Image credit: Peter Griffin

Is hoshin kanri the secret sauce for process improvements?

Methodology developed by the Japanese in the 1950s taps the collective power of groups to create corporate excellence

I’ve been enthusiastically talking about (and using) the principles of hoshin kanri for many years. From best practices lectures given to the staff of Microsoft’s Quality Business Engineering unit to the development strategies designed to dynamically streamline financial services operations, it’s become a way of thinking that’s almost second nature.

Hoshin kanri is a strategic planning and management methodology that was developed by the Japanese in the 1950s, and taps the collective power of a group to create corporate excellence. By involving all levels of employees in the process of developing new operations, the principles of hoshin kanri can help ensure the success of strategic changes made with an eye toward continuous improvement and the elimination of waste that comes from inconsistent or non-existent communication.

A few shining examples of large companies that have successfully deployed hoshin kanri principles include Bank of America, Toyota and Hewlett-Packard.

So how could the principles of hoshin kanri be used within your banking or financial institution? It could be as simple as using these concepts as a tool to help develop a business plan for a new product, or as complex as creating a multi-level strategic plan to make sweeping changes in customer service.

Let’s take a look at one example. A few years ago, a mid-size U.S. financial recovery organization found that its outdated management structure was a major contributor to the company’s cash flow issues and excessive overhead costs. It needed to completely reinvent the way it conducted its business. By using hoshin kanri methodologies to develop process improvements, it flattened its management structure into a new, less hierarchical one that required 10 percent fewer operational staff members. Its collection rate improved by 100 BPS, and the cash flow this generated helped fund the purchase of a new debt portfolio.

So what are these magical hoshin kanri principles? You will find several definitions, but they really fall into several broad tasks:

• A strategic view of your organization’s mission for the next three-five years
• The development of objectives that help achieve the mission
• Identification of key performance indicators (KPIs) for all levels of the organization
• Tactical implementation of projects that support the achievement of goals
• Scheduled progress reviews and measurement

Using hoshin kanri within your organization means that the entire business must focus on only a few goals at a time. Everyone, from the C-suite to the front line, needs to clearly understand the objectives of the process improvements — and everyone is accountable for the plan’s success. Hoshin kanri is meant to facilitate communication so that all staff members feel a part of a team and better understand why their contributions are important in a drive for improvement.

Let’s look at how a leading financial institution put the hoshin kanri principles to work to create a new aging collections decision engine. While delinquencies are unavoidable, the length of time it historically took for the financial institution to identify problems made remediation slow, complicated, and did not support the organization’s overall standards of excellence.

1. Hoshin kanri principles helped narrowly identify goals and a timetable: in six months, the financial institution wanted a new aging collections methodology that achieved faster results and eliminated waste
2. These principles helped to identify KPIs for relevant departments, identified as collections, risk, human resources and IT
3. They helped to create cross-functional teams from these departments to develop the tactical implementations
4. The financial institution then held a final review to measure results

For three months, the cross-functional teams worked to fully understand the requirements for a new decision engine. The teams quickly determined that using off-the-shelf software was not going to deliver the results it wanted to achieve. The teams then designed a custom-built solution with an adaptable contact strategy that used past customer behavior to determine the most optimal way to go about rectifying the delinquencies.

Thanks in large part to the efforts of these cross-functional teams, the new collections decision engine was successfully deployed on time. Over $30 million in losses were quickly mitigated and $4 million in savings were validated.

As you can see by these examples, when utilized correctly, hoshin kanri works. I’m a believer. And if this has sparked an idea and you want to know more, please leave a comment below or get in touch.