S3:E8 Learn Lean Management Principles with Mark Reich

Leadership can change, but you want to build stability in the organization. And building stability, meaning like stability around how you interact with customers, what are your products and how do you provide them? That type of like stability for companies, for small companies, excuse me, and good process helps you build stability.

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Today we're gonna be diving into the world of process improvement. Specifically, we're gonna be talking about lean methodologies, which was inspired by the work of Edwards Deming, made very famous by the Toyota Production System, which I think is why a lot of people think about assembly lines and car manufacturing when they think about efficient processes. And our guest today is a little bit of a legend in the space, Mark Reich. He's a senior coach over at the Lean Enterprise Institute. He spent 23 years inside Toyota. For the past 15 years, he's been helping global businesses lead large-scale lean transformations. He's the author of Managing on Purpose. So he's got a really rare depth of insight and understanding on how to build and scale a culture of continuous improvement. So that's a big part of what I want to dive into today and explore with him. So maybe first things first, just welcome to the call, Mark.

Great to be here, David. Thank you for having me.

Awesome. Maybe just to— the first question that comes to mind for me is I'm curious if you've always been a systems thinker or if it's something that you had to learn to love process.

And when I tell my personal story, I say that it shows the power of Toyota, that they took an English major in college and built him into a process engineer, which is pretty much what happened in my career. So Toyota can develop anybody into just about anything, I think.

Yeah, it's funny because I know with some of the business owners that we work with, it's very common for them to not see themselves as process people, yet they want to have a systems-driven business and they want to get the organization to that. I'm wondering, yeah, if you have any tips or what you think the biggest internal shift that might need to happen for the business owner or an understanding to make that possible.

Maybe I can share a little bit about my first experience in Toyota and how that changed my mind, and I can provide insight to what you're talking about. Yeah. So I went to Japan in the 1980s because the economy in the US was kind of not so great. Japan's economy was booming. I went to graduate school, got a position in Toyota out of school. And the first 3 months I was in Toyota, they sent me to an assembly plant to build bumpers. That wasn't the job I was hired for. I was hired into a group called the Overseas Planning Division that had responsibility to define specifications for vehicles that were going overseas and were working with the chief engineers, but Toyota believed that, and this is true for every new employee that came into Toyota in Japan, you had to learn process. You had to learn where the value-creating work occurs. And wherever you go then in your career, and I've tried to keep this in mind, you always know that what the customer pays for that value, and that's what's value-creating work. So I think that that kind of impressed upon me pretty quickly in my career with Toyota that, you know, that's an important thing to know. And so I would say that to your question about like business owners and like thinking about, I'm not a process expert, I'm not sure how to look at process. I encounter a lot of people like that. And but I believe that all it takes is to maybe change the mindset around the fact that Basically the people in your organization, and this is true of any industry. I've worked with the construction industry, hospitality industry, healthcare, manufacturing, the people doing the frontline work. That's what the customer pays for. If you're, whether you're making the iPhone or you're a chef making the meal, I'm, or you're a healthcare worker, a nurse or a doctor on the frontline treating patients, the customer's paying for that. And so start by going and seeing and try to understand that work and the difficulties in that work. I think that's an easy way to start it. And that's applicable whether you're an organization of 10 or an organization of 100,000. So that would be my first step.

Yeah, it's that cultural change that's always hardest. And I know as a business starts to grow and it's got more headcount, that it gets harder and harder to change culture because there's more people that we have to work with and adjust. And I know you've worked with businesses at a lot of different levels. I'm curious to know how you approach installing a process-driven mindset, or what are some of those first things that you do to try and change an organization's culture?

I believe a culture is an extremely important part of organization. It was of any organization. It was a really important part of Toyota in, in Toyota's culture. But I think sometimes we get lost, a little bit lost in the conversation about culture, meaning we tend to talk about culture almost as this existential thing that should exist and we can teach people about it. Toyota, the culture in Toyota was demonstrated by the people. So it's based on actions people take. And I think that the way leaders can start to change the culture is to start by by demonstrating the behavior they expect from others. And if going back to my point a moment ago, if we believe, and to the point of even about my, like, my indoctrination to Toyota by going and building cars, if we believe that's, and we should believe that's where the fundamental value-creating work occurs, is the people on the front line, then leader, that's where leaders need to go to understand the work and understand the, I think, the challenges in the work. And when leaders And I've seen this happen everywhere and it happened in Toyota. So in a way for Toyota, it's because you're in Toyota. So you just learn to live that culture and you expect it. When you don't see that in your inner culture, it's, I think it's actually even more impactful when leaders start to go to the frontline and understand the work and understand the struggles with the team members in that work. People notice that because people notice what leaders do. Now, if leader doesn't appear and they're in their office or they spend their time in with mostly with the, their C-suite team, that's not going to be visible to the organization. What's very visible is as a leader, if I'm out in the field and I'm not, I'm non-threatening, I'm there to understand the work and see if there's support that's required. I think that's, I think that sets the culture for the organization. And because if this, for example, just start at the top, if the CEO can do that, why don't others in the organization do it? I think it mirrors— others tend to mirror that behavior.

