Encyclopedia of Quality & Reliability

Encyclopedia of Quality & Reliability

[Submitted Manuscripts]

2007

1.

2.

3.

Overview of Quality Management

Benchmark Processes to Define Improvement Projects

Policy Deployment Drives Performance Improvement

ENCYCLOPEDIA OF QUALITY & RELIABILITY[Submitted Manuscript Chapters]

Table of Contents

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Overview of QualityManagement

Introduction

Quality management (QM) is an essential feature inany organization that desires to be considered reliableby its customers – an organization that consistentlykeeps the promises that it makes. Reliable organiza-tions design compelling promises for customers andconsistently perform according to these promises ata high level of service thereby achieving a competi-tive edge over their rivals. This approach to qualityrequires two key elements – innovation to developnew products (whether goods or services) and cus-tomer care to effectively and efficiently deliver theseproducts – and obtains predictable financial resultsfor business owners. This means that the value propo-sition offered to consumers must deliver value thatis beyond the offerings of competitors, so that con-sumers will consistently choose their own organi-zation’s products/services instead of the alternativeofferings. QM is the approach to develop and main-tain a “value edge” in competitive differentiation ata level that assures both market leadership and prof-itable growth. This outcome is achieved through anintegrated system of business practices called qualitymanagement [1].

Quality Defined

To understand QM requires defining quality in a waythat eliminates any subjective interpretation. In orderto provide an operational definition of quality andillustrate how it is applied, three questions will beaddressed: what is quality, how is quality created,and how is quality delivered.

First, We Must Ask What is Quality?

Quality is a comparison of expectations for perfor-mance outcomes with the perception of their achieve-ment. Technically quality can have two meanings: itcan describe either the characteristics of a productor service that give it an ability to satisfy stated orimplied customer needs or it can refer to a prod-uct or service that is free of deficiencies. But, the

most important aspect of quality is the one thatcreates business competitiveness for an organization.To describe this perspective a theory of attractivequality was developed by Dr Noriaki Kano of Tokyo (1)Science University [2]. The Kano model of attrac-tive quality (Figure 1) illustrates three functions thatdefine the dimensions of competitive quality.

Kano observed that there are three functions thatdefine how quality is perceived by customers asmeeting their requirements. When customers describetheir quality needs, they define their understoodneeds; they do not talk about unknown requirementsfor unanticipated needs or applications nor do theydescribe their assumptions regarding basic perfor-mance that is embedded within their concept of thegood or service. The three curves result in differenttypes of customer performance perceptions.

• The lowest curve represents “must be” or standardquality which is characteristic of a commodityproduct (for instance, there is no competitivevalue in the standard grade of octane in gasoline –people are likely to change brands for verymarginal differences in price). These require-ments are not typically described by customersas they are “expected” or “understood” to be partof the package – cars are expected to go and tostop, and most people would feel that these capa-bilities must not be specified, thus these featuresdeliver no satisfaction to customers but only offeran opportunity to dissatisfy the customer throughpoor performance.

• The middle curve describes what Kano calledone-dimensional quality or a product qualityfeature where companies compete “head to head”to win customer approval (e.g., gasoline con-sumption of an automobile) and value as per-ceived by customers is directly proportional tothe performance of this feature design. In thiscategory of product feature, quality is directlyproportional to the effectiveness of the design tothe customer’s experience in accomplishing thejob they need to accomplish [3].

• The third curve describes the type of quality thatalways satisfies customers or what Kano refersto as attractive quality – quality that anticipatescustomer needs before the customer knows orunderstands what capability or feature they aremissing. This type of quality comes from inno-vation – knowing the customer environment and

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2 Overview of Quality Management

Degree of performance

Customer satisfaction

High

High

Low

Low

Spoken quality characteristics

Unknown and unspoken

quality characteristics

Assumed and unspoken

quality characteristics

Figure 1 The Kano theory of attractive quality

application so intimately that new technology canbe applied to create new competence or capabil-ities in the job that the customers need to getdone. This type of quality provides a disruptinginfluence on markets and can totally change thebalance of its competitive structure.

Thus, according to Kano, quality is directly linkedto the ability of a product or service to deliverperceivable value to its targeted customers.

Second, We Must Ask How is Quality Created?

Given this understanding of the importance of thecustomer’s experience, how is this type of qualitycreated? Consider the Watson model for value deliv-ery for a definition of the way quality is created anddelivered in the customer experience (Figure 2) [4].

Quality creation is a two-phased process: design-ing value into products and services and deliveringthe quality of value that was designed. The designprocess interprets the customer experience of a Kanoanalysis to make a commercial promise to the mar-ket. This first stage in quality creation establishesthe expectations of customers for the value they willreceive and defines the offer made to customers.Not understanding or misinterpreting the best valueproposition for customers thus results in subopti-mization of the organization’s potential competitiveposition. The second stage of quality delivery is inthe delivery of the promise that has been definedfor customers – a customer care function in whichthe consistency of promise delivery is evaluated bycustomers. Managing the daily dynamics of the cus-tomer experience must satisfy a quality entitlement –customers are entitled to consistently perceive satis-faction in the delivery of the promised performance.By aggressively executing the delivery of this qual-ity model through an organization’s business model,persistent perceptions creating long-term customerloyalty are achieved.

Third, We Must Ask How is Quality Delivered?

Sustained success and profitable growth are achievedwhen an organization coordinates its activities todeliver quality above its competitors, costs belowits competitors, and technology ahead of its com-petitors. These imperatives must be constructed intoa system for quality creation, which is deliveredthrough the business processes of the organization(Figure 3 describes such a basic business model).

What thecustomer

wants

What thecustomer

is promised

What thecustomer

gets

Design gap Conformity gap

EntitlementExpectation

Customer value delivery chain

Basis ofcustomer

perception

We create customer expectations by designing value

Customers evaluate our performance to our promise

Figure 2 The Watson model for value delivery

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Overview of Quality Management 3

Productcreation

Productrealization

Managementprocess

DMADV DMAIC

Recognize

Quality as an engine of innovation

Quality as a driver of consistency

Figure 3 Quality-driven business model

This model characterizes the three core processes ofan organization: product creation, product realization,and the process of management.

Figure 3 overlays the linkage of Six Sigma(2)methodology and policy deployment on top of thebusiness model to illustrate the linkage betweenchange management projects (business improve-(3)ment seeking kaizen (continuous improvement) or(4)hoshin kanri (breakthrough improvement)) to thedaily management system (nichijo kanri ) representedby these core business processes. Note that two typesof innovation are required to implement this changemanagement process and that these are expressedby the two different approaches that are taken toresolve issues using Six Sigma business improvementmethods:

• DMADV (define–measure–analyze–design–verify) is the design for Six Sigma (DFSS)process that delivers innovation through busi-ness development processes by focusing on valuedelivery through product creation, service cre-ation, or development of new value delivery workprocesses. This Six Sigma approach resolvesissues where a current performance capability isinadequate to meet its future requirements (thedesigned capability is unable to meet the cus-tomer’s need).

• DMAIC (define–measure–analyze–improve–control) is the lean Six Sigma process that deliv-(5)ers innovation in the product realization pro-cess by improving or optimizing the performanceof current products, services, and the processesthat deliver products or services by applyingthe methods of statistical problem solving andlean production management. This Six Sigma

approach resolves issues where the current levelof performance is not achieving its designed capa-bility (achieved process capability is less than the (6)designed process capability).

Quality must be managed over the long termbut it is delivered in the short-term actions of thedaily management system through a disciplined workprocess. What is the set of specific components thatare contained in a quality management system (QMS)and how do they operate?

The Elements of Quality Management

QM differs from the management of quality. QMdelivers excellence through a set of good manage-ment practices while the management of qualitydescribes the profession of managing the qualityfunction within an organization – the first is appli-cable to managers in all organizational functions andat all organizational levels, while the second appliesmore narrowly to a specific profession and its asso-ciated disciplines.

QM is an “unnatural act” of establishing andpreserving excellence – QM defies the natural law ofentropy whereby everything degenerates into a stateof mediocrity before it obsolesces.

Management of quality combines several specificdisciplines to assure the consistent delivery of thelevel of service or product quality intended at thepoint of the customer experience. In managing qual-ity there are five quality disciplines that have evolvedover the past century. These five disciplines for man-aging for quality relate to practices of engineering,assurance, control, and improvement. Taken together

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they follow a PDCA cycle (plan–do–check–act) thatis often described as the Deming cyclea.

• Quality engineering (QE)QE accomplishes Deming’s “plan” step fordesigning an enduring level of product or servicequality. QE analyzes the steps of an operationalprocess and gives a statistical basis for measuringand managing process performance so it con-sistently meets outcomes for customer standardsor requirements. QE delivers predictable qualityoutcomes by maximizing process quality to pro-duce the required quality results in the product orservice.

• Quality control (QC)(7)QC describes the methods used to address theDeming “do” step for process management. Con-trol actions include processes for actively test-ing or monitoring performance, evaluating currentperformance results against standards for desiredperformance, and guiding process activities toachieve a state of statistical control by taking cor-rective action when performance is observed todeviate from this standard. Thus, QC consists ofall operational techniques and activities used tofulfill the requirements for quality outcomes byfocusing on improving process performance.

• Quality assurance (QA)QA delivers the “check” step of the quality dis-cipline. QA gives confidence that the customerrequirements will be achieved by demonstratingthe product or service capability to fulfill perfor-mance results as delivered to the final customer.QA is distinguished from QC in that QA focuseson the final test results or compliance with theexternal quality requirement while QC focuses onthe interim test results or compliance with internalquality requirements, which produce final results.

• Quality improvement (QI)(8)QI executes the “act” step of the PDCA cycle.The QI process is one of continuously improvingor adjusting performance to reduce the cost ofpoor quality, improve the cycle time of processactivities, and eliminate waste from all processsteps. QI seeks to obtain and sustain the “ideal”process performance that was initially designedinto the process capability. QI activities includethe work of both Six Sigma and kaizen blitz teamswho seek to eliminate waste or streamline processactivities.

• Quality audit and review (QAR)QAR is a systematic, independent assessment ofthe entire quality system to determine the effec-tiveness of both the quality plan and its executionthrough application of the four disciplines of qual-ity in the work processes of the organization.Thus, QAR “checks” on the value of governancein the PDCA activities of an organization’s for-mal QMS.

When these five quality disciplines are combinedinto a systematic approach for the delivery of qualityresults, they become the cornerstones of a soundQMS. Thus, the “professional” dimension of QMmay be defined as follows:

• Quality management (QM)The process of designing and deploying a systemfor managing processes to achieve maximum cus-tomer satisfaction with product or service qualityat the lowest overall cost to the organization whilecontinuing to improve the performance outcomesof the process.

This professional dimension of QM seeks to instilla systematic way of working in the entire organi-zation for delivering quality outcomes – achievingorganization-wide practices that deliver managing forquality. What are the ingredients of this system?

Management System for DeliveringQuality

The formal QMS of an organization is a documentedprocess for managing these five dimensions of QM(described above) and QMS describes the contextfor the design, development, deployment, and deliv-ery of quality activities throughout the organization.The QMS documents and executes the organiza-tion’s quality policy (strategic direction about howthe organization will work to deliver quality) andit can be summarized as the PDCA of the man-agement system: quality planning, quality standards(defines the system of work activities, controls andtests, as well as the control plan to assure that thesystem operates effectively despite any potential con-tingencies), QA, QC, and QAR, which must occursupported by the activities of an iterative process forQI. The QMS is a formal system to document theorganization structure, management responsibilities,

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Compliance level

Aspiration level

ISO 9000 standard

Business excellence criteria

Six Sigma projects

Self-assessment

Self-assessment

Self-assessment

Benchmarking

Benchmarking

Benchmarking

Figure 4 An integrated quality system for total performance management

and organization-wide procedures that are required toachieve effective QM as a routine way of working.The ingredients of the QMS documentation includethe following:

• Quality policyAn organization’s general statement of its beliefsabout quality, its vision of how quality will comeabout and what should be the expected results.

• Quality planA document or set of documents that describethe standards, quality practices, resources, andprocesses pertinent to the assurance of quality fora specific product, service, or project through theapplication of the four quality disciplines.

• Quality standardsThe documented description of accepted way toperform work and quality operating practices sothat “best practice” is applied as a disciplinein the daily working environment. This docu-mentation includes standard operating proceduresas well as control plans to assure proper mea-surement and interpretation of the critical qual-ity process measures and the judgments madeto interpret them regarding quality performance.Standards should also exist to describe howeach of the core disciplines of QM will bemanaged.

• Quality systemsThe information systems that manage data forproduct and service performance, customer andmarket information about complaints, failures,warranties, and the record of responses to suchclaims.

The typical system for delivering quality in a mod-ern company contains a number of proven ingredientsfor success: ISO 9000, business excellence criteria,and Six Sigma which can be forged into the processmanagement architecture that is shown in Figure 4.

This integrated QMS seeks to maintain a busi-ness control system based on the ISO 9000 QualityManagement Standard while encouraging the orga-nization to aspire to apply the “best practice” prin-ciples of QM, which have been distilled into theaward criteria for business excellence prizes suchas the Malcolm Baldrige National Quality Award orthe European Quality Award. These award criteriaaddress a system of areas for concern in the devel-opment of a business management system that weredeveloped as a consensus from many of the world’sbest companies. No company has ever scored above800 points using these criteria as a standard, so theyprovide a way to challenge organizations to initiateself-improvement projects that close the gap in oppor-tunities for improvement that are discovered when theorganization conducts a self-assessment or conductsformal benchmarking with an organization that is rec-ognized as superior by their management team. Theseimprovement projects can be conducted using the SixSigma DMADV or DMAIC methods.

