin Planning • The objective of this session was to provide participants with a general training on of the principles and process associated with Hoshin planning and an understanding of the way in which process management tools can be used to help in designing a plant level Hoshin planning process. Session 3 - Establishing Preliminary Hard and Soft Objectives • This session provided an opportunity for both plant working groups to identify preliminary plant objectives and review these with meeting participants. BA 553: Business Process Management

31. Meeting Agenda (Cont’d.) Session 4 - Designing a Hoshin Planning Process • This session provided participants with knowledge and skills to support their Hoshin planning process design effort. Session 5 - Working Groups to Establish Top-Level HoshinPlanning Implementation Process • This session provided participants with the opportunity to get started with their Hoshin planning process design effort. BA 553: Business Process Management

32. Workshop Topics SessionTopic A 0. Purpose and Agenda 1. Leadership Guidance B 2. Hoshin Planning 3. Systems Diagram 4. P2DCA - The Learning Cycle 5. Understanding Organizational Capabilities 6. Seeing the Organization as a Network of Processes 7. Employee Interest in Participating in Process Improvement Efforts 8. Vision of the Future C 9. Working Groups to Establish Preliminary Hard and Soft Objectives D 10. Organizational Improvement Planning Overview 11. Deploying Key Objectives - Case Examples 12. Multi-level Learning Cycle 13. The Deming Improvement Cycle 14. Organizational Change Model 15. Planning Process Overview 16. Performance Indicators Case Example E 17. Hoshin Planning Implementation Workshop Groups BA 553: Business Process Management

33. Session 1: Leadership Group Guidance Plant Vision Develop and implement a quality improvement plan that will enable our plant to become the best combustion turbine plant in the country, recognized for its high employee morale, teamwork, and unsurpassed customer satisfaction. Business Priorities • Increase employee value • Increase plant asset value • Increase customer value • Increase shareholder value BA 553: Business Process Management

34. Session 9: Establishing PreliminaryHard and Soft Objectives Plant Priorities • Employee safety • Protect the equipment • Generate megawatts • Environmental compliance Plant Goals • Zero reportable accidents (hard) • Optimize availability (hard) • Optimize employee training (hard) • Change management style to reduce the level of fear in the work environment (soft) BA 553: Business Process Management

35. Session 11: Deploying Key Objectives - Utility Case Example • Imagine you are a planning team for a power plant • Senior management has established a set of priorities for improvement over the next year, using feedback from all types of customers • One area needing improvement is the reliability of power to ratepayers. • How do you move from this high level goal to establish department objectives and specific targets for process improvement teams? BA 553: Business Process Management

36. Deploying Key Objectives: Utility Case Example (Cont’d.) BA 553: Business Process Management

37. Achieve customer satisfaction President Coordinating Executive Improve the reliability of electric service others Functional Management Reduce service unavailability others Department Management Reduce the duration of customer outages others First Line Management Reduce customer minutes interrupted to 48.0 by 1989 Modify distribution substation operations Change transmission switching priorities Improve field crew response times Reduce generation forced outages Upgrade equipment and facilities Deploying Key Objectives: Utility Case Example (Cont’d.) King, Bob, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989. BA 553: Business Process Management

38. Improvement Utility Division (UD) Level Spec Reduce forced outages Measure - EFOR Integration • Measures • amount of equipment fixed • work orders completed • overtime costs • cost of expedited parts Additional Improvement Improvement Improvement Plants Plan Plan Plan (Plant 1) (Plant 2) (Plant 3) Power Plant (PP) Level Integration Additional WP's Improve Improve Etc. maintenance fuel supply Improvement Improvement Improvement • Measures • wait time for parts • # of times parts not available Improvement Improvement Improvement Spec Spec Spec Plan Plan Plan Integration Additional IS's Work Process (WP) Level Improve parts Improve pre- Etc. availability dictive maint. • Measures • # of parts in warehouse • correct min/max for parts in material management system Improvement Improvement Improvement Improvement Improvement Improvement Implement Implement Implement Spec Spec Spec Improvement Plan Improvement Plan Improvement Plan Parts Predictive Etc. availability maintenance Work Process Improvement Section (IS) Level Deploying Key Objectives: Utility Case Example (Cont’d.) BA 553: Business Process Management

