Human Reengineering

Just a few years ago, business process reengineering seemed to be the answer to many managers’ prayers. Managers everywhere faced huge gaps between the performance of their organizations and their best competitors. The gaps were so large that they seemed unbridgeable by tried-and-true methods like incremental improvement and total quality management. Something more was needed, something big. And reengineering seemed to fit the bill. It promised to do, in one bold, creative stroke, what years of hard work could not accomplish. Further, it pledged to achieve this goal in a rational, orderly, engineered way through cool-headed analysis by people in white shirts.

But then the bad news began to filter in. Reengineering efforts have a high failure rate.1 Reengineering fails because people resist change.2 Organizations are bound to continue having trouble implementing change until they learn that people resist not change per se, but the way they are treated in the change process and the roles they play in the effort.3 This means that it is not enough merely to reengineer the corporation, we must now reengineer management.4

Increasingly, it is becoming clear that the engine of reengineering is not reengineering analysts, but managers and the people who do the work. Reengineering requires committed, empowered people, not simply to operate processes after they have been reengineered, but also to reengineer them in the first place.5 No matter which reengineering consultants your company might employ, one step in the methodology always remains the same: design teams are staffed by people who perform key activities in the process that is being redesigned. So the success of reengineering hinges critically on these people and their knowledge, creativity, and openness to radical change.

Knowing this, reengineering consultants frequently recommend expensive training programs to increase people’s readiness for change. The programs typically include communication about the company’s competitive situation, education about reengineering concepts and techniques, data collection and survey feedback about company culture and organizational problems, and so forth. While the jury is still out on the effectiveness of these approaches when used in conjunction with reengineering efforts, critics have faulted similar programs for a number of reasons.6 Our concern with these programs is simple: How can they work when you have a management team and workforce so averse to change that people aren’t receptive to formal education?

This was the situation Toshio Okuno faced when he took over responsibility for soy sauce production at Higashimaru Shoyu, a venerable firm in an even more venerable industry.7 When he tried to introduce an education program to prepare his managers for an aggressive modernization program necessitated by competition, they politely told him that they were not interested. Okuno needed to break down their resistance so that they would not reject the changes he planned; he succeeded so well that many of the changes eventually introduced were their ideas.

The Industry, the Firm, and Its Culture

Soy sauce production in Japan can be traced back almost a thousand years. When production was first commercialized in 1846, soy sauce was a premium product and commanded a high price. Starting in 1955, consolidation began to occur, and a few large firms that invested heavily in production capacity dominated the industry. Supply swiftly outstripped demand, and by 1980, the price of soy sauce began to fall precipitously. Profits were slashed.

Higashimaru Shoyu is the third largest firm in the industry, with 5 percent market share. The firm has revenues of ¥21 billion ($170 million) and employs 510 people. In response to competitive conditions, the company adopted a strategy of rapid new-product introduction, but, despite its success at diversification, its profitability fell sharply in the mid-1980s.

Toshio Okuno, formerly assistant manager of Higashimaru’s research center and twenty-three-year veteran of the company, took over as plant manager in 1974. The factory was organized into seventeen groups in five sections responsible for the major production processes: fermentation, production, inspection, machinery maintenance, and distribution. Fermentation was the largest section, with five groups — two sections each devoted to two batch production processes (koji preparation and moromi pressing) and one to wastewater treatment.

Okuno’s self-imposed mandate when he became plant manager was “to revitalize the corporation.” He started by organizing a study session for the group leaders to improve their overall education level. Unfortunately, the group leaders’ reaction was universally negative. As one commented, “The reason that I joined Higashimaru was to avoid studying. If I liked studying, I would have stayed at school.”

Okuno listened to the reactions of the group leaders, accepted the inevitable, and canceled all future study meetings. The Higashimaru workforce and group leaders were trapped in a self-imposed prison of comfort with the status quo, reluctance to make dramatic changes, and the belief that dramatic change was neither needed nor possible. Okuno’s task was to help them escape. To do this, he devised a five-pronged strategy intended to change what he called “the reaction mix” of the seventeen groups and to turn the conservative group leaders into forward-thinking managers.

Some of Okuno’s techniques — especially the group leader meetings and the price control system — were an extension of the continuous improvement philosophy. However, other techniques — notably the tatsumaki (tornado) program and the hangen (cutting in half) game —were designed to achieve a more radical change in performance through discontinuous improvement. When profits dropped off sharply in the mid-1980s as a result of competitive forces in the industry, Okuno recognized the need for more aggressive approaches to change.8 But he never turned his back on the continuous improvement strategy for enabling and reinforcing gains achieved through radical change. His experience demonstrates that both continuous and discontinuous improvement strategies can coexist in harmony. Further, Okuno’s creative draft system shows that organizational performance improvements can come not just from focusing on the quality of production processes but also from focusing on the quality of people.