Achievement of exceptional performance usingsuch a management system requires that the organiza-tion develop “leadership at all levels” of its structure.What does this mean in terms of the quality actionsof the organization’s business leaders? We have fin-ished discussing the key dimensions of managementof quality; now let us turn back to understandinghow QM can be infused into an entire organization

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as it integrates its QMS into its core business tomanage performance in all dimensions of businessexcellence while ensuring successful results fromthe perspectives of all the organization’s stakehold-ers (e.g., customers, employees, suppliers, investors,legal and regulatory authorities, etc.).

Pervasive Quality Leadership

It is a tall order to deliver this kind of manage-ment system. It requires, as Warren Bennis observed,the kind of situation where: “a leader is a followeris a leader” [5]. Bennis noted that we are facinga “chronic crisis of governance – that is, a per-vasive organizational incapacity to cope with theexpectations of their constituents – [that] is now anoverwhelming factor worldwide. If there was ever amoment in history when a comprehensive strategicview of leadership was needed, not just by a fewleaders in high office by large numbers of leaders in(9)every job, from the factory flow to the executive suite,this is certainly it” [6]. In order to have a system ofsound business management there must be good rolemodels of management quality – not just at the topof the organization, but throughout its entire struc-ture so that the people can see this behavior is notjust applicable for the “superleaders” but that is alsopart of the expectation for every ordinary worker –including supervisors – and they are also capable ofexhibiting the shared values and behaviors that oper-ationally define quality actions throughout the entireorganization. This consistency assures that each per-son understands that the vision of leadership is notabout wishing, hoping, or praying: it is an act ofcourageous leadership that must be duplicated at alllevels of the organization. What does leadership at alllevels look like?

Executive Leadership

Senior managers must establish the vision and val-ues that will guide their organization into its futurestate. One way executives demonstrate leadership isby establishing a framework for action through amanagement process for cascading values and objec-tives that define the way the organization will worktogether and the goals that it will seek to accom-plish in pursuit of its long-term mission. A criticalaspect of the process of management that remains the

active responsibility of the top management team isconducting regular leadership reviews of the business.This activity is both a due diligence responsibilityof the business owners and a fundamental approachfor exercising leadership. Leadership reviews have atleast two emphases: review of the governance struc-ture and “strategic direction of the organization” aswell as review of strategic problem areas that lead tobusiness vulnerability through challenging technolo-gies, violation of critical assumptions, or changing“rules of competition” in the market. Leadershipreviews offer the top management an opportunity for

• demonstrating personal commitment to their “phi-losophy of management”;

• providing visibility for their “defining moments (10)of quality encouragement”;

• mentoring the organization to achieve desiredbehavioral changes;

• guiding cross-organizational efforts to achievedesired systemic change; and

• encouraging people to “build a desire to win anda will to act”.

What else can executives do personally to demon-strate “positive leadership behavior”? A few exam-ples include the following:

• Executive touch programProgram for top executives to get close to theleading targeted external customers. Requiresquarterly visits that are intended solely for rela-tionship building to establish a foundation forfuture business discussions.

• Executive customer advocate programProgram for the senior management team tofacilitate significant problems encountered bymajor customers in each of the primary lines ofbusiness.

• Complaint listening programProgram for all levels of management to spenda few hours monthly listening to “real” customercomplaints directly on call center lines.

• Executive escalation programProgram for the top level of senior managers torotate through a monthly “duty day” where theyare represent formal escalation “points of lastresort” for resolving all customer complaints.

• Executive compensation programChange the compensation so a significant ele-ment of the “reward component” is granted for

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a “statistically valid” increase in customer satis-faction as measured by a valid external method.

Business leaders must exhibit consistency in allthat they do. Lack of consistency is consideredby employees to countermand the organizationalculture and may cause deterioration in a sharedsystem of values. It is particularly important todemonstrate consistent performance when one ofthe tenants of the organization is “empowerment” –the ability to make individual choices within a setof boundary conditions. An organization’s visionprovides direction for empowerment, but its valuesprovide the boundaries for making choices.

Management Leadership

Managers may also become leaders. The definitionsof manager and leader are not mutually exclusive.Each person appointed to a management functionshould at least aspire to becoming a local leader.What can be done to demonstrate leadership at thelocal level? Several actions can be suggested:

• taking an active role in leading the local imple-mentation of a major business or QI initiative thathas strategic value to the organization as a whole;

• showing a personal interest in developing thenext generation of leaders through the personalmentoring of high-potential employees;

• “managing by wandering around” and takingtime to talk with employees about any issues orconcerns they may have, providing brief wordsof encouragement, and taking action to applytheir insights for better management of work orbusiness processes;

• sponsoring and reviewing improvement projectsthat deliver on the annual continuous improve-ment objectives of their own management area ofresponsibility;

• recognizing the improvement efforts of frontlineteams and individuals;

• developing the core competence of their organi-zation through team-based on-the-job educationand training programs; and

• exercising information transparency by commu-nicating to all employees about business resultsand briefing them on both the strategic directionand any news that directly concerns them or theirlivelihood.

Frontline Leadership

Leadership is often required at the frontline in orderto coordinate action and encourage common behav-iors that reinforce organizational values. Each personcan exhibit leadership as a means to encourage fellowemployees and provide an example that reinforces thebehaviors of the value system. Some of the actionsthat can be taken at the personal level include

• participate actively in their work group or teamprocess management activities and continuousimprovement projects;

• develop their personal problem-solving and sta-tistical analysis skills;

• mentor new employees in the cultural values andhistorical accomplishments of the organization;

• pursue certification in the core skills involved inthe profession and demonstrate mastery of thetools and methods of their own trade;

• provide improvement ideas and suggestionsto managers whenever any opportunities forimprovement are observed in the work process;

• participate on teams for conducting self-assessments, audits, and cross-functional processimprovement;

• take responsibility for their personal developmentand pursue a combination of both internal andexternal courses that deliver their career objec-tives; and

• recognize the contributions of colleagues andteam members and encourage their achievementsby expressing appreciation for their positiveinvolvement in team improvement projects or per-sonal suggestions made for process improvement.

Personal Leadership

True leadership is not in words, but in deeds: “Theauthentic test for mastery of learning is not in whata manager [person] says, but in what a manager[person] does” [7]. This requires a consistent practicethat is developed from the inside out and exists onboth personal and interpersonal levels both withinthe local work experience and across the wholeorganization. This effort requires two key focusareas: managers must empower the workforce toexhibit the principles of total quality leadershipand frontline workers must become aligned withthe strategic direction, improvement objectives, and

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cultural values of the leadership team. Each employeeshould aspire to represent a role model of thebehavior desired of colleagues in the organization.This principal is also a cornerstone of the leanmethods of the Toyota production system whereemployees are held accountable for the quality oftheir work and are expected to manage the quality oftheir work using a self-regulated QC approach. Thisraises an important question about the responsibilityfor quality and the role of quality professionals inmanaging to achieve quality outcomes in contrast tothe responsibility of both process owners and workersfor the quality of their own work output. What is therole of a quality professional in managing for quality?

Professional Leadership: The Roleof a Quality Manager

Responsibility for Quality Performance

Who is responsible for the quality outcome of work?Is it the individual doing the work, the supervisorof the work effort, the owner of the work or busi-ness process owner, or the leader of the businessarea? There is a quandary: if everyone is responsiblefor the quality of work, then nobody is accountable!The resolution of this quandary lies in the multi-ple levels of responsibility – which fosters differenttypes of accountability! Responsibility accumulatesfrom bottom up; however, accountability is delegatedfrom higher levels of authority to lower levels in theorganizational structure. Thus management delegatesresponsibility for quality performance of work tothe workers, but maintains overall responsibility andaccountability. Workers can only be held responsi-ble and accountable in the area of work that hasbeen properly delegated to them. You cannot haveaccountability without responsibility! What does ittake to hold someone properly accountable for exe-cuting their responsibility and then delivering thedesired level of quality in their work? Accordingto the sage advice of Peter Drucker, there are threeconditions that must be satisfied to hold a workerpersonally accountable for the quality of their work:

1. Employees must have specific knowledge of thejob they are asked to perform in terms of specifi-cations, measurements, systems for work perfor-mance, and contingency actions that should beperformed when work quality is not acceptable

according to standards and they must be trainedto perform to these work requirements.

2. Employees must know the standard of qualitythey are expected to deliver (the targets or goalof their performance expectation).

3. Employees must have the ability to monitor theirwork progress and be delegated the authority tomake decisions that allow them to self-regulatetheir own performance to consistently meet thestandards of performance [8, 9].

When these three conditions are not met, thenthe business managers retain the responsibility andaccountability for all aspects of work quality. Thejob of a professional quality manager is to developthe QMS that assures that responsibility for executionof work practices leading to consistently sustainablequality results is achieved. What behavioral charac-teristics does it take to be such a “local leader” of theorganization’s quality practices?

Behavioral Qualities of an ExceptionalQuality Manager

On the basis of a behavioral analysis of successfuland unsuccessful quality managers, there are somecommon traits that have been identified as distin-guishing between the most successful quality man-agers and those who were not perceived by theirbosses as being successful. Sixteen traits were identi-fied as leading to success [10]. Interestingly, only onetrait was observed to detract from managerial perfor-mance. The positive behavioral traits that were dis-covered in this study included customer oriented, cus-tomer advocate, organizationally astute, influencing,goal oriented, interpersonally diagnostic, persistent,organizational planning, initiating, mentoring subor-dinates, collaborative, professional, conceptual, inno-vative, communicative, and self-confident. The onenegative trait that leads to loss of personal influenceand ineffective personal interactions was “makingfast decisions.” On the basis of these characteris-tics, it is clear that a “local quality leader” mustbehave like an internal consultant acting without thedirect management authority and responsibility forline management (e.g., management of the profit andloss centers of the organization) but must convinceothers, through persuasive use of data, as to what isthe right course to take. In an interview with PeterDrucker he was asked: how can a quality professional

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convince their business leader to “do” quality? Hisanswer was most educational. Drucker said, “It is notyour job to train your CEOs. They are bright peopleand can understand quickly what needs to be accom-plished. However, it is the job of staff to clearly reportnecessary information that CEOs can easily assim-ilate and understand, so they may draw their ownconclusions” [11]. The “secret weapon” of qualityprofessionals is the use of data as a means to con-vince management to act. Communicating concernswith clarity and confidence is perhaps the greatestcompetence that a quality professional can have.

Summary

What is quality? Quality is the never-ending pursuitof excellence in product or service performanceas judged according to the standards of customersrelative to alternative choices they have for selectingsimilar goods or services from competitors. Thesecustomer standards for quality change over time andare influenced by a wide variety of external forcessuch as technology and regulatory legislation. Asquality improves in one area in life, it often has apositive influence by increasing the requirement forquality in other areas. Thus, managing to improvequality is an essential ingredient to continued successand QM is a business requirement that will continueto be part of the “essential work” of organizations.

End Notes

a. Although PDCA is often called the Deming cycle itwas first described by Walter Shewhart and the PDCAversion was actually developed by the Union of

Japanese Scientists and Engineers (JUSE) translatorsof Dr Deming’s lectures under the supervision ofKaoru Ishikawa.

References

[1] Watson, G.H. (2003). Persistent leadership: a key tosustainable quality, in Quality into the 21st Century: Per-spectives on Quality and Competitiveness for SustainedPerformance, T. Conti, Y. Kondo & G.H. Watson, eds,ASQ Quality Press, Milwaukee, Chapter 5.

[2] Kano, N., Seraku, N., Takahashi, F. & Tsuji, S. (1984).Attractive quality and must-be quality, translated byGlenn Mazur, Quality, The Journal of the JapaneseSociety for Quality Control 14(2), 147–156.

[3] Christensen, C.M. & Raynor, M.E. (2003). The Innova-tor’s Solution, Harvard Business School Press, Boston.

[4] Watson, G.H. (2003). Customers, competitors andconsistent quality, in Quality into the 21st Century,T. Conti, Y. Kondo & G.H. Watson, eds, ASQ QualityPress, 2003, Ibid., Chapter 2.

[5] Bennis, W. (1989, 1994). On Becoming a Leader,Perseus Books, Cambridge, p. 39.

[6] Bennis, W. & Nanus, B. (1997). Leaders: Strategiesfor Taking Charge, 2nd Edition, Harper Business, NewYork, p. 2.

[7] Watson, G.H. (1994). Business Systems Engineering,John Wiley & Sons, New York, p. 116.

[8] Drucker, P.F. (1954). The Practice of Management,Harper Collins, New York.

[9] Drucker, P.F. (1973). Management: Tasks, Responsibili-ties and Practices, Harper Trade, New York.

[10] Watson, G.H. (1999). Building quality competence:successful management behavior, in Proceedings of the53rd Annual Quality Congress , May 25, 1999.

[11] Watson, G.H. (2002). Selling Six Sigma to CEO’s, SixSigma Forum Magazine, 2, 26.

