What Management by Objectives Does Wrong & Hoshin Kanri Does Right

My lean advising colleagues and I are finding increased interest globally in hoshin kanri as a way to align goals from top to bottom.  The basic problem was one that Toyota noticed in the 1960s.  The Toyota Production System was incredibly powerful to achieve operational excellence, but without a clear focus there were many isolated improvements that did not add up to a big change at the enterprise level.  At that time, the main need of Toyota was to dramatically improve quality, and they adopted hoshin kanri as part of Total Quality Management (TQM) beginning their journey to dominance in automotive quality.  Mike Hoseus, the co-author of Toyota Culture, offers a helpful explanation below regarding what hoshin kanri is and how it is different from traditional business planning:

Peter Drucker, author of The Practice of Management, among other works

In the meantime, in the United States, management guru Peter Drucker was preaching management by objectives (MBO) as a critical part of any well-run corporation, which is discussed in his classic 1954 book The Practice of Management.  The core principles of MBO involved engaging employees at all levels in a participative setting of measureable targets to support higher-level objectives and to develop the methods for achieving these targets.  It was, in part, an antidote to the then-prevalent management by control with top-down goal setting and sink-or-swim management pressures.

In the early 1980s, Dr. W. Edwards Deming returned from decades in Japan to teach the West what he had learned.  Among other things, he, in no uncertain terms, called for abandoning MBO.  He devised fourteen principles, several of which were directly relevant to MBO:

Principle 7:  Institute Leadership (as distinct from mere supervision that is quota and target based)

Principle 8:  Drive out fear.

Principle 9:  Break down barriers between staff areas.

Principle 11: Eliminate numerical quotas for the workforce and numerical goals for management.

Dr. W. Edwards Deming, American professor, author, lecturer and consultant

Dr. Deming believed that a driving force behind competitiveness through excellence was quality, which required a systems view of the enterprise.  He was preaching continuous improvement that involved everyone and was based on the foundation of trust and the idea of empowering the worker to have “pride in craftsmanship.” Dr. Deming saw the results of MBO lead managers to become supervisors whose main concern was making the numbers, whether or not it was the right thing to do for the quality, the customer, and the workforce.  In other words, instead of it contributing to genuine improvement, it became an effort to meet quotas.

So where did MBO go wrong?  It was not the original intent of Drucker to build an even more oppressive system of management control, but rather to empower workers and achieve exactly what Deming wanted.  But, the common implementation of MBO in a short-term, results-focused world led to management by top-down targets and fear.

Toyota, on the other hand, had gone to great pains to build a culture of respect for people by viewing all its employees as team members.  And those closest to the gemba, where value was being added, were the most important.  Toyota realized this required mutual trust so that all team members could contribute ideas and develop themselves, while the company could align energy toward what the business needed.  In other words, at Toyota, there was a socially conscious philosophy and an understanding of organizations as holistic systems in which all the parts needed to be highly developed to contribute to the whole.  There were a host of skills that needed to be developed in all the leaders and team members in order to meaningfully understand the problems that needed to be solved to achieve the challenging targets set through hoshin kanri.

The targets for breakthrough improvement, however, were not substitutes for the fundamentals of satisfying customers through high-value added products delivered just-in-time.  But, they were a special focus for each year.  In this context, whether it was called hoshin kanri or management by objectives, it would have the effect that both Deming and Drucker desired.

Images courtesy of The Drucker Institute and The W. Edwards Deming Institute.

Dr. Jeffrey Liker is professor of industrial and operations engineering at the University of Michigan and author of The Toyota Way.  He leads Liker Lean Advisors, LLC and his latest book (with Gary Convis) is The Toyota Way to Lean Leadership.