Okuno’s five-part strategy clearly achieved his goals of breaking down resistance to, and increasing the organization’s readiness for, major change. But it also achieved much more. Okuno not only got his organization ready for radical change but also accomplished change (the sidebar summarizes the changes in work processes and business performance achieved during Okuno’s tenure).

Okuno’s Five Techniques

Okuno’s revitalization strategy employed five creative techniques designed to change the attitude and behaviors of the workforce and group leaders toward change. The first technique was a cascading communication process that involved group leader meetings (not study sessions) and “customer” visits, among other activities. The second was a game in which the groups were given “Higashimaru money” and told to act like profit centers. The third, the tatsumaki, was designed to increase the group leaders’ managerial skills. The fourth technique was a draft system to encourage rotation of the best performing workers throughout the plant and create a source of new group leaders. Finally, the fifth technique was a series of experiments in which groups tried to do their work with half the staff and then implemented what they learned.

In this paper, we briefly describe each technique and give Okuno’s observations and a commentary about why each succeeded and its relevance to the contemporary debates on reengineering.9

Group Leader Meetings

The primary purpose of the group leader meetings was to develop the managerial skills of the group leaders. The majority of participants were keen to take part in these meetings: they were highly motivated to succeed. We didn’t use commercial textbooks or manuals. Instead, we discussed their roles and views about their work. Over time, we extended the discussion beyond Higashimaru. For example, at one meeting, we discussed how to save a local railway line that was threatened with closure because of its losses. The group came up with a number of innovative but practical solutions. These suggestions proved to me that the group leaders were now thinking like managers. 10 — Toshio Okuno

Around 1980, Okuno instituted monthly meetings with the group leaders as part of his goal to break down each group’s natural resistance to change. The meetings’ focus was to develop a philosophy of continuous improvement and to enhance the quality of communication both within and among the groups.

The workforce was hardworking and highly motivated, but traditional and resistant to change. Okuno first tried to create pressure throughout the plant for continuous improvement. He coined the phrase sagyo-shigoto and repeated the slogan at every opportunity. Sagyo-shigoto literally translates as “job-work” and conveys the distinction between merely doing a job (sagyo) and working in an improved way (shigoto). The phrase caught on with the workers, who would say to each other, “You are just doing sagyo, I am doing shigoto.”

Sagyo-shigoto symbolized a new attitude toward work and the need for improvement. But the new attitude alone did not result in enough change to satisfy Okuno, who foresaw the need for plant automation, cost reduction, and the introduction of modern production control procedures such as automatic temperature monitoring. Standing in the way of modernization, Okuno felt, was the group’s natural resistance to change. As Okuno put it, “The typical group has a 20:20:60 reaction to change. That is, 20 percent of the group will support the change, another 20 percent will resist the change, and the remaining 60 percent will be neutral or hesitant toward the change.” Okuno believed that groups with the 20:20:60 structure were inherently too cautious to make significant changes continuously. Consequently, one of his early objectives was to change the groups’ reaction mix from 20:20:60 to something more like 30:20:50 (increasing the proportion of those who favored change) or 20:10:70 (decreasing the proportion of resisters). For assistance, he turned to the group leaders.

The seventeen factory groups were managed by group leaders who averaged more than twenty years with the firm. They were junior high school graduates and not highly educated. However, they were very proud of their achievements and were highly motivated. Within the factory, they were considered self-made men.11 Unfortunately, they were not educated enough to help manage the modernization program that Okuno planned, so his first task was to get the group leaders ready for the coming changes.

To test how well employees were communicating, Okuno routinely visited the production floor. He sometimes found employees who did not know his instructions, even though they were posted on bulletin boards. Okuno gently brought these communication gaps to the group leader’s attention. Whenever Okuno encountered a group that was communicating particularly well, he praised that group’s leader at the next monthly meeting. After about two years of monthly group leader meetings, the reaction mix had shifted to the desired level in most of the groups. One particularly innovative group had followed Okuno’s example — without his knowledge —and initiated its own daily meetings.