GREGORY H. WATSON

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Abstract: Quality management involves assessing, planning, improving, and controlling work that peopleaccomplish to achieve their shared objective of service to their customers. Quality management requiresattention to detail at each level of the organization: leaders must focus on concerns of shareholders andthe community; managers must focus on commercial objectives for their targeted markets; and operationalteams must focus on the daily work routine of the organization. Each level is responsible for contributing aunique element of the overall quality program. Quality management delivers a consistent system of working thatestablishes criteria for challenging aspirations for the desirable behavior of the organization, plans improvementobjectives based on gaps in performance between the desired state of performance and the current observationsof performance, improves work by executing projects that change the way that the routine work processesperform, and defines standards of performance for continuing control of these routine work processes. Thecomponents of a quality management system are usually derived from the Malcolm Baldrige National QualityAward criteria for business excellence, external benchmarking studies, total quality management, Six Sigma,and lean production methods, and then these components are packaged into a structure that adheres to theISO 9000 standard for a quality management system (or other appropriate quality system structure).

Keywords: total quality management; kaizen; continuous improvement; business excellence; Six Sigma;benchmarking; policy deployment; self-assessment

Author Contact Address: Business Excellence Solutions, Helsinki, Finland and Oklahoma State University,Stillwater, OK, USA

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For the attention of the Editor-in-Chief

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for a given phrase)(1) eqr488 Kano Analysis or the Kano Model: Attractive and

Must-Be Quality(2) eqr208 Six Sigma Method

eqr491 Design for Six Sigma Creates Organic Growtheqr421 Six Sigma

(3) eqr489 Change Management: The Stakeholder Assessment(4) eqr391 Kaizen(5) eqr408 Creating Flow with Lean(6) eqr300 Control Charts and Process Capability

eqr277 Process Capability, Overview(7) eqr393 Statistical Quality Control(8) eqr390 Quality Improvement(9) eqr224 Laws of Large Numbers(10) eqr226 Moments

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Benchmark Processes toDefine ImprovementProjects

Introduction

In 1990, Roger Milliken called benchmarking the artof stealing shamelessly and since then many haveused benchmarking to generate “quick fixes” for theirperformance problems. However, benchmarking isnot just for quick fixes, it can also provide a rig-orous process that requires both “sweat equity” –learning about one’s own processes and perform-ing the logistics of coordinating study missions toother organizations – and “analytical thoroughness” –measurement and analysis of sustained work pro-cess performance as well as the detailed mappingof processes and side-by-side evaluation of processdifferences. Benchmarking uses the analytical infor-mation contained in a benchmark, or a comparativemeasure of process or results performance to establishwhich organization is the candidate for a “best prac-tice” in a specific business process. Then the businessprocess must be specified in order to understand howthe benchmark was achieved and to identify enablersof successful overall performance. Finally, a culturaladaptation of the learning must be made in order toapply this new knowledge to another organization.For benchmarking to be successful, it must heed thewarning of Dr. W. Edwards Deming who said, “It ishazard to copy. One must understand the theory ofwhat one wishes to do.” Cultural adaptation and busi-ness model adaptation are necessary to assure that thelesson observed in one organization can be success-fully transferred to another organization. As Demingalso cautioned, “Adapt, don’t adopt. It is error tocopy.”

Benchmarking Definitions

What is benchmarking? In order to understand thismethodology, it is essential that definitions be agreedupon for the meaning of some key terms. The firstdefinitions that must be agreed upon are terms thatidentify the types of benchmarking studies and theiroperational approaches:

Process Benchmarking

The method for comparative analysis of work pro-cess performance between two unique or distinctimplementations of the same fundamental processis called process benchmarking. It includes both theinternal inspection of an organization’s own perfor-mance as well as the external study of an organiza-tion’s recognition for achieving superior performanceas evidenced by objective standards of comparison(benchmarks). The objective of process benchmark-ing is not to calculate the quantitative gaps in per-formance, but to identify best practices that may beadapted for improvement of organizational perfor-mance. There are four types of process benchmarkingstudies: strategic, operational, performance, and per-ceptual benchmarking.

Strategic Benchmarking

The process benchmarking of organizational strat-egy or key business process performance in order todetermine breakthrough opportunities for profitabil-ity and productivity improvement is called strategicbenchmarking. This type of benchmarking focuses onthose critical business areas that must change to attainor maintain the competitive advantage of a business.Strategic benchmarking studies focus on critical busi-ness assumptions, primary competence areas, corebusiness processes, technology inflection points, orbusiness fundamentals that define organizational pur-pose. The purpose of strategic benchmarking studiesis to challenge the management to move from a cur-rent state to a desired state of the whole business.Examples of strategic benchmarking studies includeevaluation of options for the design of an organiza-tion’s governance structure, assessment of approachesused to implement advanced technology (e.g., enter-prise management software or paperless documenthandling), or strategic business issues that are facedby the organization (e.g., creating a web-based busi-ness capability; managing the technology transitionacross generations of advancement; or managing theroutine work of the organization through managementmethods such as balanced scorecard, performancemanagement, and business excellence assessments).

Operational Benchmarking

The process benchmarking of work processes or prac-tices in order to discover opportunities that will

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2 Benchmark Processes to Define Improvement Projects

provide productivity improvement in the areas ofeffectiveness, efficiency, or economy of the routinebusiness operations is called operational benchmark-ing. This type of benchmarking focuses on specificwork activities that need to be improved and seeks toidentify the work procedures, production equipment,skills or competence training, or analytical methodsthat result in sustained performance improvement asindicated by objective measures of process productiv-ity (process throughput, cost per unit, defect oppor-tunities, cycle time, etc.). Examples of operationalbenchmarking studies include analysis of invoicingprocedures to determine the most productive process,evaluation of production methods to determine thehighest throughput methods that deliver lowest costand least defects, and study of logistics distributionmethods that result in both high-delivery service per-formance and low levels of finished goods inventory.

Performance Benchmarking

The process benchmarking of product or serviceresults using a standard comparison or test underknown operating conditions is called performancebenchmarking. This type of benchmarking seeks toanswer the question which product or service isbetter based upon rigorous assessment using objec-tive performance criteria. Examples of performancebenchmarking studies include consumer product anal-ysis that evaluates products on a “head-to-head” basisusing a fixed set of criteria for performance, evalu-ation of product performance using a standard test,such as operating time to run a specific application, orendurance tests that identify the ability of a product toperform over a fixed period of time under comparableoperating conditions.

Perceptual Benchmarking

The process benchmarking feelings or attitudes aboutprocess, product, or service performance by the recip-ient of the process output is called perceptual bench-marking. This type of benchmarking seeks to answerthe question how do you perceive the delivery ofservice, performance of product, or execution ofprocess by the people who are recipients of theseoutputs. Perceptual benchmarking uses attribute orcategorical data to quantify subjective feelings andestablish relative ranking of performance based onsuch criteria as timeliness of performance, goodness

of knowledge transfer, soundness of information,courtesy of delivery agents, and so on. Examplesof perceptual benchmarking include surveys of train-ing satisfaction at the completion of a training event,employee satisfaction surveys to determine either thework climate or structural issues regarding compen-sation and benefits, or customer satisfaction with theproduct or service delivery to the marketplace.

The next definitions that must be agreed on arethe terminologies that identify the sources of dataused in conducting a specific benchmarking study.This is an older and somewhat less helpful way toidentify benchmarking studies. This categorizationof benchmarking practice according to the source ofdata leads to conclusions about the relative utility ofinformation from these sources.

Competitive Benchmarking

An approach to benchmarking that targets specificproduct designs, process capabilities, or administra-tive methods used by one’s direct competitors (e.g.,the study of performance in the laptop computerindustry that features only those companies that pro-duce these products).

Industry Benchmarking

An approach to benchmarking that seeks informationfrom the same functional area in a particular applica-tion or industry (e.g., benchmarking the purchasingfunction to determine the most successful approachfor managing a supplier base).

Internal Benchmarking

An approach to benchmarking where organizationslearn from “sister” companies, divisions, or operatingunits that are part of the same operating group orcompany (e.g., the study of internal research anddevelopment groups to determine best practices thatreduce the time to market for the new productintroduction process).

Generic Benchmarking

An approach to benchmarking that seeks process per-formance information that is from outside one’s ownindustry. Enablers are translated from one organi-zation to another through the interpretation of their

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Benchmark Processes to Define Improvement Projects 3

analogous relationship (e.g., learning about reducingcycle time in production operations by the studyof inventory management methods used in stockingfresh vegetable in grocery stores).

Comparative advantages and disadvantages ofthese benchmarking data sources are presented inTable 1.

The final definitions that must be agreed on are theterminologies that are used to describe the differentaspects of a benchmarking study:

Benchmark

A benchmark compares performance between prod-ucts, services, or processes of analogous organiza-tions in order to establish which one is superior inits sustained performance. Note that many of thebenchmarks that are publicly promoted indicate only“spot” performance at a specific point in time anddo not meet the criteria of “enduring success” byfailing to establish the difference in performancebetween a “special cause event” and a “commoncause” management process. A lack of statistical dis-cipline in the use of benchmarks threatens to diminishthe perceived value of the process of benchmark-ing (see the section titled “Presenting BenchmarkingResults”).

Best Practice

Best practice defines the set of activities, tasks,resources, training, and methods that created theobserved benchmark level of performance in anobserved work process. In a process benchmarkingstudy, in order to qualify as a “best practice” theperformance must be observed and mapped to assurethat the work performed is properly identified and thatprocess experts have validated and verified the dis-tinctions between observed best practices and merelygood practice. Without the objective assessment bywork process experts, “best practice” becomes a sub-jective claim that is not verifiable.

Critical Success Factors

These are quantifiable, measurable, and auditableindicators of process performance and process capa-bility in key business processes. They indicate in (1)basic business terms the performance level obtainedin a comparative manner using such basic build-ing blocks of processes to describe the performanceof business effectiveness (quality), efficiency (cycletime), and economy (cost). Key critical successfactors are universal and may be used for cross-organizational comparisons for the same process.

Table 1 Benefits analysis of benchmarking data sources

Source of data Advantages Disadvantages

Competitive benchmarking Provides a strategic insight intomarketplace competitiveness and a“wake-up” call to action

Legal issues regarding data sharing amongcompetitors

Study detail may not be good enough forprocess diagnosis

Industry benchmarking Takes advantage of functional andprofessional networks to gain studyparticipants

Functional concentration tends to supportoperational rather than strategic studies

Does not challenge paradigm of functionalthinking

Internal benchmarking Provides highest degree of process detailand simplified access to processinformation

The internal focus tends to be operational,rather than strategic, and reinforce theorganization’s cultural norms

Generic benchmarking Has the greatest opportunity for processbreakthroughs

Difficulty in developing an analogy betweendissimilar businesses

Because organizations do not compete,reliable detailed information is usuallyavailable

Difficulty in identifying the companies tobenchmark

Provides incentive for strategic changeinitiatives

Difficulty in establishing the appropriatecontact for a study

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Enabler

The specific activity, action, method, or techniquethat stimulated progress in one process over thecomparative processes and led to identification ofa best practice (e.g., the way quality functiondeployment or failure mode and effects analysis was(2) (3)used in a product design process; a process for datapresentation that more clearly indicated the actionto be taken by frontline operators; or an employeetraining and development system that delivers theappropriate skills and competence to process workersas they require these methods to perform their workin a changing technological environment).

Entitlement

The set of work process lessons learned that arederived by examination of one’s own processes anddiscovery of wasted activities, duplicated steps ornonvalue-added work that can be eliminated or mod-ified solely on the basis of the self-analysis phase ofbenchmarking. An organization is “entitled” to makesuch process changes without relying on the lessonslearned from external discovery. Such improvementspermit the process to operate as intended and repre-sent gap closure between original process design andcurrent process performance. Entitlement also refersto the gap that may exist between the design processcapability (Cp ratio) and the achieved process capa-bility (Cpk ratio) as management is entitled to theperformance that they purchased with their capitalinvestment.

Gap Analysis

Gap analysis evaluates the performance differencebetween current internal performance and benchmarkperformance at the best practice organization. Tobe effective, a gap analysis should include boththe use of statistical confidence intervals and the(4)

tests of difference (for both means and variance) todemonstrate that a real performance gap has beenobserved and not a gap due to chance observations.

Radar Diagram

A radar diagram provides a multivariate display ofcomparative performance for several dimensions of

interest (e.g., cost, cycle time, quality, and produc-tivity). These dimensions are displayed on a singlechart as spokes from the center where each measurehas its own unique scale; however, all indicators areshown on the same graphic to illustrate a performanceprofile for a specific process. The radar diagram pro-vides a more complete benchmarking assessment thana single-point measure of performance comparison.

Baseline Analysis

At the beginning of a study a baseline analysis isconducted to compare performance data across allbenchmarked processes. A common scale is used foreach comparison based on the variation observed inprocess performance. A best process is one that hasthe highest average sustained performance and thelowest variation in the daily results. The performancebaseline comprehends both of these factors using astandardized metric for process comparisons (e.g.,process standard deviation as calculated using thedefects per million opportunities as evaluated againsta common customer requirement for targeted perfor-mance). The baseline analysis may be presented as ananalysis of variance showing sampled performance asa function of the different process locations.

World Class

Although it is intuitively clear that there is no oneworld best performance that exists at a particularpoint in time (the enormity of analysis to supportsuch a claim would be unmanageable), it is possibleto define a category of performance as “world class”by the fact that using a standardized measurementprocess (e.g., the performance baseline analysis),the process was observed in the top 5% of allperformance noted in the study. This indicates thatthere is a high confidence level that the process is ina leadership position and worthy of investigation forpotential best practice areas.

