How is a lean enterprise like a Picasso?

A cubist painting, such as Picasso's Three Musucians, pictured here, was intended to convey in two dimensions all of the essential information about a three dimensional object or event. Some observors saw something more, namely, a version of reality from multiple perspectives.

Picasso's Three Musicians

Consider Picasso's painting, Violin and Guitar,  and you can see for yourself how these paintings might make this impression.

Picasso's Violin and Guitar

Picasso and his cubist collaborator Braque denied the multiple perspectives theory of cubism. Never mind. I like the multiple perspectives theory, and apparently so does American artist David Hockney. Compare the cubist paintings here to Hockney's photographic collage of the Merced River in Yosemite Valley.

Hockey's  Merced River, Yosemite Valley

Now, my point about lean enterprise. Although we can plainly see in Hockney's collage that there are many different pictures taken--and assembled--at different angles, the overall impression is one of unity. Of course here we're dealing with artistic unity. In a lean enterprise, through the catchball process of hoshin kanri, we collect many more snapshots of reality that Hockney has ventured to put together. And the more widely we deploy our policy, the more perspectives we must integrate. Clearly, there is the temptation to forego catchball and simply dictate top down a nice, neat version of reality all tied together from a Renaissance perspective, focused on a "vanishing point" known as the CEO. Here we see Piero della Francesca's famous painting, The Ideal City.

della Francesca's Ideal City

And, clearly, this is how many companies are still run today, even those that claim to be lean. It is certainly how almost all ERP systems are designed! But note what's missing: INFORMATION!

In the Three Musicians, Violin and Guitar, and in particular in Merced River, there is much more information about what we are being asked to contemplate. In the Three Musicians we can see how the emsemble is literally intertwined. In Violin and Guitar, we can see the instruments from all angles simultaneously. And in Merced River, we literally see multiple perspectives on a landscape that would be impossible to integrate if the observer were to stand, as della Francesca, in a single spot. What's behind that round building at the center of the square. What's inside? All of this we could know if we let Hockney loose with his camera or Picasso with his oils and brushes.

Within a lean enterprise, because of the catcbhall process of systematically collecting the perspectives of senior leaders and all the managers--and in implementation the perspectives of all employees, we have a vision of the enterprise that is saturated with information, specifically, the lived experience and knowhow about the organization's processes.

When della Francesca painted Ideal City, mankind was undergoing a radical shift in perspective that gave birth to the individual and to the science of Gallileo, Kepler, and Newton. It is tempting to think that, with a shift in perspective so profound as we see in Picasso, Hockney, and, yes, the Toyota Production System, maybe mankind is on the threshhold of another breakthrough. Besides, we could use a breakthough right about now.

The meaning of profit management

Why is hoshin so powerful? People will tell you that it's the best way to get a company focused. No kidding!

But what does "focus" mean, apart from powerpoint slides that show all of our "arrows" pointed in the same direction.

It may be helpful to think of focus as the opposite of diversification. Diversification is what we do to minimize the risk in our portfolios of stocks and bonds. Diversification spreads the risk of losing on our investments as a whole by minimizing (at least based upon historical trends) the extent to which investment prices will go up or down together. We diversify because we are engaged in a game against the Market. To quote Peter L. Bernstein, the market is "a powerful opponent indeed and secretive about its intentions. Playing to win against such an opponent is like to be a sure recipe for losing. By making the best of a bad bargain—by diversifying instead of striving to make a killing—the investor at least maximizes the probability of survival." See Berstein, Against the Gods (New York: Wiley, 1996) p. 253.

Running a lean enterprise is in some ways the same as and in some ways different from financial investing. We can easily accept the idea the an enterprise represents investment in both real and intangible assets. The intangible assets of people and process are among the most important features of lean enterprises. And hoshin is the method by which those investments are chosen. But rather than diversifying our investments in people and processes, we focus. We can understand more clearly the meaning of focus by comparing it to the mathematics of diversification. Diversification requires us to minimize the correlation or covariance of the expected returns of investments within the portfolio. Focus requires us to do the opposite. To focus, we maximize the correlation of expected returns of investments in people and processes. Indeed, this is the whole purpose of "balanced scorecards" and the famous X-matrix.

Why would we diversify our portfolios of stocks and bonds and focus our portfolios of real investments in people and processes? The answer is: Our state of knowledge.

In the case of financial markets, we playing essentially against nature, the Market, about which we know only a little. The point to diversification is to avoid being taken by surprise. It's those surprises that prevent us from "betting the farm," i.e., from focusing on one stock a group of related stocks. In the case of lean enterprise, however, we know much more. Through QFD we know exactly what our customers want. Through hoshin we know our managers, employees, and suppliers rather well. We can afford to "bet the farm." In fact, to do anything less would be wasteful!

This becomes clear if we present this in mathematical form of modern portfolio theory, with a twist.

maximize COR (People, Process)

Subject to: Profit = X 

This says that we plan to maximize rather than minimize (that's the twist) the correlation among our investments in people and process, subject to a target profit, which we have arbitrarily set at X. In other words, we are going to choose investments in people and process that work together, the tighter the better.

This is new perspective on what Toyota calls "profit management." Normally, we think of profit management as consisting of its more familiar components, target costing of new products and kaizen costing of existing products. In most books about target costing and kaizen costing there is little discussion of hoshin and alignment (i.e., focus). That's a mistake. In this simple rewrite of Markowitz's portfolio theory, we can see what Toyota is really doing. Profit management really means that we are minimizing the risk of failing to hit a target profit. 