In Okuno’s view, one of the success factors in reducing resistance to change was the way he interacted with the group leaders during the monthly meetings. His aim was to teach the leaders to think for themselves, thus reducing their dependence on him, just as his tatsumaki program (described later) helped reduce the workers’ dependence on group leaders. Whenever a subordinate asked him, “What should I do?,” Okuno did not answer but solicited the subordinate’s ideas. If he volunteered nothing, Okuno asked him to think through the problem and come back later with suggestions. If the subordinate had an idea that Okuno thought was wrong, Okuno did not tell the group leader his solution. Instead, he discussed the other’s idea and hinted about how the problem could be approached more productively. If the subordinate’s solution was the same as Okuno’s, Okuno would praise him lavishly without yielding to the temptation to say that he had thought of it first.

As communication within the groups improved, Okuno began to concentrate on communication among the groups. Except for the monthly meetings, group leaders typically met with each other only when they had problems. While Okuno supported problem-oriented meetings, he also wanted to encourage a more proactive communication approach. He suggested that the group leaders spend time visiting their “customers.” He encouraged group leaders, when they had a spare moment, to see either the next group in the production process or a group that they supported.

For example, Okuno directed the moromi group leader (producer of raw soy sauce) to visit the sterilizing group to ask their opinion of raw soy sauce quality. His aim was to encourage group leaders to identify potential problems early and develop a helpful, service orientation. In addition, Okuno wanted the group leaders to discuss topics of more general importance, such as new product ideas. To impress on the group leaders the importance of the informal meetings, one of the group leaders described a “visit with a customer” at each formal monthly meeting.

Commentary

Several aspects of Okuno’s communication program contributed to the success of his organizational revitalization. First, even though Higashimaru is a relatively small company, it still has the communication gaps pernicious in larger firms. While some ideas are easily shared throughout an organization — for instance, Okuno’s sagyo-shigoto slogan that Higashimaru workers so readily adopted — others do not move well, even when posted on bulletin boards.

Okuno knew that he alone could not bear the entire burden of communicating the need and the means for change. In organizations that communicate well, every manager has internalized and mastered good communication behavior. Not only does good communication cascade down to the bottom, it also flows up in the form of improvement ideas that require resources and managerial approval. And it flows horizontally across departmental boundaries. For this to happen, managers must do more than just “talk the talk”; they also need to “walk the talk.”12 The “visits to the customer,” institutionalized by their prominent role in the monthly meetings, were one way Okuno taught his group leaders to walk the talk.

The visits to the customer taught group leaders that a major purpose of communication is to collect information — from workers and peers in other departments — not just to disseminate it.

Finally, Okuno’s willingness not to impose his own ideas taught his subordinates to think like managers, that is, to think for themselves. His skillful use of the Socratic method and of praise as a reward are tactics that every reengineering effort should emulate.

Among the many benefits of Okuno’s emphasis on communication was an increased willingness by group leaders to undertake formal education. After two years, Okuno reintroduced formal study meetings on fixed and variable costs and break-even analysis, concepts critical to the success of the price control system — another of Okuno’s innovative techniques.

Price Control System

Most of the group leaders in the plant were junior high school graduates and self-made men. In order to consider the company’s profit, they had to start by learning accounting terminology, such as variable costs, marginal income, and fixed cost. The price control system’s main purpose was to increase employees’ cost awareness.

I was prepared for a strong negative reaction to the price control system (PCS) because it would give employees extra clerical work in addition to their normal work loads. However, in reality, the system worked more smoothly than I expected and did not add much extra work.

I believe the PCS was successful because, first, I did not give any significant weight to the groups’ profit or loss figures, but instead attached more importance to their efforts toward improving their performance. Second, I believe that making money is of common interest to all human beings, and the price control system enabled all the workers to join in the money-making process. Finally, I think it was successful because it introduced a sense of fun into the work-place. In my opinion, people should feel that, “It is tough to do, but fun,” if they are to be highly motivated to succeed.1 — Toshio Okuno

The PCS was a game that treated the plant’s subunits as profit centers. Six groups were involved in the soy sauce production process from beginning to end — koji preparation, fermentation, moromi management, pasteurization and filtration, bottling, and shipping. The PCS required each group to “buy” the resources it consumed from the previous group in the process and to “sell” its products to the next group. For example, the koji preparation group, first in the production process, was expected to buy the resources it consumed from headquarters and sell its output to the moromi management group, next in the process. The groups were expected to make a small profit every month.

Okuno set the transfer prices. Each group’s budgeted cost per unit of output was increased by .5 percent to give the transfer price, yielding a 3 percent profit across the entire production process. This 3 percent profit did not equal either the actual or expected profits generated by the process. Okuno decided that it would be too complex to tie the profitability figures generated by the PCS to Higashimaru’s real (actual or expected) profits. Instead, he decided that each profit center should have the ability to generate a small profit each month if it operated at expected efficiency.