Benchmarking as a Discipline of TotalQuality Management

In the development of total quality management (5)(TQM), benchmarking has a unique place as botha tool to stimulate improvement and a management

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technique that aids in strategic positioning of an orga-nization. Benchmarking provides opportunities forfull organizational participation in business processimprovement by engaging the management team inthe architecture of change and choice of focus areasfor study; involving the middle managers in self-assessment of the work processes that they own andin adapting the lessons learned from other organiza-tions; and relying on the study of related processes bythe organization’s frontline process experts who arecharged with discovery of the significant differencesthat lead to performance gaps.

What is benchmarking and how is it used? Bench-marking is a structured approach for learning aboutprocess operations from other organizations andapplying the knowledge gained in your own orga-nization. It consists of dedicated work in measuring,comparing, and analyzing work processes among dif-ferent organizations in order to identify causes forsuperior performance. Benchmarking is not completewith just the analysis, however, it must be adaptedand implemented in order to have a complete cycleof learning.

The objective of benchmarking is to accelerate theprocess of strategic change that leads to breakthroughor continuous improvements in products, services, orprocesses, resulting in enhanced customer satisfac-tion, lower operating costs, and improved competitiveadvantage by adapting best practices and businessprocess improvements of those organizations that arerecognized for superior performance. Benchmarkingis a method that forces organizations to look out-side themselves in order to avoid myopic illusions ofgrandeur that come from reflecting on internal expe-rience without external validation.

Benchmarking is not just a checklist or set ofnumbers that are used to make management feelbetter about their current performance. Benchmark-ing should make management uncomfortable due to

the identification of gaps in business performance.Benchmarking should challenge management due tothe discovery of performance enablers that could helpthem to improve. Perhaps the juxtapositions shown inTable 2 can help describe this situation.

Benchmarking Logic

It is important to observe that the logic of the bench-marking process does not fail the test that was issuedby Dr Deming in the early 1980s, when he cautionedexecutives against deadly diseases in the manage-ment of business that were derived from setting arbi-trary goals based solely on visible performance mea-sures, without understanding the depth of profound(process-related) knowledge that lay underneath mosthigh-level performance measures.

Dr Deming would call “arbitrary” the use ofbenchmarking with the following logic:

• “Our competitor’s price is 15% lower than ours;therefore, we must lower our cost by 15%.”

The logic of benchmarking is much more processoriented and requires the development of the type ofprofound knowledge that Deming advocated:

• “Leading companies have operations that are 20%more effective than our operations.”

• “The reasons that their operations are more effec-tive is because . . . ”

• “The practices that they used to improve theseoperations include . . . ”

• “The following enhancements to our processesare appropriate for our business model and ourculture and will improve our performance: . . . ”

• “The estimate of performance gain due to imple-mentation of these enhancements is . . . ”

Table 2 Defining the scope of benchmarking

Benchmarking is Benchmarking is not

A discovery process A cookbook processAn improvement methodology A panacea for problem solutionsA source of breakthrough ideas About “business as usual”A learning opportunity A management fadAn objective analysis of work A subjective “gut feeling” or opinionA process-based learning approach Just measurement of process performanceA means to generate ideas Just quantitative comparisons

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The ability to apply this logic comes from devel-oping an understanding of the root cause of pro-cess improvement at the benchmark organization andtranslation of their lessons learned into appropriatechange for your own organization. By a processof conscientious learning and cautious adaptation, acompany can learn the lessons needed to move it tothe level of world-class performance.

Operational Definition of World-ClassPerformance

Benchmarking seeks to deliver performance that is“best of the best” (the Japanese word for this isdantotsu) or world-class performance. World classis an elusive performance level. To be the “best ofthe best” it is necessary that you have both a highlevel of performance (top 5%), and that this level ofperformance be sustainable across changes in productlife cycle, underlying technology in both the productand the process, as well as successive generationsof executive leadership. That is a tall order for anyorganization.

What does it mean to be world class? One def-inition [1] considers a world-class company as onethat is able to achieve and sustain a leadership per-formance level, while at the same time exhibitingthe following competitive considerations that are sig-nificant learning areas for a TQM-oriented organi-zation. According to this definition, a world-classorganization

• knows its processes better than its competitorsknow their processes,

• knows its industrial competitors business betterthan their competitors know them,

• knows its customers better than their competitorsknow their own customers,

• responds more rapidly to change in customerbehavior or needs than its competitors,

• engages employees more effectively than its com-petitors, and

• competes for market share on a customer-by-customer basis.

Clearly this definition of world class requires bothan objective performance standard as well as theprofound knowledge of its business and commercialenvironment in order to enjoy sustained performanceat this level.

The Process of Benchmarking

Not surprisingly, there is a process for processbenchmarking. Many different organizations haveillustrated benchmarking processes from 4 to 42 steps[1]; however, the process that I favor has seven stepswhich highlight the work that must be done in abenchmarking study and which also follow a four-phase process that is generic to all benchmarkingmodels:

1. Identify subject – choose what to benchmark2. Plan study – identify your partners and plan your

data collection (6)

3. Collect information – actively collect the dataand visit partners

4. Analyze data – analyze the data for performancetrends and consistency over time

5. Compare performance – compare results and testdifferences for statistical significance

6. Adapt applications – prepare the lessons learnedfor transition to your own culture

7. Improve performance – implement projects toimprove your processes

The generic four-phases that these steps coverroughly follow Deming’s plan–do–check–act (PD-CA) process management and improvement cycle.These four process benchmarking phases are sum-marized as follows:

• Plan: design the study and evaluate the baselineperformance.

• Collect: collect internal and external data aboutthe process.

• Analyze: conduct a gap analysis and determineenablers of success.

• Improve: adapt the recommendations and imple-ment the process improvements.

Each phase of this benchmarking process isdescribed in the following sections.

Benchmarking: Plan

The steps involved in planning a benchmarking studyinclude

• Select a process.• Gain the owner’s participation.• Select a leader and a team.

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• Identify customer expectations.• Analyze process flow and measures.• Define process inputs and outputs.• Document the process.• Identify process critical success factors.• Determine data collection elements.• Develop a preliminary questionnaire.

Some of the questions that must be answeredduring this phase of a benchmarking study include

• What process should we benchmark?• What is our process and how does it work?• How do we measure it?• How well is it performing today?• Who are the customers of our process?• What products and services do we deliver to our

customers?• What do our customers expect from our process?• What are the critical success factors for this

process?• What is our process performance goal?• How did we establish that goal?• What data should we collect for comparisons?

Notice that many of these questions are similar tothe basic questions that one confronts in any TQMimprovement project.

Benchmarking: Collect

The steps involved in collecting data for a bench-marking study include:

• Collect internal data.• Perform secondary research.• Develop partnership criteria.• Identify benchmark partners.• Plan data collection.• Develop survey or interview guide.• Solicit participation of partners.• Collect preliminary data.• Conduct site visits.


• What companies perform this process better?• Which company is best at performing this pro-

cess?• What can we learn from that company?

• Who should we contact to participate as ourpartners?

• What is their process?• How representative is the process across different

areas of their organization?• How do they measure process performance?• What is their performance goal and how was it

set?• How well does their process perform over time?• Is there any difference in performance at different

locations or based on seasonal change?• What business practices, methods, or tasks con-

tribute to the process performance?• What factors could inhibit the adaptation of their

process into our company?

Notice that many of these questions are the sameas questions that would be addressed in any TQM-based data collection activity.

Benchmarking: Analyze

The steps involved in analyzing benchmarking studydata include

• Aggregate the data across units but preservesubgroup relationships.

• Normalize performance to a common perfor-mance base (e.g., σ scale).

• Compare current performance to historical data.• Test performance for difference in both trend of

performance average and variation.• Test differences for statistical significance.• Identify gaps in performance and the root cause

of all significant differences.• Identify entitlement opportunities.• Forecast performance observations to the business

planning horizon.• Develop case studies of best practice.• Isolate process enablers.• Assess adaptability of process enablers.


• What is the basis for comparing our processmeasurements?

• How does their process performance comparewith our process performance?

• What is the magnitude of the performance gap?

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• What is the nature or root cause of the perfor-mance gap?

• How much will their process continue to imp-rove?

• What characteristics distinguish their process assuperior?

• What activities within our process are candidatesfor improvement?

Note that many of the questions addressed aboveare the same as would be addressed in any TQM orSix Sigma improvement project.(7)

Benchmarking: Improve

The steps involved in implementing the lessonslearned from a benchmarking study include

• Set goals to close, meet, exceed the gap.• Modify enablers for implementation.• Gain support for change among all involved

parties.• Develop the action plan.• Communicate the plan.• Commit resources to achieve the plan.• Implement the improvement plan and document

the changes.• Ponitor and report progress on targeted schedule.• Identify opportunities for further process impro-

vement.• Recalibrate the benchmark measure after imple-

mentation.


• How does our knowledge of their process help usto improve our process?

• How should we forecast the future effectivenessof their process performance?

• Should we redesign our process or reset ourperformance goal based on this benchmark?

• What activities in their process need to be modi-fied to adapt it into our business model?

• What have we learned during this study that willallow us to improve on “best” practice?

• What goals should we set for our own processimprovement?

• How can we implement the changes in our pro-cess?

• How will other companies continue to improvethis process?

Note that many of the questions addressed aboveare the same as would be addressed in managingimplementation in any project improvement process.

Methods of Data Collection

In conducting a benchmarking study, there are severaldifferent approaches to data collection that can bepursued by a benchmarking team. Table Tables 3and 4 illustrate several schemes for data collectionand identify when to use each approach as well as theadvantages and disadvantages associated with each ofthe methods.

Presenting Benchmarking Results

Some final points should be made about the processof benchmarking relative to the analysis and presen-tation of benchmarking data. Care must be taken inthe data analysis efforts to assure that benchmarksare representative of real-world performance. Specificcautions include the following statistical problems inbenchmarking:

• single data point measurements that are passedoff as “benchmarks”,

• measurement systems not validated for sensitiv- (8)ity of observation or calibration, (9)

• averages used to represent performance bench-marks,

• missing variation data in process characterization,• components of variance not identified according

to their source,• comparative charts not indicating both mean and

variance,• process changes not correlated with performance

shifts, and• interactions not identified among the different

process variables.

Clearly, there can be many issues that cre-ate problems in the measurement and analysis ofresults from benchmarking studies. Careful planningand solid data collection and analysis efforts canachieve theelimination of these opportunities for error

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Table 3 Data collection methods–1

Method Existing data review Questionnaire/survey Telephone survey

Definition Analysis and interpretation ofdata that already existsin-house or in the publicdomain

Written questions sent directly tobenchmarking partner – cancontain any type of question:multiple choice, open-ended,forced choice, or scaledanswer

A written script of questionsthat are used to solicit dataor guide a conversationduring a telephone call togather data and information

When to use Before conducting originalresearch to establish whatis the historical baseline

When you need to gather thesame information from a largenumber of sources

When information is neededquickly or to conduct a fastscreen of potential sources

Advantages A large number of sources ofinformation are availableand most are accessiblefrom your ownorganization

Permits extensive data gatheringover time, can be analyzed bycomputer (if OCR form isused), and data is easy tocompile

Can cover a wide range ofrespondents quickly, peopleare more candid over thephone and can also amplifyanswers in follow-upquestions

Disadvantages Gathering this informationcan be very timeconsuming

Response rates are low; andinterpretation of questions canbe subjective, creative ideasrarely surface, probing for“how to” answers is difficult

Locating the right person toanswer, no exchange ofprocess information occurs,and often requires multiplephone calls

Table 4 Data collection methods–2

Method Interview Focus group Site visit

Definition A face-to-face meeting with abenchmarking partner usingquestions that are prepared anddistributed in advance

A panel discussion betweenbenchmarking partners with athird-party facilitator at aneutral location

An on-premises meeting at abenchmarking partner facilitythat combines an interviewwith work process observation

When to use When you need one-on-oneinteraction to probe and drivedata collection to a specificobjective or level of detail

When you want to gatherinformation from more thanone source or perspective atthe same time – when thereare diverse opinions or waysto approach an objective

When you need to observespecific work practices

When interpersonal orface-to-face interaction isneeded to evaluate the “humanaspect” of a process

Advantages Encourages interaction, in-depthdiscussion and open-endedquestions – a flexible style canprovide unexpectedinformation

Direct sharing of information onbest practice – brings thepartners together to discuss amutually established agenda

Can observe actual practice andverify the process capability,enablers, and assess themeasurement system

Disadvantages Takes time – the peopleinterviewed may be reluctantto talk about sensitive issues

Logistics must be managed –result may be the “lowestcommon denominator” amongthe participating partners

Requires careful planning andpreparation – who asks whatof whom?

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introduction into a benchmarking study. Wheneverpossible, analysts conducting benchmarking projectsshould have the same education as Six Sigma BlackBelts in statistical analysis to assure the analyticalsoundness of study results.

Benefits and Pitfalls of Benchmarking

Benchmarking is a business change process thatencourages managed change. It encourages an orga-nization to take an external and objective perspectivein evaluating its performance. The benefit of bench-marking comes from three specific actions:

• The gap between internal and external practicescreates the need for change.

• Understanding the benchmarked best practicesidentifies what must change.

• Externally benchmarked practices provide a pic-ture of the potential result from change.