You stepped into Toyota, there was that culture of process already there, and it's— everybody just wants to naturally conform when you're in an environment, hey, that's what we do here, and you don't know any better just because that's what you've always known. So it's always easiest with the new team members, especially when you're recruiting with a systems perspective or a process perspective, and you're choosing people that are going to fit into the culture right up front. When you've got the existing team members, I can already start to see some of the suggestions you had, which has got to come from the leadership because the leadership need to show, hey, this is how we do things here. Are there any other, yeah, things that you've seen in some of the transformations with the existing staff that there is already a pre-existing culture and people are stuck in their ways. And yeah, I don't know if you have any thoughts on that.

Yeah, I worked in Toyota and my first 6 years I was in Japan, so I kind of got the sheep dip. I was like the lone 6-foot white guy in a department of 150 Japanese people. So I really got fully embedded in that respect. But I also spent part of my career working within Toyota when I was with Toyota, working for a group called the Toyota Supplier Support Center. And that's a group that was set up in North America by Toyota to go out and help organizations implement the Toyota Production System. And that was true. We did, we worked with suppliers, but we also worked with general industry and they still exist. They work with a variety of companies in different industries. But in those situations, you're going into a scenario, and the same is true now, working as with my work with the Lean Enterprise Institute, you have to go into a scenario where, I guess, refer to lean culture. Or the culture of continuous improvement doesn't exist. And I think a powerful— what I've learned is, again, I think it starts with leaders. Okay, so what do leaders do? I just mentioned they can go out and see the work. That's probably not enough. Typically what— and I spend a lot of my time now coaching leaders. Typically an exercise I take leadership or individual leaders through is having them solve, um, business problem in the work. And not, this is not a big problem like profitability or market share. This is a very concrete problem that it might exist in quality or might exist in, for example, in healthcare and patient experience. And how it impacts the leader in the organization, because the leader has a realization of some of the, those difficulties that really exist in process. And how, what struggles people have each day that they may be, they're flying up at 30,000 feet and don't see that, but it also opens their eyes to be able to see problems like that going forward. And it also has a big impact that has an even greater impact in the organization because here a person at a high level in the organization is helping solve a, like a critical problem on the front line. That gets a lot of, I think, attention.

Yeah, there's nothing like having someone get a win, and that kind of really helps the momentum, and you get the team on board and go, oh look, we solved this particular problem and it improved it. I definitely think that is a great way to get started. Do you see— are there any differences? Because you've worked with organizations at lots of different levels, so I'm wondering if there's anything that you might say that smaller teams or organizations should do differently, or is the approach always the same. I think there's still benefit of identifying a problem, going there and getting to work on it. But are there any other things that you see as differences?

In a smaller organization— and I've worked with small organizations, and I want to talk— maybe I'll talk a little bit about what I speak about in my book, Managing on Purpose.

Yeah.

In, in— and I've worked in— I've— the book is about a methodology in Toyota for strategic planning we use called Hoshin Kanri, which is the English translation is like strategy deployment. Often it's referred to that way. I don't really like that translation so much because it sounds very top-down, but it's meant to, it's a methodology and there's a graphic behind me that kind of shared. It's a method. You mentioned Deming at the beginning of this call, but it's a methodology that really was introduced based off Deming's teaching in the early, late '50s, early '60s in Japan. To, and Toyota was one of those pioneering companies, to build a management system based on Plan-Do-Check-Act around how we develop strategy in the organization and execute them. So to your question about like small versus large, I think larger, particularly larger organizations often struggle with communication. Event, as organizations grow, they need to develop capabilities of expertise in functional areas. So they get, they become organized in functions and often those functions are defined by the work they do and they work, they tend to work in silos. Hoshin Kanri, the methodology is really built to bring that the group together and build alignment around direction on a few, on a focused effort. I think in smaller organizations, there can still be silos. People can remain isolated, but the opportunity for flexibility in the organization, if the CEO or top leaders are aligned to basic direction, can, I think, allows for a much like greater nimble movement on what the direction of the organization might be. So I think I would say for small companies, this Hoshin Kanri can also be useful. Because it allows you to— same, the same purpose as a larger company, but fairly quickly you can pull the team together and define what are the strategic objectives you want to focus on and what will be the process you will follow to execute on those things and follow up and ensure they're achieved for the business.