To make the PCS more concrete, Okuno created the fictitious Higashimaru Bank (operated by the production control section), which printed its own money, modeled after old Japanese bank notes, in six denominations: ¥1,000, ¥10,000, ¥100,000, ¥500,000, ¥1,000,000, and ¥2,000,000.

Every month, the group leaders closed the PCS account books, and the section managers to whom they reported summarized them. (The profit and loss statements were presented in the monthly group leader meetings.) Each group leader went to the next one in the process and presented a bill for goods rendered, to be paid in Higashimaru money. In addition, each group had to pay headquarters for the labor it employed, the depreciation on the equipment it utilized, and the raw materials it consumed, if any. (Okuno had considered making each group pay interest on the money it borrowed from Higashimaru Bank but abandoned this idea as too complex.)

After each group had paid its bills and collected its revenues, its monthly profits or losses were determined by the value of the remaining bank notes. When a group ran out of money, it could borrow more from the Higashimaru Bank. For the first few months of the PCS, all six groups were profitable. However, in one month, all six reported losses. Okuno had forgotten to include semiannual employee bonuses in his profit calculations. (Since these bonuses equaled 2.7 months of pay, they easily erased the .5 percent profit margin built into the game.) The joke went around the factory that, “If only we did not have to pay bonuses, we would be profitable.” Okuno subsequently modified the system to allow for bonuses.

There were benefits to being profitable. First, group profitability was taken into account when evaluating individual performance. The leader of a highly profitable group could expect to be promoted faster than a leader of a less profitable one. Second, the two most profitable groups were awarded a ¥30,000 prize (about $300) for their superior performance. The two groups could spend the money however they chose, for example, by having a party. Okuno purposefully set the prize amount low to prevent introducing dysfunctional competition between groups that needed to cooperate. Because its goal was learning about costs, Okuno deemed the recognition more important than the money.

After the first year, the price control system was evaluated, and other groups were added to get the whole plant involved. Over time, the game accomplished its goal of increasing workers’ and group leaders’ cost awareness. But it also resulted in real improvements, like cost savings or intangible objectives like safety. Okuno especially valued the latter improvements, because they emphasized the progress the plant had made in cross-group communications.

Commentary

Perhaps the most striking aspect of the PCS is how it made learning about accounting fun. Higashimaru money converted the abstract process of organizational cost accounting into everyday experiences to which everyone could relate — purchasing goods and services and increasing or decreasing wealth. People took personal ownership of the firm’s profitability and cost-cutting goals —something managers around the world have found difficult.14

Second, Okuno accomplished his objectives with a parallel “play” accounting system. He knew that making the simulated changes real, for instance, by establishing the groups as formal profit centers, would have had undesirable side effects in this instance, because the interdependence among the units was greater than their independence. Okuno was able to create a simulated “learning organization” in which beneficial innovations were put into operation, while potentially harmful innovations were tried and discarded with relatively little risk.15

Okuno’s error involving the semiannual bonuses was undoubtedly genuine, but it served two positive functions. First, it taught people to understand the nature of entrepreneurial risk. Second, Okuno’s mistake and his nondefensive reaction taught employees that it was all right to fail during the learning process.16

The PCS went a long way toward getting group leaders to think and act like managers. However, their focus remained internal to the plant; they were not thinking like entrepreneurs. Okuno wanted the group leaders to focus more on external customers and to look at other enterprises for improvement ideas. For this, he introduced the tatsumaki program.

The Tatsumaki (Tornado) Program

The tatsumaki program’s primary purpose was to give the group leaders an opportunity to thoroughly review how they performed their duties. It also forced their immediate subordinates to take responsibility for the groups for three days without warning; they had no choice, because the leaders were gone. The forced responsibility increased communication among the group leaders, their direct subordinates, and other group members. Finally, the program helped the group leaders develop a clearer distinction between job and work. In hindsight, the program was risky because it could have caused problems or accidents. Fortunately, it didn’t and was viewed by all as a great success.17 — Toshio Okuno

Okuno designed the tatsumaki program both to increase the group leaders’ management skills and to reduce group members’ dependence on the leaders. One day in 1989, without warning, Okuno intercepted each of the seventeen group leaders as they were about to enter the plant and told them they could not go in or communicate with their workers for the next three days.

The program caught the group leaders off guard; they were apprehensive about the factory’s ability to operate without them. Okuno used their anxiety as an opportunity to get them to discuss their management role. In particular, Okuno wanted them to learn the difference between leaders who make themselves indispensable and those who “work themselves out of a job.”