However, lest benchmarking appear to be apanacea for problem resolution, the following set ofpotential pitfalls in conducting benchmarking studiesmust also be highlighted:

• selecting benchmarking partners that do not con-vince management (not respected);

• choosing benchmarking partners to meet popular-ity tests with no performance substance;

• accepting public relations claims as process per-formance benchmarks;

• assuming that measurements are the same indifferent organizations (without checking);

• identifying process measures that are not trace-able from strategic to operational levels;

• conducting statistical analyses that represent sur-face observations – not root causality;(10)

• failure to validate performance with on-siteinspection to verify benchmark claims;

• enforcing implementation of a benchmarking les-son across a cultural barrier; and

• use of “benchmarks” for management decisionswithout recalibration over time.

Comparative Analysis and CompetitiveAdvantage

What does an organization gain in the way ofcompetitive advantage from benchmarking? In the

long run, competitive advantage comes from out-thinking and outperforming competition. When anorganization uses benchmarking effectively, they areable to think ahead of their industry and to actefficiently by adapting lessons learned from cross-industry studies to permit them to creatively imi-tate the best performing processes in the world.Over the long haul this can establish them as thethought-leader within their own industry. In the finalanalysis, it is not outthinking or prior knowledgethat results in competitive advantage, it is in theexcellence of execution of such new knowledgeand the creative application of breakthrough insightsthat wins in the long term. To achieve a domi-nant position in a market, a company must bothknow and do better than its most aggressive com-petitors. Benchmarking can help develop the compe-tence to achieve this position, but it must be supple-mented by management will in order to make successhappen.

Integrating Benchmarking with StrategicPlanning

The leading organizations in the world plan to winand win by planning. Benchmarking improves perfor-mance for these organizations by providing them witha methodology to learn and challenge their criticalbusiness assumptions by thinking differently abouttheir strategic direction. Applying benchmarking as atool of business strategy is an effective way to evalu-ate options and perform an assessment of alternativesby considering the strategic implications that may beobserved in other analogous situations. Such lessonsreduce the likelihood of “repeating the mistakes ofothers”.

Conclusions

Process benchmarking is an important tool of TQMand can help to improve both the strategic direc-tion and the operational process performance. It isa discovery methodology that is used to stimulatelearning and help organizations to think about cre-ative options for the design and implementation ofits business processes. Coupled with solid statisticaldata analysis, best practice identification and cul-tural adaptation can help organizations to both “learn”

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and “do” their business process improvement moreeffectively.

Reference

[1] Watson, G.H. (1993). Strategic Benchmarking, JohnWiley & Sons, New York.

Further Reading

Camp, R.C. (1995). Business Process Benchmarking, ASQQuality Press, Milwaukee.

Camp, R.C. (1989). Benchmarking, ASQ Quality Press, Mil-waukee.

Deming, W.E. (1982). Out of the Crisis, Massachusetts Instituteof Technology, Center for Advanced Engineering Study,Cambridge.

Hammer, M. & James, C. (1993). Reengineering the Corpora-tion, Harper, New York.

Porter, M.E. (1980). Competitive Strategy, The Free Press, NewYork.

Porter, M.E. (1985). Competitive Advantage, The Free Press,New York.

Watson, G.H. (1992). The Benchmarking Workbook, Productiv-ity Press, Portland.

Watson, G.H. (2007). Strategic Benchmarking Reloaded withSix Sigma, John Wiley & Sons, Hoboken.

GREGORY H. WATSON

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Abstract: Benchmarking is a process of comparing performance between two or more organizations about aproduct, process or service that they have in common. The benchmarking objective is to identify a process thathas superior performance and to determine the reasons behind that exceptional performance. Benchmarkingstudies may be conducted at either the strategic, or operational organizational level and they may comparecompetitive organizations, internal divisions or processes, industry-wide practices, or generic business practicesin cross-industry studies. Benchmarking follows a four-step process: plan-collect-analyze-improve. In theplanning step the objective of the study is defined and a literature search is made to determine what informationis available from the public domain. Companies are targeted as partners in the study and a preliminaryquestionnaire is developed in order to solicit their participation. In the second step of the study surveysare conducted, site visits are accomplished, and interviews are used as part of the data collection process. Inthe analyze step, statistical and practical comparisons are made and best practices are identified among theparticipating organizations. In the final step, potential enablers of improvement are culturally adapted to eachorganization and they are implemented into the daily management system.

Keywords: total quality management (TQM); business excellence; self-assessment; balanced scorecard;customer dashboard; process benchmarking; benchmark; enabler; best practice; critical success factor; processcapability; entitlement; strategic benchmarking; operational benchmarking; quality management systems;continuous improvement; kaizen; plan-do-check-act (PDCA)


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for a given phrase)(1) eqr300 Control Charts and Process Capability

eqr277 Process Capability, Overview(2) eqr412 Quality Function Deployment(3) eqr411 Failure Modes and Effects Analysis(4) eqr218 Confidence Intervals(5) eqr419 Overview of Quality Management(6) eqr163 Data Collection and Data Management in Survey

Sampling (in Particular by New Technologies)eqr233 Data Collection

(7) eqr491 Design for Six Sigma Creates Organic Growtheqr208 Six Sigma Methodeqr421 Six Sigma

(8) eqr313 Capability Measures for Measurement SystemsAnalysis

eqr304 Overview of Measurement Systems Analysiseqr302 Measurement Systems Analysis, Attribute

(9) eqr487 Calibration(10) eqr433 Causality

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Policy Deployment DrivesPerformanceImprovement

Introduction

Organizations that win in the long term “plan theirwork and work their plan”. Realization of strategy –the long-term vision of an organization is achievedby a disciplined approach to setting direction andthen executing that direction through the effectiveuse of the organization’s resources. In Japan thismethod is called policy deployment – which has alsobeen called the secret weapon in the Japanese man-agement system. Policy deployment is the strategicdirection-setting methodology used to identify busi-ness goals, as well as to formulate and deploy majorchange management projects throughout an organi-(1)zation. It describes how strategy cascades from visionto execution in the workplace through a collaborativeengagement process that also includes implementa-tion details like performance, self-assessment, andmanagement review. It describes a systematic rela-tionship between strategy development and the orga-nization’s daily imperative to measure and manage itsoperations using a system that aligns the actions ofits people to produce collaboration among the variousbusiness functions and processes to produce require-ments for customers.

Historical Development of PolicyDeployment

What were the circumstances under which policydeployment originated? Interest in strategy, marketfocus, and long-term, balanced planning were gener-ated by the visits of Dr. Peter F. Drucker to Japanin the early 1950s [1]. As a result of his teach-ing, “policy and planning” was added to the DemingPrize checklist in 1958. Bridgestone Tire Corpo-ration first used hoshin kanri, the Japanese termfor policy deployment, in 1965. In 1976, Dr. YojiAkao and Dr. Shigeru Mizuno were involved inthe implementation of hoshin kanri in YokagawaHewlett–Packard (YHP) as part of its pursuit of theDeming Prize. By 1982, YHP had used hoshin tomanage a strategic change that moved it from the

least profitable Hewlett–Packard (HP) division to themost profitable. In 1985, this hoshin methodologywas introduced to the rest of HP as a lesson learnedfrom the YHP Deming Prize journey. From HP thismethodology was transferred to other leading compa-nies including Proctor & Gamble, Ford, Xerox, andFlorida Power & Light, involving several advisors (2)and councilors of the Union of Japanese Scientistsand Engineers (JUSE). The work of the GOAL/QPCresearch committee also extended the managerialtechnology of policy deployment and was a keyingredient in introducing policy deployment acrossNorth America and through multinational companies,to the world [2].

Foundations of Policy Deployment

Mizuno defined hoshin kanri as the process for“deploying and sharing the direction, goals, andapproaches of corporate management from top man-agement to employees, and for each unit of theorganization to conduct work according to the plan”.Hoshin kanri is a comprehensive, closed-loop man-agement planning, objectives deployment, and oper-ational review process that coordinates activitiesto achieve desired strategic objectives. The wordhoshin refers to the long-range strategic direction thatanticipates competitive developments while the wordkanri refers to a control system for managing theprocess [3].

This management system does not encouragerandom business improvement, but focuses the orga-nization on projects that move it toward its strate-gic direction. It builds strength from its relationshipwith the daily management system that is focusedon kaizen – continuous improvement. Hoshin seeksbreakthrough improvement in business processes byallocating strategic business resources (both financialand human resources) to projects that balance short-term business performance to sustain improvementtoward its long-term objectives. In a policy deploy-ment management system this two-pronged approachintegrates operational excellence in the daily manage-ment system with architectural design of its long-termfuture. This planning process contains two objec-tives: hoshin – the long-range planning objectives forstrategic change that allow an organization to achieveits vision and nichijo kanri – the daily, routine man-agement control system (or daily management sys-tem) that translates the strategic objectives into the

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2 Policy Deployment Drives Performance Improvement

Policy setting

Policy deployment

Policy implementation

Policy review

Figure 1 The system of hoshin kanri of managing policy

work that must be accomplished for an organizationto fulfill its mission. The blending of these twoelements into a consensus management process toachieve a shared purpose is the key to success for thepolicy deployment process. In a hoshin planning sys-tem, strategy is observed through the persistence ofits vision – how it is deployed across cycles of learn-ing in project improvement projects that move theperformance of the organization’s daily managementsystem toward its direction of desired progress.

The fundamental premise in policy deployment isthat the best way to obtain desired results for anorganization is for all employees to understand thelong-range direction and participate in designing thepractical steps to achieve the results. This form of par-ticipative management evolved and was influenced bythe Japanese refinement of Drucker’s management byobjectives (MBO) through the birth and growth of thequality circle movement. To manage their workplaceeffectively, workers must have measures of their pro-cesses and monitor these measures to assure that theyare contributing to continuous improvement as wellas closing the gap toward the strategic targets. Policydeployment became the tool that Japanese businessleaders used to engage their workers in a strate-gic dialog and align their work with the consensusstrategic direction of their firm. When HP first imple-mented hoshin planning, many of its business leadersexplained how it worked by calling it “turbo-MBO”.

Policy deployment links breakthrough projectsthat deliver the long-term strategic direction toachieve sustainable business strength while, at thesame time, delivering an operating plan to achieveshort-term performance. The methods of policydeployment anticipate long-term requirements byfocusing on annual plans and actions that must bemet each year to accumulate into long-term strength.Policy deployment processes begin when senior man-agement identifies the key issues or statements ofvulnerability, where improvement will have its great-est impact on business performance. This perspective

is an essential starting point for policy deploymentand allows management to focus a strategic dia-log to solicit ideas from frontline workers regardingthe opportunities for improvement that exist in theirworkplace. As Dr. Noriaki Kano of the Tokyo Sci- (3)ence University points out, without such direction“the ship would be rudderless”. The communicationof the focus area or theme for improvement providesa cohesive direction to assure alignment of the entireorganization and to build consensus between the man-agement team and the workers on business priorities.

Hoshin helps to create the type of organization thatWilliam McKnight, former CEO of 3M, expressedas his desire: “an organization that would contin-ually self-mutate from within impelled forward byemployees exercising their individual initiative” [4].In this type of organization, creativity is managedthrough a combination of self-initiated improvementprojects, which engage teams to combine individualcapabilities for achieving strategic projects that makea difference to the whole organization. How doesthis change management process work at the frontlinewhere these strategic hoshin projects interface withthe organization’s routine work processes?

Perhaps the reason hoshin kanri took hold withinHP is that this methodology demonstrated its abil-ity to translate qualitative, directional, or strategicgoals of an organization into quantitative, achievableactions that focus on fundamental business prioritiesachieving significant competitive breakthroughs – inshort, the leaders at HP recognized hoshin kanri asMBO done right!a The extension of this methodologybeyond HP to other leading firms came about becauseHP was recognized as possessing the best practicefor linking its strategic direction with its operationalmanagement systems.

Daily Management System

Policy deployment uses a systems approach to man-age organization-wide improvement of key business

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Policy Deployment Drives Performance Improvement 3

processes. It combines the efforts of focused teams onbreakthrough projects with the efforts of intact workgroups who continuously improve the performanceof their work processes. All strategic change occursin projects that accomplish those activities that arenecessary to achieve the stretch business objectivesthat assure sustained success for the organization.Policy deployment systematically plans ways to linkstrategic direction with those business fundamentalsthat are required to run the business routine suc-cessfully. Policy deployment allows management tocommission change projects for implementation andto review the implementation of a system of projectsand thereby to manage change. It seeks opportunitiesdisguised as problems – and elevates those high-priority changes required for the improvement of thedaily management system and work processes intobusiness change objectives that are accomplished ashoshin projects.

Routine operation of the daily management sys-tem requires a foundation in management by fact, orthe combination of business measurement with sta-tistical analysis and graphical reports that illustratesthe current state of performance, historical trends,and is able to extrapolate trends through statisticalinference. A key ingredient is the business funda-mentals measurement system that includes the set(4)of basic process results measures that are monitoredat control points within the organization where theflow of its throughput can be managed based on therequirements that are driven (using a pull system) bythe customer requirements. This measurement sys-tem should include both predictive and diagnosticcapabilities.

HP embedded its daily management system into awork process measurement system that they initiallycalled business fundamentals tables. Other companiesrefer to the set of measures that translate strategicgoals into operational measures of work (in unitssuch as quality, cost, and time) as either a cus-tomer dashboard or a balanced scorecard. These sys-tems are used to monitor the daily operations of abusiness and to report to the management on theprogress in the process for developing and deliver-ing value to customers. This measurement processmust operate in close-to-real time to permit processowners to take appropriate corrective action that willlimit the “escapes” of defects to external customersby catching and correcting errors before they arereleased from the organization, and finding and fixing

mistakes as they occur at the source. Such measuresof core work processes are called business funda-mentals because they must operate under control forthe business to achieve its fundamental performanceobjectives.