I think there's one thing I love about process is its ability to break down those silos because now we're all operating on the same page, we have the same rulebook that we're following, and it makes it much easier to work as a team rather than be off in these little pockets, which causes all type of problems with double work and people making mistakes and not thinking about the organization as a whole. That's another thing I love about Lean is it comes back to this idea of thinking about the whole system. The business as a whole system and what are the second-order effects rather than working on a little problem in here and then not thinking about what effect that might have downstream. That, that's, yeah, one of the things I love about Lean. Have you, yeah, got any thought on that around that approach of looking at the system as a whole? Because I feel like that's a critical piece.

It is a critical piece. And that all comes from the concept that we think about it. There's a customer out there and depending on whatever business in that customer could be, it could be a business to business, could be a business customer. It could be individual customer who's buying an iPhone, for example, but there, there are customers out there and what the customer sees the end product that comes to them. And, but in order to get that product to them, if particularly if it's a physical product, let's say that requires someone to, some like research to understand what the customer is expecting. It then based on that, some like actual product development process to effectively and quickly get that product to market. And then you gotta make the product, which is the, is production and you have to, make sure the customer's aware of it. And so that's all the marketing and sales. All that crosses functions in an organization. We often refer to it as a value stream. And organizations often struggle to effectively make that value flow across the organization and to break down walls because organizations also need expertise in function. You need product engineers. So you need to develop those in terms of their functional expertise. So I think where the challenge can often come though, to your question, and I worked in a lot of industries, but particularly where the work isn't visible. If you're, even though it's fairly complex, if you're building, if you're developing and building a car, it's a physical product. You can go to a plant and see a car get made. You see the panels get stamped and body welded and painted and assembled. We can also, we can see all that and but there's so many industries where that the process is invisible. It's inside a computer, it's administrative. And I think that's often where I'm working with an IT company in India right now. And I was a little bit intimidated by that because I don't do coding. I was wondering, is it possible I could help? But it turns out that a lot of their challenges relate to exactly what you're talking about is they get a, for example, they have a marketing group that gets a, like, a complaint from a customer about the app that they're using. It has a bug and they need to fix that, and that has to go back to product development, which has to go back to product management. And often the work, like, sits in queues and it's invisible because it's all knowledge work. It's not a physical product.

Yes. Yeah. Is there any dead giveaway? Because that's another thing that happens when someone doesn't take into account the whole system and they're working in silos or on specific problems is that they're working on the wrong thing or trying to solve the wrong problem. Is there any dead giveaways when that is the case, or any ways to go, you're not working on the right thing here?

I'm glad you asked that question because that's exactly why I wrote this book. That's what this book is about, managing on purpose. Because often people are working on the wrong thing or they're working on, or have taken on way too many things, which ends up, so it becomes an issue of not necessarily not working on the right things, but on an issue of prioritization. And what is, what organizations, why Hoshin Kanri is helpful is it kind of forces organizations to focus on, I would say, If you're a small organization, focus on 3 things. Yeah. If you're a large organization, 3 to 5 things that the organization is going to accomplish. And those should be things that matter to your customer, that maybe impact the business, of course, and impact people. I would say that's a good methodology. I can sit here and explain it for a few minutes, but it's about how do you pull the leadership team together. And if you're a small company, you have a leadership— every— I worked with small companies, you have a leadership team. How do you bring them together and define based on the business environment you're in and the type of company you want and what you want to do for your customers? How do you define what those 3 priorities should be for the organization? And then how do you like ensure that you execute on them and, and achieve like business results from them? I think that's the, I think Hoshin Kanri can be really helpful in that respect.

Yeah. Yeah. I think getting to that point sometimes for business owners in smaller teams where they feel like they have the space to do that. That's a big part of the work that we try and do. We start from the process end, and we, rather than focusing on process improvement, we often start by talking about process capture, because a lot of the organizations we work with have nothing in place. So we say, let's capture what you're currently doing, make that repeatable. At least then it can be delegatable, which hopefully then can free up the higher-skilled team members to start working on these more important important problems. One thing when we work with these small teams that sometimes happens is they then over-document and go too deep into this. And I'm wondering, it's a fine line between getting clarity and this over-documentation. I'd love if you have any insights and perspectives around where that line is or how to know if you've gone too far and you're getting away from just doing the work?