For the first tatsumaki program, Okuno arranged three days of learning activities for the group leaders. First, they visited local supermarkets and other stores to see how their products were advertised and sold. Next, they visited some local factories to learn how they solved problems of interest to Higashimaru. Finally, they attended meetings with the firm’s sales personnel to discuss the interaction between the factory and the sales department. One of Okuno’s objectives for this meeting was to expand the group leaders’ awareness of issues and problems of the entire firm.

By 1991, three tatsumaki programs had been held at intervals of one to one-and-a-half years. For the second and third tatsumaki, Okuno did not plan group leaders’ activities in advance. Instead, he told them they could do anything they liked during the next three days. Both times, the group leaders met in a local coffee shop to decide how to spend their time.

Generally, they followed the pattern set by the first tatsumaki. For example, during the second program, they visited a number of supermarkets and two local organizations. The first firm they selected was a trucking company, because the group leaders wanted to learn how to better manage Higashimaru’s fleet. The second was a Toshiba facility, chosen because it used conveyor systems similar to those in Higashimaru’s bottling area. Since the two firms were not Higashimaru competitors, information sharing on both sides was extensive.

Commentary

Many reengineering change efforts concentrate on trying to build motivation for change. They try to create a crisis or “burning (oil) platform” mentality that will encourage people to jump.18 But, in addition to taking time, strategies that focus on motivation can have two negative side effects. First, they can fail to provide the “psychological safety” of a desirable place to jump to (a sea of fire is hardly an inviting destination!).19 The resulting anxiety can turn into immobilizing fear.20 Second, even when people have a positive motivation for change, they may lack the needed skills to behave in new ways.21

Okuno’s tatsumaki program cut straight through this Gordian knot. In one stroke, he changed the group leaders’ perceptions of their roles’ critical dimensions. But, before fear could set in, he involved them in activities that allowed them to practice skills and behaviors for their new roles.

Another element contributing to the tatsumaki program’s success was that it forced the group leaders into other organizations to see different technologies and business practices. Many managers and workers have little exposure to other ways of working, a condition that necessarily circumscribes creativity and reduces openness to change. Some consultants think that the primary value of benchmarking during reengineering lies in opening people’s minds to the possibility of change rather than in the ostensible function of documenting best practices or setting improvement goals. The visits with Higashimaru’s sales personnel helped to break down “stovepipe” thinking among the manufacturing managers. In short, the tatsumaki was a powerful intervention that succeeded in introducing radical change at several levels: cognitive, motivational, and behavioral.

While the PCS and tatsumaki increased the managerial skills of the existing group leaders, they did not help identify the next generation of group leaders among current group members. To achieve this, Okuno initiated the draft system.

The Draft System

The primary purpose of the draft system was to increase the level of the workers’ self-worth. I believe that in order to find life worth living, individuals require more than just money; they have to be recognized by others as valuable people. The draft system achieved this by increasing the number of people who felt valued, and by increasing the number of people who thought they were valuable from just one group to many groups.22 — Toshio Okuno

Like many companies, Higashimaru had difficulty developing new managers. Group leaders were reluctant to recommend their best people for promotion because it might reduce group performance. Consequently, over the years, a job rotation program intended as a management training ground evolved into a way groups could shed their worst performers. Not surprisingly, great stigma was attached to being recommended for rotation —it signaled to everyone that the company held an employee in low esteem. The PCS did nothing to change the group leaders’ incentives to eliminate their worst performers — if anything, it made matters worse.

Okuno’s first attempt to change the job rotation program, simply rotating the best people, met with significant resistance from both the group leaders and the people nominated, due to the social stigma attached to rotation. In fact, it demotivated the transferred workers, because they believed it meant they had not performed adequately in their old jobs.

A key factor Okuno identified in this resistance was the lack of clear rules specifying who was to be rotated and why. To correct this, Okuno created the draft system, modeled after a system used by the Japanese professional baseball league. The draft system tagged any individual who had been in the same group for at least five years and was among the top three performers in his group as a candidate for rotation. Each year, one person from each group with a qualifying candidate was rotated. Groups with no qualifying candidates were excluded from that year’s draft. The drafted individuals’ names were written on a blackboard, and a lottery held to determine the order for selecting a replacement from among draftees.

After their selection, group leaders met with draftees to convince them to join the drafting group. Group leaders needed to be persuasive to show the draftee he was valuable to the team. Apparently the group leaders were successful: in the first five years of operation, no draftee rejected an offer.

The draft system had two major advantages. First, everyone could predict who could be rotated. Second, everyone knew that the draftees were valued, since the rules declared they were highly rated and had the option of rejecting the draft offer. Thus the draft system eliminated the problems of the earlier rotation system and, along with the PCS, created significant pressure on both the draftees and their new groups to recover from the dislocation of rotation quickly.