These measures must also be captured at the pointwhere control may be exercised by process operatorsto adjust the real-time operation of the process andassure meeting the customer’s performance require-ments on a continuing basis. As the great Dutcharchitect Miles van der Rohe once observed “Godis in the details” and it is in these details that busi-ness must effectively operate. A daily managementsystem defines the details of an organization’s opera-tions. Thus, the measurement and the point at whichit is both monitored and controlled are parts of thedaily management system and at this point theymust be related to their contribution to deliver orga-nizational performance objectives. In the languageof Six Sigma, a “Business Y ” (such as “profitablegrowth”) that must be achieved is the strategic goal,while a “Process X” (such as “creditworthy cus-tomers”) delivers this result by process-level perfor-mance through the transfer function Y = f (X) and (5)the “X” is therefore a fundamental business measureof the organization’s daily management system.

Collins and Porras describe how leading compa-nies stimulate improvement by evolutionary progress.“Evolutionary” describes progress that resemblesthe organic growth or the way that species evolveand adapt to their natural environments. Evolution-ary progress differs from the big hairy audaciousgoals (BHAG) of strategic progress in two ways.First, whereas BHAG progress involves clear andunambiguous goals (“We are going to climb thatmountain”), evolutionary progress involves ambigu-ity (“By trying lots of different approaches, we’rebound to stumble onto something that works; wejust don’t know ahead of time what it will be”).Second, whereas a BHAG involves bold discontin-uous leaps, evolutionary progress begins with smallincremental steps or mutations, often in the form ofquickly seizing unexpected opportunities that even-tually grow into major – and often unanticipated –strategic shifts. Evolutionary progress represents ameans to take advantage of unplanned opportuni-ties for improvement that are observed at the pointof application – the daily management system. Theaccumulation of many evolutionary improvementsresults in what looks like part of a brilliant overall

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strategic plan [5]. Both types of change are neededto stimulate the organic growth of an enterprise. Ifan organization can make improvements in the “rightX’s” then it will improve its performance on the crit-ical Business Y .

Choosing Strategic Direction

Hoshin kanri begins with a process for choosingstrategic change. In most firms, this process is calledstrategic planning. Proposed changes are usuallyidentified to either increase the competitive perfor-mance of a process or to create the competitive“attractiveness” of a product to its targeted market.Strategic choice in both dimensions is essential tohave a globally competitive organization. As pointedout by Dr. Hiroshi Osada, many Japanese companieshave not paid enough attention to the critical aspectsof strategy formulation as they have to the deploy-ment of their strategy using hoshin kanri. This leadsto an error of effectively deploying a poorly chosenstrategy. When management confuses the mechanis-tic aspects of policy deployment with its own cru-cial obligation to establish strategic direction, thenthey create a grievous error that is truly an abroga-tion of leadership. An organization may effectivelydeploy management’s strategic choice, however, ifthe choice of strategy is not carefully directed it willnot lead to improvement [6].

Osada notes that in traditional Japanese man-agement systems, ideas flow “bottom-up” from theworkplace to the management. However, in policydeployment, there is also a top-down approach toplanning change. As Osada comments, policy deploy-ment “is a simple tool for effectively deploying agiven policy, and has therefore been broadly adoptedby Japanese industry, it does not aid in policy formu-lation. Even when employing management by policy(MBP), therefore, the question of whether or not agiven policy is appropriate will remain. It is thuspossible for an inappropriate policy to be effectivelydeployed – to a counterproductive effect” [7]. Strate-gic direction must be determined by discovering thealternatives for achieving the organization’s visionand choosing the direction that will accomplish it.This direction is modified through the power of theincremental change to act as the “rudder” that steersthe ship by making “finely tuned” changes to the gen-eral direction of the strategy.

What are the essential ingredients in choosingstrategic direction? This process of management inte-grates strategic planning, change management, andproject management with the performance man- (6)agement methods that focus on delivering results.Some specific work activities in designing and imple-menting a policy deployment system include thefollowing:

• identifying critical business assumptions andareas of vulnerability,

• identifying specific opportunities for improve-ment,

• establishing business objectives to address themost imperative issues,

• setting performance improvement goals for theorganization,

• developing change management strategies foraddressing business objectives,

• defining goals project charters for implementingeach change strategy,

• creating operational definitions of performancemeasures for key business processes, and

• defining business fundamental measures for allsubprocesses to the working level.

Once a strategy has been set, the next challengeis to align the strategic direction with the work thatis being performed in the daily management system.

Aligning Operations with Strategies

A critical challenge for organizations is to aligntheir strategic direction with their daily work sys-tems so that they work in concert to achieve thedesired state. Alignment must include linking cul-tural practices, strategies, tactics, organization sys-tems, structure, pay and incentive systems, buildinglayout, accounting systems, job design, and mea-surement systems – everything. In short, alignmentmeans that all elements of the company work togethermuch like an orchestra leader integrates the vari-ous instruments to conduct a coordinated symphony.Organizations that apply the most mature aspects ofpolicy deployment do not put in place any randommechanisms or processes, but they make careful, rea-soned strategic choices that reinforce each other andachieve synergy. These organizations will “obliteratemisalignments”. If you evaluate your company’s sys-tems, you can probably identify some specific items

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that have misaligned with its vision and impede itsprogress. These “inappropriate” practices have beenmaintained over time and have not been abandonedwhen they no longer align with the organizationalpurpose. “Does the incentive system reward behav-iors inconsistent with your core values? Does theorganization’s structure get in the way of progress?Do goals and strategies drive the company awayfrom its basic purpose? Do corporate policies inhibitchange and improvement? Does the office and build-ing layout stifle progress? Attaining alignment is notjust a process of adding new things; it is also a never-ending process of identifying and doggedly correctingmisalignments that push a company away from itscore ideology or impede progress” [8].

The System for Policy Management

Policy deployment combines both the “target andthe means to achieve the target” into a consensus-generating, management decision-making process.Improvement targets are described using four ele-ments: a performance measure to be improved,direction and rate of improvement desired, targetedimprovement magnitude, and timeframe for achieve-ment of the target. A means to achieve the targetdescribes a set of specific actions that will be takento deliver the desired results. These means may differacross the organization, based upon the initial, localmanagement self-assessment, or “current state anal-ysis” that is conducted to assess the business area’sstarting point for change and determine the magnitudeand nature of the performance gap to be closed by thechange management or hoshin project to deliver thedesired state.

Peter Drucker once commented “for full effective-ness all the work needs to be integrated into a unifiedprogram for performance” [9]. The program for per-formance is designed by the top management teamto provide a specific, effective course of action toachieve its desired results. To achieve these results,all the dimensions of the business must be consis-tent with each other. This is the job of the policydeployment system.

This system for managing policy consists of kanrior control mechanisms that deploy business policythrough four essential steps in order to execute man-agement’s program for the business direction usinga systematic sequence of steps that achieve hoshin

project objectives within the constraints of assignedresources. These four steps define policy setting (orestablishment of hoshin projects), deployment (orpropagation of these projects throughout the organi-zation), implementation (or integration of the resultsof change into the daily management system), andreview (or assessment of the results achieved fromthe process) (see Figure 1). These four steps will bedescribed in the next four sections of this chapter.

Policy Setting

Policy setting is a top-down “catchball” wherebymanagement conducts “strategic dialog” with emp-loyees to collect ideas and opinions about chronicmajor problems and their aspirations regarding thebusiness future, and then processes this informationin conjunction with environmental data analysis andscenario analysis to formulate the annual businesschange objectives (which some organization call theirhoshin projects): strategic change projects (identi-fied by both targets to be achieved and means forachievement). In this phase, organizations recognizethe most critical projects that must be accomplishedto eliminate vulnerabilities or capture the benefitsfrom potential change initiatives or newly emergingimprovement opportunities. For organizations to suc-ceed they must undergo a rigorous analysis of boththeir fundamental work processes to identify busi-ness imperatives (things that must change) and theircurrent strategic direction to determine potential busi-ness vulnerabilities from competitive, economic, ortechnological changes.

This system structures application of continuousimprovement into strategic and operational dimen-sions. David Packard incessantly used the term con-tinuous improvement beginning in the early 1940s – itis not a new term – but as Collins and Porras describeits adaptation in leading companies that have adaptedto change, they observe that it is an essential struc-tural ingredient in those companies that have beenBuilt to Last : “Visionary companies apply the con-cept of self-improvement in a much broader sensethan just process improvement. It means long-terminvestments for the future, it means investment inthe development of employees; it means adoption ofnew ideas and technologies. In short, it means doingeverything possible to make the company strongertomorrow than it is today” [10].

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Most organizations operate on three levels ofmanagerial thinking: enterprise thinking assures theirlong-term viability; strategic thinking focuses onproducts, markets, and customers; and operationalthinking focuses on the daily work that delivers theorganization’s results. Strategies align to these threeareas of focus: “Management strategies can be clas-sified into three types – corporate strategy, businessstrategy, as well as functional and cross-functionalstrategy – depending on the level of the corporateorganization to which they apply. The corporate strat-egy, which delineates the fundamental direction ofthe whole company, is certainly very important forrealizing a management vision; but it would be noexaggeration to say that the success or failure ofthe corporate strategy is determined by the particularbusiness strategies, since it is through these businessstrategies that the aims of the corporate strategy areactually implemented” [11]. The portfolio of specificstrategies that any organization pursues must be man-aged to deliver the risk – benefit performance desiredby the organization in order to achieve its desiredresults – whether for breakthrough results or just forincremental improvement of a specific business area.

How is this approach to planning conducted? Thecorporate planning process should deliver increas-ing business brand value to balance financial riskand reward. This planning process consists of threeelements: strategic planning, business planning, andfunctional planning that must all fit together in anintegrated planning system. The strategic planningprocess is conducted at the enterprise level of thebusiness thinking to identify which business oppor-tunities to exploit and how to sustain the ability ofthe organization to meet or exceed its annual per-formance objectives. The business planning processis conducted at the business level of thinking andits objectives are to drive market share to acceler-ate financial payback, build customer loyalty, anddecrease market risk. At the operational level ofthinking, the functional planning process improves allprocess performance to reduce cost, cycle time, anddefects while enhancing responsiveness to customersand delivering customer satisfaction.

A business strategy should deliver “visionary”performance: strategy is the persistence of a visionover the long term – and it requires both visionsetting and vision deployment to assure alignmentin strategic direction. Policy deployment providesdirection to guide these plans and assures that the

organization moves in a coherent direction. Themore robust a plan for required change, the moreeffective the organization’s ability is to accomplishthis plan. Robustness is a function of the managementteam’s ability to see beyond its operating horizon andunderstand what may occur in its planning horizonthat requires its focus and attention today.

What is a planning horizon? It is the distancethat an organization “sees” into the future to studyand understand the potential impacts of events onits policies and prepare it for evolving situationsthat may impact its current or future performance.Organizations tend to have four distinct planninghorizons.

• Business foresightManaging for the long term to assure that the

organization is not surprised by changes in theassumptions that it has made in the design of itsbusiness model and product line strategy (focusingon a 3–10-year business outlook).• Strategic direction

Managing for the intermediate-term changes intechnology and competitive dimensions to assurethat vulnerabilities in the business model are notexploited and to bridge the chasm that may existbetween product line introductions (focusing on thenext 3–5 years of business operation, depending onthe degree of change that is anticipated in the businessenvironment).• Business plans

Managing the short-term fluctuations of the mar-ket – a planning horizon that delivers against short-term fluctuations in demand or supply (focus onquarterly and annual operating plans).• Business controls

Managing the current state of a business – aplanning horizon that delivers today’s performanceand assures rapid responses for corrective actionsrequired to sustain advertised service levels (focuson the daily–weekly–monthly–quarterly operatingplans to deliver the targeted results in the annualplan).

How is strategic policy formulated? Strategicdirection is best established using cross-functionaldialog to capture all the inputs of the organizationand to build a common direction, based on the con-sensus of how to boost organizational strengths andovercome organizational weaknesses in the face of

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critical business threats to capture the most impor-tant market opportunities. Most organizations havejust two kinds of strategic decisions: those that maybe executed within the areas of their direct oversightof top management (e.g., personnel decisions, bud-geting, merger, capital budgeting, etc.) and those thatrequire cross-organizational collaboration for imple-mentation. These cross-functional projects requirespecial attention and project management to realizethe objectives of the change initiative. Such changestrategies that require mutual consent and collabo-ration are ideal for a policy deployment system. Inaddition to planned continuous improvement that isa result of problem solving, continuous improvementmay also result from process management, whenevera process is consciously enhanced over time.

Osada encourages strategic engagement of allemployees through the following ways:

• recognizing product life stage (product life cycleanalysis)

• analyzing business and product position objec-tively (positioning analysis)

• analyzing competitiveness (competitive analysis)• perceiving strengths and weaknesses of products

(SWOT analysis)• forecasting future competitiveness using time

series data (time series analysis)(7)• maintaining transparency through visualization

(visual method); involving all employees [12].

Osada encourages using seven strategic tools (theS-7 tools) in policy setting:

1. environment analysis2. product analysis3. market analysis4. product–market analysis5. product portfolio analysis (product portfolio

management, PPM)6. strategic elements analysis7. resource allocation analysis [13].