I think one tool— I don't like to dwell too much on tools, but I think one tool that can be really useful in what you're talking about is— we used to call it in Toyota Material Information Flow, but we have a book called Learning to See that is about value stream mapping. Okay. And that can be our process mapping, and that can be done for a physical product. It can be done for a knowledge product, but it's basically pretty diligent, I would say granular way, defining what are all the process steps from kind of inception to delivery to the customer. And then within that, within those steps, I think you clarify where the bottlenecks are, where the issues that are occurring, what are the problems. And there, that's where you need to focus on like clarification, documentation, building standards to, for improvement. If you try to do the whole, if you're trying to look at the whole process at once, it can be a little bit overwhelming and time-consuming like you're talking about.

Yeah. And as they start to capture some of these processes, I think you'd probably have some experience with this in the transformations. What do you do when you get smart, experienced people who refuse to follow process, whether that's consciously or especially as we're starting to change the culture in an organization. There are these sometimes resistors. I'd be interested to know how you approach that and handle it. And is there ever a point where you draw a line in the sand and say, hey, this is our culture and you're not fitting in? Yeah, how do you work with that?

Everything you just said, I think it's true, but my first step is normally let's back to the example of creating a process map or a VIZ. Let's get it clear what the current state is. Let's get agreement on what the current state is. And a lot of, some organizations will say we don't have any standard, but in fact, everybody's got normally people. What I say is every organization has de facto standards. This is like if when you get up and brush your teeth in the morning, you brush them the same way. You just never wrote that down. But, and organizations do that too for their pro— the processes that they follow. So let's write it down and see what, and then those people that are like, once it's written down and we know, oh, here's issues with lead time, here's, then we can talk around facts and we, cuz we have to build and we have to build that off of like the real situation because the more, and that's, this is what was, I learned a lot in Toyota. Is if you took a proposal, we used to write what we call A3s, which were problem-solving proposals to your boss, and you weren't clear on the facts, you went back to, to reinvestigate. So, because facts separate the, I separate out opinion from reality. And I think the more we base that study that I'm talking about on the facts of the situation, the more difficult it becomes to argue with. Yeah. But that doesn't mean— I hear you. There's still going to be people that are just like fundamentally like in disagreement.

Yeah.

And I think in an organization when you're helping them, you need to go where you can get— I believe Lean helps companies. If I'm in an organization where we're trying to get it started, I want to go where I can get a win. Let's go with a leader that is supportive of it. And then we can demonstrate the organization, the power of what it can provide. And you can bring some naysayers, but there's going to be a, I would say it's 10, 15% of people that are just like, they don't agree. It usually comes more from a cultural piece of they are very top-down leaders. They're accustomed to dictating and getting their way, which often you struggle with in this culture. Those people are at some point. The, the organization, the lead top leadership organization, as say, I, I quote somebody, a company I used to work with, you're either on the bus, you're not on the bus. The bus, this is a lean bus we're gonna ride, and either you're gonna get on or you're not. Yeah. So you might need some separation with some people. You don't want to do that, but eventually those people can drag down an effort.

Yeah. And it's, I find it's definitely in that transitional period, just like you talked about when you joined Toyota, like, their recruitment process would have made sure that you were the right fit and you were going to fit in, you're going to work in the organization, and then they put you in, and then the culture was already established, so you naturally conformed. It's always that the hardest bit is when you're transitioning with the existing team members and, and trying to figure out who, like you said, is going to hop on this bus or who is not. Have you ever seen, like, one other thing I've noticed Sometimes it's a little bit like— I use the metaphor of it's like brain surgery in that you don't want to stop the operation partway through because it can do more damage than good. If you're trying to move an organization and there's resistance and then it doesn't quite work and the team pushes back and you don't follow through and then you end up abandoning it, it does more harm than good because now it's very hard to come back to it later because they'll say, "Oh yeah, we tried that, but it didn't work." And there's always— you have to get over the hump before that culture sets in, you get the win with that leader. I don't know if you had any stories or examples of when organizations may have moved too quickly or haven't quite got that foundation, and then it's just meant that the whole project just was not a success.