Before the draft system, it took six months for the performance of a group to recover from rotation. Under the draft system, recovery time decreased to less than three months, due to three factors. First, the rotated individuals were among the firm’s top performers and, with that recognition, were highly motivated to succeed. Second, the other members of the receiving team expected good performance from the rotated individual and were motivated by the PCS to help the draftee learn his new job quickly. Third, groups knew in advance the potentially negative “profitability” effects of rotation, so they could develop training materials for the new member and cross-train others.

All participants received the draft system favorably. The second draft meeting went much more smoothly than the first, because everyone attending was positive about the process. After five years, Okuno suspended the draft because all the firm’s best employees had been rotated and some of the rotated individuals worked so hard to adapt to their new jobs that they became ill. Four years later, when Okuno reinstated the program, he expected that future group leaders would come from among those who had been rotated twice and had therefore been highly rated members of three different work groups.

Commentary

The draft system is a masterpiece of cultural image management. Okuno took job rotation, a management process thoroughly imbued with social stigma, and repositioned it as a measure of social worth. He did this by making clear rules of procedure and by linking job rotation symbolically to highly legitimate values — the principles of fairness and good sportsmanship embodied in the professional sports draft. In doing so, Okuno was able to turn a system that both managers and those rotated perceived as a sanctioned way to eliminate losers into a way to prevent the strongest teams from unfairly getting or keeping all the winners.

Despite its success, however, the draft system does not directly and quickly improve the efficiency of organizational processes, but creates a cadre of highly experienced, successful, and motivated managers. While these managers will eventually introduce improvements, achieving results through better management takes time. So, when Okuno saw the need for dramatic performance improvements quickly, he created the hangen game.

The Hangen (Cutting in Half) Game

The purpose of the hangen game was to enable the workers to think creatively about the way they performed their assigned tasks. It is very easy for people to become comfortable with the status quo. They tend to think that their job is particularly difficult. However, to become more efficient, it is necessary to continuously review one’s job to ensure that every task is absolutely necessary. Unfortunately, it is impossible to do so under normal conditions. There simply isn’t enough pressure to allow creative thinking to occur. In the typical cost-reduction program, work content is reviewed, unnecessary tasks are eliminated, and the size of the work-force is reduced accordingly. Typically, this approach produces only marginal success.

The hangen game was successful because it made people think creatively. In the game, the available workforce is halved, so the remaining workers must identify all unnecessary or noncritical tasks that can be eliminated. They identify fundamental, instead of marginal, reductions. I experienced the power of this approach as I listened to the workers review their jobs and arrive at unique solutions to reduce their workload. I called it a game because I wanted them to enjoy the creative process. It proved that people really do become more creative when they are placed in a tight corner. Just as important, it proved that creativity can be fun.23 — Toshio Okuno

As Higashimaru’s profits began to fall in the mid-1980s, Okuno adopted a more aggressive approach to change and, in particular, to cost cutting. He designed the hangen game to stimulate creative ways to cut cost dramatically. Okuno based it on his observation that it is often more difficult to remove one person from a group than several. Okuno commented on why this strange result comes about: “If ten people perform ten tasks, then getting rid of one person requires that nine people perform ten tasks, a difficult situation to manage. In contrast, if five people are removed, then five people are required to perform ten tasks. While this situation looks impossible, it forces the group to reconsider every task it performs and ask whether each task was necessary.” Thus, according to Okuno, cutting a group in half leads to more creative thinking than simply downsizing it by one.

Okuno did not really expect the hangen game to cut each group in half. His strategy was to use the game —repeated several times — as a learning laboratory in which to suggest creative ideas for change. His plan was to use half-staffing as a “stretch” goal and then restore as many people as really needed after all the improvement ideas had been implemented. Even so, Okuno expected the strategy to result in greater improvements than just removing one person at a time.

The hangen game was not always successful. It worked poorly in small work groups, such as a new bottling line with only two workers, where analysis showed that the only way to reduce the number of workers was to introduce a robot. Similarly, playing the hangen game in a group of only four (adding back a member after the learning exercise) produced virtually identical results as replacing one member.

But, when the game worked well, the results were spectacular. The greatest success occurred in a twenty-five-member bottling group. Okuno split the group in two. Thirteen members ran the bottling line, while the other twelve watched. The twelve bystanders were not to interfere even if something went wrong. At first, the thirteen-member team ran the line for only about an hour before they lost control of the process. But that hour was enough to convince the group that major changes were possible. Once the members realized that a significantly smaller team could run the line for even a short period, they were much more open to change.