39. Plant Strategic Department Department All Department Planning Groups Managers Planning Groups Employees Identify plant objective categories Dave, Mark, Dept. managers and some Department and preliminary objectives represented workers Buddy, Trudy managers and PTC's (what and why) Prepare information package, communicate plant objectives to departments Meet to surface department objectives, barriers, and improvements needed to achieve plant objectives Prepare department's strategic plan as a draft document Sort out employee input using process improvement tools, identify high-leverage dept. objectives, align with plant obj. Review/comment on department’s strategic plan Update department strategic plan as needed, review with Leadership Group Finalize and issue department’s strategic plan Session 15: Planning Process Overview Leadership Group Support Review BA 553: Business Process Management

40. Session 16: Performance Indicators Case Example Last Year’s Last Year’s Current Year Measurement AreaObjectiveActualObjective Start Failures ( S.F.) * Start Unreliability (GTUR) * Start Unavailability (GTUA) * Trips off-line (T.F.) * Maintenance Outage Rate Planned Outage Rate Equipment Availability Factor Heat Rate Generation Lost-time Accidents (Hours) Medical Treatment Rate First-aid Case Reductions Vehicular Accident Rate O&M Budget Headcount Outage Budget Capital Budget BA 553: Business Process Management

41. Session 17: Hoshin Planning Implementation – Deploying Goals to Department Objectives BA 553: Business Process Management

42. Plant Priorities P1. Employee safety P2. Protect equipment P3. Generate megawatts P4. Environmental compliance Business Priorities B1. Increase employee value B2. Increase plant asset value B3. Increase customer value B4. Increase shareholder value Legend +++ Strongly supports ++ Moderately supports + Mildly supports o Unrelated Operations Department Objectives Linked to Business Priorities and Plant Priorities BA 553: Business Process Management

43. Hoshin Planning Implementation – Deploying Goals to Department Objectives BA 553: Business Process Management

44. Plant Priorities P1. Employee safety P2. Protect equipment P3. Generate megawatts P4. Environmental compliance Business Priorities B1. Increase employee value B2. Increase plant asset value B3. Increase customer value B4. Increase shareholder value Legend +++ Strongly supports ++ Moderately supports + Mildly supports o Unrelated Maintenance Department Objectives Linkedto Business Priorities and Plant Priorities BA 553: Business Process Management

45. Input to One-Year Plan:Admin Services Department Objective #2 BA 553: Business Process Management

46. Hoshin Planning Implementation – Deploying Soft Goals to Department Objectives • Commitment to Customer Satisfaction • Use of Systems Thinking • Process Improvement • Employee Involvement and Participation • Employee Training and Development • Plant and Systems-Level Measurement • Regular Quality Reviews and Assessments BA 553: Business Process Management

47. Example Soft Goal Deployment Commitment to Customer Satisfaction • Establish measures and measurement systems to help the plant develop the capability to meet and exceed internal and external customer requirements Use of Systems Thinking • Apply concepts of systems thinking to planning and measurement as well as understanding basic plant work processes and system interfaces Process Improvement • Focus on understanding and improving key plant processes - initial focus areas to be the maintenance and fuel systems Employee Involvement and Participation • Train Process Improvement Teams in systems thinking and process improvement, and will be encouraged to participate in key improvement efforts Employee Training and Development • Train employees and managers in Change Readiness, Customer Focus, Malcolm Baldrige Award Criteria, Systems Thinking, Process Improvement, Leadership, Hoshin Planning Plant and Systems-Level Measurement • Establish a plant-level measurement system focused on identifying how the plant is operating against customer requirements, and how plant work processes are performing to support overall plant efforts to meet customer requirements Regular Quality Reviews and Assessments • Schedule regular sessions with all employees to review performance and status of goals BA 553: Business Process Management