Moreover, the way in which we minimize that risk is to focus our portfolio, i.e., "bet the farm," on the most promising combination of people and processes, the combination that will deliver value to our customers. You've heard it before: Focus on the process, not the result. The result is but a constraint. It is given. It is the result of focusing on the right combination of people and process.

One last insight: Toyota is not a profit maximizer, at least in the short term. The company is clearly too risk averse. Like Markowitz's portfolio theory, this theory allows companies to maximize their returns (or profit), subject to some predefined tolerance for risk. In that case, the profit term becomes the "objective function," and the correlation term becomes the constraint. But we know that Toyota doesn't behave that way. 

Don Quixote, hoshin kanri, and tilting at windmills

Tom Jackson

Monterrey, Mexico

I spent the past week in Mexico, where I made a presentation about hoshin kanri and the A3 system to the Annual Shingo Prize Conference of Mexico. In preparing for my talk, I searched for a way to connect with my Spanish-speaking audience. I recalled my recent reading of Cervantes' great novel, Don Quixote. Of course it is only coincidental that there is an "x" in both "Quixote" and the "A3X matrix," (the X-matrix is the subject of many of my posts) and that "X" looks something like the windmill that Quixote tilts with to such devastating effect early in the novel. Or is it?

NOTE: You don't need to read Don Quixote to understand this post. I'll do the heavy lifting. But, if you're interested, there's a new translation of Don Quixote in contemporary English--by Edith Grossman--that you might want to take a look at.

So, here goes. Don Quixote is, among other things, a book about how we deal with multiple realities. The book was, of course, written after Gutenberg published the Bible in German, an act that, together with Luther's Reformation, split the Western world in two. In this newly fractured landscape, a landscape that has become only more fractured since Cervantes' time, the idealistic Quixote tilts at the windmills because, having read too many Medieval romances, he firmly believes that they are horrible monsters. Quixote's more realistic squire, Sancho Panza, sees things quite differently and tries in vain to warn his master of the impending doom originating not from the windmills but from the Don's fertile imagination. Two perspectives; two different versions of reality. Which is correct?

Throughout the book we proceed through multiple adventures, disasters all, with Quixote and Sancho engaged in the same conflict of perspectives. This much of the story most people know from the Broadway show and movie, Man of La Mancha. But there is more. This is of course the world of the printed word, of two Bibles (and more to follow), the world of what was to become the free press, a world in which one may share one's own perspective in one’s own language—although at considerable risk, in our own time as well as Cervantes’. Characters in the book start writing about Quixote and his squire; their fame, or should we say infamy, grows. Before the end, the whole world is reading about Quixote and his slapstick, tragicomic adventures. In fact, the new authors join in fun, actively creating new misadventures for Don Quixote and Sancho Panza. The dividing line between reality and illusion is blurred. The book culminates in Quixote visiting a bookstore in Barcelona, where he reads about himself, as seen by others, and he complains bitterly, "This is not the true Quixote." It all ends badly. Quixote dies unhappy, having seen his dreams of romantic glory come “true,” orchestrated by the new authors only to make cruel fun of the old man. But it all unravels. The multiple perspectives of the book cannot be reconciled. Everything falls apart.

Clearly, I do not do Cervantes justice, but that is not the point. My point is that this should ring a bell. Aren't many leaders a little like Quixote? Isn't leading an enterprise something like this? The advent of lean enterprise only makes the situation worse. There were always many perspectives to reconcile in leading a company. Now, in the era of empowerment, leaders have to listen to Sancho Panza as well as all of those imitation Quixotes! It is, indeed, a quixotic task. And perhaps we are as crazy as Quixote to believe in our visions, saddle our broken down horses, and stumble off to tilt at windmills.

Or else we resort to the unilateral assertion of authority. But we know that Inquisitions are ultimately not very effective. Besides, they are a waste of good human resources.

In the method of hoshin kanri, there may be a happy ending for the quixotic leaders of enterprises that would be lean. For hoshin kanri is truly a method for reconciling the multiple perspectives of the enterprise in alignment with the vision of the Don, er, the leader.

The catchball process of hoshin kanri is a painstaking methodology for sharing perspectives, perspectives on the targets and the means by which the targets will be achieved. Senior management communicates its vision and establishes the results that must be achieved. Middle management responds with comments on the vision and targets and proposes the means or improvement processes by which the results with be achieved. In turn, middle management communicates to front line managers the process improvements that will be undertaken, and front line management responds with proposed schedules and identifies resource requirements. 

When catchball is a genuine process, there is what contract lawyers call a meeting of the minds, which is the core of any robust agreement, the source of organizational alignment. When done systematically and methodically, catchball results, for all intents and purposes, in “one reality” for the members of the organization. We can see this unity of perspectives memorialized on a good A3X, or X-matrix, which binds together all of the A3T team charters that define the annual hoshin or short term strategy.

It is as if Don Quixote has convinced the entire world to join him on his quest.

Naturally, the Don—and by extension, all who would be leaders—must take care to envision New Worlds that are truly valuable, namely, worlds without waste, worlds that respect people.... Even here, however, hoshin offers a checking mechanism. The Don must listen to Sancho--and all of the imitation Quixotes--and each of take them seriously. 

Luckily--in fact, deliberately--Sancho, and the catchball process, ultimately tie the Don's vision to the gemba of direct obervation.