They repeated the exercise several times. Each time, the thirteen-member team ran the bottling line for a longer time. Eventually, Okuno suggested that three additional people be assigned as roving troubleshooters to pitch in wherever help was needed. The sixteen-person team soon discovered that they could run the bottling line successfully, and after several days, the remaining nine members were assigned to other groups.

Commentary

The most difficult problems in reengineering projects involve head-count reduction. Many consultants have observed that it is very difficult to elicit people’s best ideas for change when the stated goal of the reengineering project is to eliminate their jobs.24 Even when design team members are personally assured that their continued career with the company is not at stake, they may feel guilty about depriving fellow workers of employment or the comfort of familiar jobs.

Not only does head-count reduction provoke anxiety for design team members, it’s also risky for the company. What if the cuts are too deep? What if we inadvertently eliminate people with essential knowledge and skills? These questions cannot be addressed satisfactorily in paper-and-pencil design exercises. And, while companies can construct prototypes and conduct tests of the changes, these learning techniques will not always reveal situations in which the redesign has not been radical enough.

In many situations, the answer is disciplined experimentation, like that in the hangen game, as a way to generate ideas for change, not just test them. The hangen game created a learning laboratory in which all the workers in a group — not just a “representative” design team — could participate directly in making change rather than being changed.25

The bystanders’ role during the game is particularly important. Not only did it signal, perhaps for the first time, that the workers were valued for their ideas as well as for their hands, it taught them skills and strategies for work system improvement that they could take to their new work units.

The bottling-line solution (a core team of thirteen operators plus three people in troubleshooting roles) also exhibits another principle likely to prove useful in many reengineering designs — the importance of slack.26 While thirteen people could indeed operate the line, they could not gracefully recover if things went wrong. Permanent relief workers (not just buffers for vacations and other planned absences) build an essential resilience into fragile work systems.

How well might the hangen game work in white-collar settings? Here the key issue is the invisibility of many white-collar processes. Often hidden away in private offices, the processes must first become visible to those who have the knowledge to change them. For instance, one customer service unit we observed installed large electronic signs to show team members the number of telephone calls on hold, so relief workers and managers could pitch in to handle the excess.

The hangen game brought plenty of visibility to the larger work systems in Higashimaru. It helped people see through — and saw through — the bars of their self-imposed mental prisons.

An Integrated System

Okuno revitalized his organization by using the five techniques to bring about human — and humane — reengineering. He motivated his workers and managers to learn and prepared them for leadership roles, while achieving significantly improved organizational performance. And he did so without creating the excessive anxiety and disruption that often accompany business process reengineering.

What is interesting about these techniques is not only that they are creative and thought provoking in their own right, but that they work together as a system of change interventions. Individually, each has a very specific goal and means to achieve it. While each contributed to the overall objective of revitalizing the organization, none was powerful enough to accomplish it alone. But, together, the five mutually reinforcing techniques covered all the bases in a major change effort.

Analyzing each technique’s goal and means sheds light on how they operate as an integrated system. The goal of the group leader meetings — to increase group leaders’ readiness for change — was achieved by destabilizing the status quo. At each step, Okuno forced the group leaders to rethink how they functioned as managers. The group leader meetings prepared the leaders for more significant changes, an important first step in unfreezing their attitudes toward change.

But increased managerial readiness for change was not enough to achieve the specific major changes that Okuno believed were required. He designed the PCS to transform the group leaders into managers. The PCS harnessed their innate entrepreneurial spirit and turned each of them into a company president. By tapping into a deeply held cultural value — the goal of running a small business — Okuno was able to alter significantly the group leaders’ view of themselves and their jobs. And he achieved this without threatening their identity and feelings of self-worth.

He designed the tatsumaki program to shatter the myth that group leaders were indispensable in day-today plant operations. The program ripped the group leaders from their normal environment (the factory) and forced them into a new one (the world of customers, competitors, and suppliers). It augmented the mind shift of the PCS by challenging group leaders’ core beliefs about what constitutes a good manager. In place of the myth, the tatsumaki program substituted a more proactive, externally focused management model.

The draft system’s aim was to develop the next generation of group leaders. It culturally repositioned job rotation from its negative image of banishment and disgrace to the positive image of “most valuable player.” Techniques designed to improve contributors’ and managers’ skills are needed in successful change programs, because the efforts of both groups go into improved organizational performance. Without a way to develop new managerial talent, major change initiatives are bound to fail in the long run.