But, all these tools and methods are employed asstaff-directed preconditions for strategic planning inthe planning approaches of many Western organi-zations where they link the three planning systems(strategic, business, and functional) with the businessand environmental assessment analyses that precedestrategic decision-making. While this linkage may bea bit weaker in Japanese firms, in Western firms,

such issues do not appear to be a critical shortfall.However, without complete integration of these plan-ning processes it is difficult to obtain the degree ofeffectiveness in deployment of shared resources thatpermits breakthrough achievement to occur. What isbreakthrough achievement in management? Break-throughs represent at least an order-of-magnitudechange in performance that is accomplished overa relatively short period of time. Breakthrough isachieved by developing a capability to choose theright objectives for planned change and then aggres-sively executing these objectives. This requires twofactors: identification of what to change and the tim-ing of when to change it. The job of top managementis to decide which lever of change must be pulled inorder to accomplish the desired result.

Other success factors that are significant in achiev-ing breakthrough plans include the right action toachieve the desired state of change. Right does notmean comprehensive or exhaustive, but it impliesa budgeting of energy that focuses an organiza-tion on catalytic actions that stimulate organizationalresponse in the desired direction – applying a lim-ited capital budget and the best people to accom-plish those important objectives that they have beenpersonally developed to concentrate on. A secondsuccess factor in the management of breakthroughprojects is the capacity of an organization to convertobjectives into results. Excellence comes from execu-tion of plans, not just from planning. To execute, anorganization must be mobilized to consolidate theirenergy and coordinate their actions to achieve sharedobjectives for the common good of the organizationas an organism – a living entity that requires appro-priate nourishment and execution of all its bodilyfunctions. A third critical success factor for break-through management is the capacity of an organiza-tion to integrate specific improvements into standardoperating practices that are consolidated across theentire organization for maximum leverage effect. Thissuccess factor is based on the existence of a businesscontrol management system that holds the gains fromimprovement projects and is able to assure that per-formance degradation does not occur – people do (8)not slip back into their “old way of doing things”,but that they embrace the new methods as their rou-tine way of working. This success factor is addressedin the policy deployment and policy implementationsteps.

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It should be noted that breakthrough changeprojects can only be accomplished if the daily workprocesses are operating under reasonable control.If a business is not operating under control, thenthe “breakthrough” activity should focus on bring-ing itself under control before making a significantinvestment in strategic change. When an organiza-tion’s daily management system is operating undercontrol, then more time is available for strategicchange because management is not “fighting fires” or“expediting execution” of routine work. This requiresthat the management start this journey by evaluatingits readiness to make strategic changes in its operatingsystem.

To maximize the effectiveness of policy deploy-ment, the strategic direction setting and implemen-tation processes should identify the highest prior-ity business process improvement projects and therequirements for accomplishing them. For instance,only some of these projects will require the degreeof diagnostic sophistication that is available from aSix Sigma Black Belt while others will require inten-sive capital investment or software development toaccomplish their objectives. Only when managementchooses change projects that improve the infrastruc-ture of its business processes – work processes whoseperformance contributes to the common cause vari-ation of the business performance – can the mostsignificant gains be realized from a comprehensivebusiness improvement effort. How does managementachieve this focus? The short answer is that manage-ment must put in place the methods to “recognize”their priority business improvement needs by linkingtheir choice of change management projects to thestrategic direction of their business so that the portfo-lio of change management projects drives the policychanges that are necessary to achieve the long-termperformance objectives of the organization. Some ofthe questions that must be addressed during policysetting include the following:

• What is our business and what results do weexpect to achieve? How will we know that wehave achieved these results? Is this the best wecould do?

• What are our assumptions about society, theeconomy, market and customers, technology, andknowledge? Are they still valid?

• Has anything happened that would change thedynamics of our industry or markets?

• What would change mean for our businessposition?

• Are there any opportunities that we should antic-ipate and capitalize upon to our long-term advan-tage?

• Where should we choose to excel? Can we takeaction on this opportunity?

Policy Deployment

While policy setting sets organizational policy, thepolicy deployment step deploys policy change to theorganization by changing the way that effective workis accomplished in the daily management system.

How are the hoshin or strategic change objec-tives deployed? Policy deployment is the heart of thispolicy management system and has received muchattention because of the “catchball” approach thataligns the objectives of the organization and thenbalances work by resource leveling and prioritiza-tion of improvement activities. An implementationplan for a change project is a living document – itacts like a compass to guide an organization whileallowing employees to take ownership by partici-pating in choices that define the reasoning behindthe project as well as the steps in the project’sexecution. Change projects can identify two typesof improvement effort – either by a breakthroughproject or by a continuous improvement project –to change the way work process activities function.Breakthrough activities are strategic change projectsthat make a significant shift in the organization’scapability to perform routine operational work pro-cesses or deliver products (either goods or services) tothe marketplace. Work process continuous improve-ment (kaizen) activities are part of a daily manage-ment system that defines how work is accomplished.The kaizen change activities are the responsibilityof all work process owners. This planning approachfocuses on guidelines for major improvement projects(while small incremental or continuous improvementsare made through the regular course of continuousimprovement of the daily routine work). The dis-tinction between these activities is twofold: first,more of the organization’s resources are focusedon breakthrough projects, and second, accomplish-ment of a breakthrough project usually occurs overa multiple-year period (or as a series of coordinatedimprovement projects). One important managementconsideration in choosing breakthrough projects is

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that the combination of all the annual breakthroughprojects (also called the portfolio of change projects)will define the steps that an organization chooses foraccomplishing strategic change in the range of itsmidterm planning horizon (1–3 years).

To achieve “saturation” of policy (which consistsof both targets and the means for their achieve-ment) in the organization – or complete deploymentof change projects within the whole organizationthat is affected by the defined policy change – andassure collaboration of all the affected work groups,the objectives cascade of an action plan for a par-ticular improvement project must involve not onlyfunctional deployment of policy but also engage itscross-functional aspects. It is across the functionalseams of an organization where most significant dif-ficulties are encountered and these boundaries repre-sent focus areas for management to assure continuouscollaboration in the execution of change projects andconsensus among the various functional organizationsthat engage all the decision-making managers in theareas where the change will have a direct effect. Tounderstand the difficulty that the boundary condi-tion dynamics have, consider what happens as changeis managed when organizations shift work activitiesfrom internal to external units (e.g., from internalmanufacturing to an external contract manufacture).At such boundary conditions, conflicting objectivesand political issues of the organizations often caninterfere with performance improvement work and itis the job of the management team to eliminate anysuch barriers to the success of their project team. Thisalso happens within organizations at their functionalboundaries.

Catchball is the process that is used to build a con-sensus through dialog about the targets and meansto achieve the change. This process is data drivenand uses tools that permit management by facts.Catchball links annual change projects to midrangeand long-term plans – deployment prior to annualfiscal year commencement, incorporated into tar-get setting and annual employee objectives cascade;coordinated both vertically within functions and hor-izontally across processes and negotiated across theprocesses to allocate resources (competence, fund-ing, and equipment) to achieve the shared andagreed objectives. The catchball process includes fouractivities:

• building alignment through linked cascade ofmeans

• setting business performance targets andobjectives

• cascading business objectives to the workplace(gemba)

• achieving alignment of improvement and effec-tive resource allocation.

Policy deployment is a structured, systematic, andstandardized process and it has an ability to empowerorganizations to achieve strategic change. Policydeployment includes a few key elements that assurethat an organization is properly and fully engaged inchange projects:

• Policy – a general rule or operating principlethat describes a management-approved process toapproach a business condition or situation basedon how it chooses to control its work and managerisk. Once the right policy has been determined,then the organization can handle similar situationswith a pragmatic response by adapting its poli-cies to the concrete situation that it faces. Trulyunique business situations that run counter tothe critical business assumptions require the fullattention of the senior management team to eval-uate how these situations challenge the boundaryconditions of the business model and threaten itspolicies of operations with change that is imposedfrom externalities. Policies consist of targets andmeans.

• Target – the measurable results that are to beachieved within a specific timeframe for perfor-mance. Targets have checkpoints.

• Checkpoints – a measurement point that is usedto evaluate an intermediate state in the policydeployment process to demonstrate that progressis being made. The data collected at a checkpointcan be reported to management in interim projectstatus reports. The checkpoint of one processis the control point of the next process – thecheckpoints and control points work togetherto formulate a “waterfall” that cascades acrossthe implementation plan flow and is part of thebusiness measurement system.

• Check items – check items and process or projectvariables that are evaluated to enable organiza-tions to understand the causes that contribute tothe outcome of a particular policy.

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• Means – the sequence of actions that an organi-zation will take to implement a policy or choiceof the management team that is an outcome of thestrategic direction-setting process. Means havecontrol points.

• Control points – a point in a sequence of workactivities where corrective action may be takenor countermeasures are put in place to resolvea concern or issue that has been identified ata checkpoint.

• Control items – control items verify whetherresults agree with the established goals – does thework demonstrate progress in accomplishmentsthat will enable the final achievement of targets?

• Deployment – the process of engaging the entireorganization in an appropriate participation in thestrategic direction both vertically (within func-tional areas) and horizontally (across the func-tional areas) by creating shared ownership ofthe implementation actions. The entire system ofdeployment is “connected” from the long-termvision to the daily management activities. Theplans are progressively more detailed as theyare refined in deployment from the top levels ofthe organization to the frontline employees andteams. The plan is deployed through an organiza-tion by negotiating the means between manage-ment layers (levels) as well as across the func-tional departments. Targets are not negotiated.

• Catchball – the joint analysis process that encour-ages a strategic dialog between levels of orga-nizational deployment is called a catchball. Themeans at one level become the desired outcomesof the subsequent level. This cascading of targetsand means establishes the linkage and alignmentof objectives across organizational levels. Mutualdiscussion between the parties – a two-way com-munication that is both top-down in general direc-tion and bottom-up in adaptation to the workplaceusing the existing hierarchical management struc-ture and matrix process structure to engage allparts of the organization in the dialog. This dia-log is a negotiation process (see nemawashi andsureawashi below) that arrives at a collective wis-dom to develop and refine the implementationplan.

• Nemawashi – negotiation – prior consultation toachieve consensus; careful preparation of theroots of a plant for transplantation; and seeking to

achieve wa or harmony, consensus, and absenceof conflict.

• Sureawashi – the sharpening of a sword requiresfour ingredients: a blade, a template for the angleto be produced, oil to ease the process, and asharpening stone to remove the unwanted mate-rial. This analogy is used for policy deployment.The use of data makes the objectives cascade afact-based process, not just a subjective negotia-tion process. Mutual consultation occurs betweenthe organizational levels in order to test the fea-sibility of planned process improvements and torefine any conflicts between the objectives of theorganizational layers. This process opens commu-nication channels and establishes both agreementand alignment in the way people work. Thisdialog is necessary to obtain buy-in and defineachievable plans that middle managers are com-mitted to implement.

• Shibui – a state of uncluttered, beautifully effi-cient austerity – the perfect balance or harmony(wa) between not enough and too much – used todescribe the desired state or vision of a businesssystem.

Peter Drucker quotes the Roman law in orderto focus management on the things that are mostimportant: “De minimis non curat praetor” (The mag-istrate does not consider trifles) [14]. This warning tomanagement against what has been called “micro-management” is a reason for senior executives tofocus on the vital few issues that are critical in thebusiness that they manage. If they do not take the timeto manage these important things, then no one elsewill. If they choose to spend their time focused at thedetail level of project execution, then they will squan-der a more effective use of their time on those vitalactivities that engage the higher thinking levels ofthe organization that cannot be reasonably delegatedto others for effective action. Management must workon a long-term planning horizon in order to deliversustained organizational strength. It must also reviewcurrent actions to assure that short-term profitabilityis being achieved. But, whenever management spendsmore time on the short-term issues than it does on thelong-term ones, it sacrifices future strength in favor ofcurrent results – and displays to the entire organiza-tion its lack of trust in the ability of the organizationto perform its daily work. This behavior signals to theentire organization that a crisis exists and reinforces

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stagnation as the workers wait for the top manage-ment to intervene and make the decisions that theyshould more properly make. A very important benefitof an effective policy deployment system is delega-tion of appropriate decision rights to the proper placein the organization where the best information existsand where action will be taken to implement thatdecision.

Some of the questions that are addressed duringpolicy deployment include the following:

• What are the consequences of not doing thisproject?

• What are the risks inherent in this project?• What will happen to the business if this project

does not succeed?• What will success in this project commit the

business to?• How does this project add to the total economic

results of performance?• Have we assigned our best people to work on

breakthrough opportunities?• Have we communicated clearly and taken into

consideration all objections before chartering theproject?

Policy Implementation

Policy implementation consists of the execution ofthe project plan – both the actions taken by theteam involved in the change and the in-process man-agement reviews. All change is implemented on aproject-by-project basis according to management’spriorities and the logical sequence for attackingeach opportunity for improvement. The project plantypically will use a Gantt chart to assign clear respon-sibility for each improvement item in the imple-mentation plan and to record its activity progress inaccomplishing the project subtasks. Senior managersshould also conduct regular progress reviews of eachchange project to monitor team progress in improve-ment, assure that the projects advance, and eliminateany possible barriers, roadblocks, or bottlenecks thatrestrict the project’s advancement. Senior manage-ment should also monitor the execution of the changeprojects that they sponsor to assure that these projectswill deliver the desired gain in the daily managementsystem. If the project review indicates that insuffi-cient progress is being made, then they can developsome countermeasures or reallocate resources so that

appropriate corrective actions are taken to assure con-tinued progress.

Another activity that occurs during the policyimplementation is publication of information aboutthe ongoing change projects so that the entire orga-nization is informed of the actions being taken toimprove performance. This communication can helpthe organization to align other activities with progressbeing made on these strategically focused changeprojects. As a guideline for communication, the man-agement should inform all involved parties of anychanges to the change project team’s mission, visionof the outcome, guiding principles, or objectives. Ifthe management team communicates effectively andoften, then it will translate the planning rhetoric intoaction realities. Peter F. Drucker observed that “Themost time consuming step in the process is not mak-ing the decision, but putting it into effect. Unless adecision has degenerated into work it is not a deci-sion; it is at best a good intention” [15].

Some of the questions addressed during policyimplementation include the following:

• Have we placed the right people in the rightjobs to give the project the best opportunity tosucceed?

• Does this project team have everything that itneeds to get the job done?

• Are all the people who need to know about thisproject being informed?

• Are all the right actions across the organizationbeing taken to assure success?

• Is this project implementation the best utilizationof the knowledge and ability of the organiza-tion’s people?

• Does this project implementation make the bestoverall contribution from use of the organization’slimited resources (people, time, and money)?

Policy Review

As the annual cycle of change projects nears com-pletion, results of project implementation effortsshould be evaluated to determine performance againsttargets, shortfalls from expected performance, com-pletion rate, and causes for both under- and over-achievement. Specific action must be identified tocompensate for performance deficiencies and preventrecurrence of such problems in future change man-agement projects. Diagnosis of the performance of

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the policy planning process is conducted to driveimprovements in planning systems. “Feedback has tobe built into the decision to provide a continuoustesting, against actual events, of the expectations thatunderlie a decision” [16].

Policy review is accomplished in two ways:through management self-assessment (by senior man-agers as well as by local managers evaluating theiractivities to determine where they have opportuni-ties for improvement: either performance enhance-ments or problem resolution) and through operatingreviews of the results produced by the local organi-zation where senior managers identify areas whereresults are not aligned with expectations for perfor-mance. Policy review applies two subprocesses toperform these duties: performance review and busi-ness measurement.

Aligning Objectives through Performance Review.The review process seeks to identify conformance toplans (e.g., is there any shortfall or overachievementin targets?). Once nonconformity is identified, thenthe root cause of the deviation is discerned todetermine an appropriate response to the out-of-control type of condition. Both corrective actionsand countermeasures are identified to realign theprocess and assure that process integrity and stabilityare achieved in the business control system. Thefollowing actions may be taken in response to anout-of-control condition:

• emergency countermeasures to alleviate the imm-ediate issue, concern, or problem;

• short-term corrective action to prevent the specificproblem from recurring; or

• long-term preventive action to remove problemroot causes and mistake-proof the process makinga permanent solution and preventing the problemfrom recurring.

The review step facilitates organizational learningby examining problem areas and critical successfactors to discover what directional shifts need tobe accomplished in order to achieve the desiredend state or vision of the business. Strategy is thepersistence of the vision – achieved one project ata time through exercising constancy of purpose inthe business planning process. These project reviewsare conducted to assess achievement relative to thefollowing planning elements:

• change project objectives• business planning objectives and corporate com-

mitments• business improvement plans• economic plans and projections• customer requirements and expectations• competitive performance analysis• business excellence self-assessment.

Questions addressed during this policy reviewinclude the following:

• What results have been demonstrated from thisproject?

• Which results were expected and which resultswere unexpected?

• What will this project’s outcome do for cus-tomers?

• What have we done well that our competitorshave done poorly?

• What have we done poorly that our competitorsseem to have no problem with?

Business Control and Management Responsibility.The ultimate objective of MBP is to establish areliable organization – one that creates predictableresults through the effective coordination of value-adding work that customers perceive as meeting theirneeds. In this environment, all employees are awareof their personal contribution to the objectives of theentire organization and are able to make local choicesthat are aligned with the strategic direction becausethey understand how the strategy affects their workand vice versa. To assure that these local decisions arealigned with strategic direction, it is the responsibilityof the management team to develop a measurementsystem that provides employees with the visible lineof sight from their work activities to its contributionto strategic direction. In this measurement system, itis essential that causal linkages (e.g., built using a SixSigma Y = f (X) transfer function) be established sothat effective control can be executed at the localoperating level.

Benefits of Policy Deployment

A policy deployment system orchestrates continu-ous improvements with breakthroughs to assure thatthe organization attains its long-range goals. Thoseelements of long-range plans that can be achieved

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in a one-year period are identified and become thefocus or “vital few” goals to be achieved during thatyear. Policy deployment plans the way that change isimplemented in an organization’s daily managementprocess. Accomplishments of such a planning systeminclude

• communicating the vision required for sustainedsuccess,

• identifying and choosing breakthrough activitiesor projects required for the vision,

• orchestrating the direction of an organization’schange,

• developing plans and projects that support thebusiness objectives,

• aligning the organization’s change efforts bothvertically and horizontally,

• ensuring that the plan is effectively and efficientlyexecuted,

• reviewing the progress in executing plans,• changing plans when it is proved necessary to

achieve targets,• learning from the experience of planning and

executing.

“If you can think of new methods to preserve thecore, then by all means put them in place. If you caninvent powerful new methods to stimulate progress,then give them a try. Use the proven methods andcreate new methods. You must do both” [17]. Theimperative for organizations that endure is to doboth breakthrough improvement and evolutionaryimprovement – both change management and routinemanagement – at the same time. This is what Collinsand Porras call “the genius of AND” – an inclusiveapproach to planning and executing change thatrequires organizations to embrace both aspects ofchange simultaneously.

The most important thing about priority decisionsthat face a business is that they are made and commu-nicated deliberately and conscientiously. In a systemof MBP, all the important decisions are visible andthere is an opportunity for dialog to guide thesedecisions into the direction that the organization, asa whole, is influenced by the knowledge of all itsmembers. In such a system the key decisions thatdrive toward its common goals are not made haphaz-ardly, but with the full awareness of the organization.Such open decision processes elicit cooperation ofthe entire organization in the implementation andreview of its activities to assure that it will be able to

meet its desired outcomes. The responsibility of themanagement is to put in place a system of decision-making that generates this degree of collaborativework toward the common end.

Criticisms of Policy Deployment

Despite their application in many leading companies,policy deployment systems have been criticized fortheir mechanistic use of forms and templates thatsome see as restricting individual creativity. Somealso believe that these planning systems lack strate-gic emphasis and do not engage the full organizationas participants in strategy formulation. Osada sum-marizes the shortcomings of policy deployment asobserved in some Japanese companies.

1. It is difficult for those at the middle manage-ment level and below to understand the processof formulating strategic policy. Compared with[editor note: the process for] policy deployment,the process of policy formulation is unclear [edi-tor note: poorly understood and communicated]an indication of management’s view that suchform of communication is of little value.

2. Strategic policy is ostensibly based on the long-term interests of the firm, but there is no wayto judge whether a policy is appropriate, oreven truly ‘strategic’ [editor note: in the essentialnature of the policy itself].

3. Several problems in formulating a long-termstrategic plan are not addressed, for instance:

3a. Changes in operating environment and otheruncertainties are not adequately accounted for;possible difficulties are therefore not foreseen.

3b. Positioning of business is not perceived objec-tively. The question of whether business aimsare optimum and clear is not addressed.

3c. Only one part of the staff, at the top level,participates in strategic policy formulation;it is therefore difficult to judge whether apolicy reflects the reality at the “front line”of operations [11].

It must be observed that not all of these objec-tions are strongly negative. Organizations must ask ifthey must really involve frontline employees activelyin formulating strategy. Nokia Mobile Phones usesa current state analysis for self-assessment of front-line operations and then rolls this data into their

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strategy-setting process. They also create a “strategicdialog” that builds participation of midlevel managersin conversations about strategy. Other organizationsopen communication lines through email forums andinternal surveys. In such instances, the objection isnot critical to the total impact of policy deploymentimplementation. Additionally, any argument that says“Every employee should have an interest in mat-ters of strategic policy” is a very different argu-ment than saying that every employee should beactively involved in formulation of business strat-egy. Satisfying employee interest in strategy canbe addressed by improving communications. Also,a broad involvement of employees in formulationof strategy increases risk of inappropriate publicstatements or inadvertent disclosure of the com-pany’s strategy in venues where competitors may dis-cover sensitive information that can be used againstthe organization. Whenever this occurs, a companyloses its competitive advantage. The challenge formanagement is to build a strong consensus, with-out risking disclosure of their strategic direction tocompetition. It is another challenge of the manage-ment to balance these concerns in a way that isappropriate to their way of working and businessculture.

Summary

Policy deployment, when coupled with a statisti-cally based business measurement system, has beenobserved in several leading companies to create arobust management process that engages an entireorganization in the strategic planning process. Itassures line of sight from the strategic goals of theorganization to the operational tasks that workersperform at the front line as they do the work thatproduces the organization’s goods or services. Thenature of this process can be described using theterm “robustness” – a statistical state in which aprocess is able to accept variation in its inputs, with-out influencing the variation of its outputs. Such aprocess is capable of performing consistently – deliv-ering consistent results according to its design intent.Because policy deployment engages the workforce inachieving its common goal of sustained success, thismethodology has become a strategic tool for assur-ing sustained competitive advantage over current andpotential business rivals.

Sustained success must be “dynamic” to achieveits enduring state. That is, it must provide con-tinuous advantage despite changes in the environ-ment, regulatory shifts, technological breakthroughs,or competitive market. Anticipating potential actionsby rivals is critical to delivering sustained success. Toenjoy such sustained success, an organization mustmaster the skills of priority setting and project man-agement to assure that they effectively define anddeploy the right initiatives that result in sustained suc-cess. Advantage means staying ahead of rivals andthis requires that organizations not only make con-tinuous improvements but also use “breakthrough”opportunities to distinguish themselves in their mar-ketplace as a differentiated provider of products andservices. This type of management requires manage-rial competence in three areas: business vulnerabilityanalysis, action planning administration, and opera-tional excellence. The best implementations of policydeployment will engage its employees in the strategy-setting processes as well as the organization’s changemanagement process.

End Notes

a.It must be noted that Peter F. Drucker initially dis-cussed MBO in Japan in the mid-1950s. Druckertaught management concepts to the Japanese alongwith Dr. Joseph M. Juran and Dr. W. Edwards Dem-ing. At that time Dr. Juran and Dr. Deming workedin the Graduate Management School of New YorkUniversity under the supervision of Dr. Drucker.

References

[1] Drucker, P.F. (2002). Keynote Address, 56th AnnualQuality Congress, 20 May 2002.

[2] Akao, Y. (ed) (1991). Hoshin Kanri: Policy Deploymentfor Successful TQM, Productivity Press, Portland, p. xxx.

[3] Akao, Y. (ed) (1991). Hoshin Kanri: Policy Deploymentfor Successful TQM, Productivity Press, Portland, p. xxx.

[4] Collins, J.C. & Porras, J.I. (1994). Built to Last: Suc-cessful Habits of Visionary Companies, Harper Business,New York, p. 156.


[6] Osada, H. (1998). Strategic management by policy intotal quality management, Strategic Change 7, 277–287.

[7] Osada, H. (1998). Strategic management by policy intotal quality management, Strategic Change 7, 277.

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[9] Drucker, P.F. (1964). Managing for Results, Harper &Row, New York, p. 193.





[14] Drucker, P.F. (1985). The Effective Executive, Harper &Row, New York, p. 156.




GREGORY H. WATSON

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Abstract: Policy deployment is a Japanese-originated management process that applies the Deming cycle ofplan-do-check-act (PDCA) to the processes of planning and execution. Policy deployment has sometimes beencalled management by objectives (MBO) on steroids or Turbo-MBO. A policy deployment process coordinatesthe definition and implementation of strategically important business-process-change projects to improve theroutine operating processes of an organization. Policy deployment aligns and coordinates the activities of theorganization through a number of mechanisms that open lines of communication across the organization incross-functional and cross-layer dialogs. These communication mechanisms solicit ideas for making businessimprovements, define projects and objectives through an interactive “catchball process”, and review progressthrough cross-layer improvement project assessments. This in-depth involvement of the entire organization inboth the planning and execution processes creates acceptance for change through the active participation ofan engaged workforce. Synonyms for policy deployment include hoshin kanri (the original Japanese name) aswell as policy management and management by policy (MBP).

Keywords: total quality management (TQM); hoshin kanri ; policy deployment; nichijo kanri ; checkpoint;control items; check items; catchball; daily management system; benchmarking; self-assessment; businessexcellence; quality management systems; kaizen; continuous improvement; plan-do-check-act (PDCA);management by objectives (MBO); management by policy (MBP); design for Six Sigma (DFSS); define-measure-analyze-design-verify (DMADV); define-measure-analyze-improve-control DMAIC)


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for a given phrase)(1) eqr489 Change Management: The Stakeholder Assessment(2) eqr198 Power(3) eqr488 Kano Analysis or the Kano Model: Attractive and

Must-Be Quality(4) eqr313 Capability Measures for Measurement Systems

Analysiseqr304 Overview of Measurement Systems Analysiseqr302 Measurement Systems Analysis, Attribute

(5) eqr212 Transfer Function(6) eqr402 Project Process: Using a Stage–Gate Approach to

Managing Projects(7) eqr229 Time Series Analysis(8) eqr065 Degradation and Failure

eqr093 Degradation Processes

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