Okuno designed the hangen game to create dramatic cost reductions. He forced contributors to generate creative solutions, as clean-sheet reengineering design also attempts to do, by placing them in a situation where incremental improvements simply would not work. Working harder was not an option, because there was too much to do. Consequently, contributors had to come up with innovative ways to complete their tasks. The hangen game brought the concept of discontinuous improvement to the production process, augmenting the continuous improvement that other techniques had fostered.

In addition to meeting their individual goals, the five techniques function as an integrated system, jointly achieving the goal of major change. They provide balanced coverage of the different change targets, tectonics, and tactics in every major organizational revitalization (see Table 1).

Change Targets

Proponents of reengineering have recently come to believe that it is not enough to reengineer just the work; one must also reengineer managers.27 Therefore, an effective major change effort must involve interventions that target managers and that target work processes and individual contributors. As Table 1 shows, Okuno’s five techniques are arrayed quite evenly across these two change targets.

Change Tectonics

A second consideration in major change efforts is the magnitude and rate of change interventions. Considerable controversy surrounds the question of whether and when incremental versus radical, revolutionary interventions are best. While the issue is most often posed as a dichotomy, experts have recently begun to identify change interventions that are intermediate in scope, such as the “earthquakes” that create significant changes by building on, rather than “nuking,” existing elements of organizational identity.28 As Table 1 shows, Okuno’s five techniques include incremental, revolutionary, and intermediate change tectonics.

Change Tactics

A third concern of managers embarking on organizational change is the way major change is produced. One typology identifies eleven different mechanisms by which change occurs in organizations at various life cycle phases, ranging from the evolutionary changes of initial growth and development through the destruction and rebirth that often accompany mergers and acquisitions.29 Again, in Table 1, we observe that Okuno used a wide range of tactics, not simply across the five techniques, but also within them.

Conclusion

Do Okuno’s techniques work for everyone? Can these interventions, designed for self-made men without college degrees in a medium-sized Japanese manufacturing plant producing a low-tech commodity product, also apply in Western companies, in high-tech industries and services? While such cross-cultural questions are intriguing, we think they distract from the lessons on the management of major change in the Higashimaru Shoyu experience.

The first and most important lesson is that lasting organizational change always requires significant change in people. Without change in human knowledge, skill, and behavior on the job, change in technology, processes, and structures is unlikely to yield long-term benefits. It is essential to focus on changing people as well as other aspects of the organization, because people make the difference in organizational performance and have ideas for productive change.

In fact, the Higashimaru Shoyu example shows that “human reengineering” is a viable alternative to “traditional” business process reengineering as a strategy for bringing about dramatic performance improvements. Although Okuno focused primarily on people rather than on business processes, he also succeeded in creating significant improvements in processes and results. But, because the managers and workers themselves (instead of expert reengineering consultants) proposed ideas for change, the changes were not resisted, but embraced.

Second, major change in an organization’s human resources and performance rarely results from a single planned intervention, although a major shock from the external environment can and does sometimes have devastating effects. Leaders who want to guide their organizations through major revitalizations should not rely on a single magic bullet, which is just as likely to kill or maim as to hit the bull’s-eye. Rather, like Okuno, they should design progressive game plans of multiple, mutually reinforcing plays that jointly cover all the bases.

This strategy of multiple, interlocking interventions prevents an organization from settling into a complacent equilibrium that neutralizes further change or even reverses earlier gains. In the context of reengineering, others have noted that a single radical change alone cannot ensure sustained advantage: organizations must either pair reengineering with continuous improvement or resign themselves to reengineering processes every few years.30 The progressive game plan approach reduces the need for subsequent changes in direction by reinforcing the original intervention, broadening and deepening it over time.

In fact, the Higashimaru Shoyu example shows once again that the dichotomy between radical change and incremental improvement is false. While Okuno originally emphasized sagyo-shigoto (incremental improvement), he adopted a more radical course of action when his company’s performance picture worsened. His results — in terms both of cost and reaction mix — were radical, not incremental. On the whole, this is a story not of continuous improvement but of continuous innovation. Okuno’s experience shows that creative managers can combine both continuous improvement and “discontinuous improvement” harmoniously.

And, finally, we can learn much from Okuno on how to make change fun. He transformed his company without “nuking” it or traumatizing his employees. In the wake of the agony caused by reengineering and retrenchment, it is inspiring to see how a talented manager can replace the fearful specter of change with a spirit of play, creativity, and experimentation. The deep organizational learning enabled by this cultural change accomplishes far more than a temporary, one-time boost in performance, however great the improvement. It gives the organization the human capacity to help it keep on learning.