I would say that I can share with you an example, but to your— maybe to preface this example, maybe to your point, I, it is important to get a fairly quick win. And I think, I do think that, and that win meaning something that people can appreciate and it also provides some like business benefit. And then you'll get leadership's attention too. Oh, this is going to, this is going to help the company. And you, and people from below start to, leaders start to hear this is really helpful for us. And I worked for a, I continue to work for, I've worked for a long time with one of the largest construction companies in the United States. And they, one of their largest business units is in New York City. If you go to, have you been in New York City?

I have not. I've only been on the West Coast.

West Coast. Yeah. New York City is a big city. If you go, it's a lot of skyscrapers. If you go there, this company probably built half of those skyscrapers or they built half the downtown of New York. But so it's really challenging work. And when we started continuous improvement collaboration with them, we did some training and development with some of their leadership on problem solving, like I had mentioned earlier. And it, and it seemed to have some impact to a certain number of those leaders. It struggled to get deeper into the organization, but the top leader got it, like really understood. And he did his own problem solving and got a lot out of it. He's, he had responsibility for the entire New York business unit, about $5 billion of business. And the following year, he decided to use what I introduced in my book, Hoshin Kanri, to prioritize efforts in the organization on safety. And to see if, because he knew that was, first of all, I don't know how familiar with the construction industry, but it's, I think it's, I think there's a statistic about 35% of workplace deaths occur in the construction industry. It's a, it's a fraught industry from that respect. And so focusing by— Charlie's the guy's name— Charlie focusing on safety for the whole organization meant that obviously the, the top leadership in the organization would be supportive because we want people to come to work safe. But people on the— who are doing the work, building the buildings, want to be safe too. And it prioritized everybody's work in the organization. So he required, in doing this, he required anytime a safety incident occurred, within 48 hours, he needed to see a complete problem solving, the root cause of how that would, how that was resolved. And, and that created an urgency in the organization to learn problem solving and to resolve those kind of issues quickly. It, it brought down their— in, in the construction industry, they use a statistic called the recordable incident rate, like by 90% over the course of about 5 years. And so it had a huge impact in the organization to the people up and down the org— up and down the organization. But the construction industry is probably similar in Australia, but it's a unique industry in that there's companies that manage projects and then the companies that actually do the work of building the building are separate organizations. They're sub- subcontractors. Yes, but it really impacted those— they— that was where the biggest impact occurred, because those people, those are people that are dying, like, when situations— when injuries occur in that— in the, in the construction industry. So by improving those numbers, I mean, they were able to— they got huge support from the unions and huge support from the subcontractors for, for this effort.

Yeah, it's funny, I feel I shout it from the hilltops, and I still feel, especially for small business, process is the best kept secret for small business because it delivers better outcomes for everybody—for the business owner, for the team, for the clients, for the suppliers, for those subcontractors. Like, everybody who—like, it's indisputable. I don't think I've ever had a discussion with a business owner where we haven't agreed that this will improve the business, yet a lot of them still just have trouble committing resources, time, effort, energy to making it happen. I don't know if you have any insight in how to build the case for why systems and process and why investing into this work. It seems so obvious to me when we talk about it, yet I know small business, they got limited time, resources, and they have to allocate it somewhere, but process doesn't have the immediate, like, win for them, like running a Facebook ad and seeing the leads immediately appear in their inbox. So that gives them an instant hit, and they go for those type of activities as opposed to process, which is about this gradual improvement in the way the organization works.

I don't have a perfect answer for your question. I would say though that new organizations starting out I believe one of the, you know, and the organization I work with, I'm part of the Lean Enterprise Institute. We're a nonprofit organization founded, and we've been around a long time, 25 years. So we're, we're surviving. Nonprofits can struggle sometimes, but in many ways we're, we've gone through cycles of that, of the situation you're talking about. We're small. We're like 15 people. In total and organizations like that can struggle with and why process can be beneficial is or leadership can change, but you want to build stability in the organization and building like stability, meaning stability around how you interact with customers. What are your products and how do you provide them? That type of like stability for companies, I think can for small companies, excuse me, can be very— and process, good process helps you build stability. And it helps you, like, as you, as you start to grow and scale, you gotta bring on people and train them. And you may have had, uh, today had 3 salesmen who maybe started with the business, so they know the product really well. Then you're, as you grow, you need 10 or 15 salespeople. And all this, and those people didn't come in and have never been in your industry. So how do you like level up those people? You need to bring— having solid process that people can get trained on and standards in the organization that people can learn to, on how to, in this case, provide good service to customers as salespeople. It's invaluable. So the challenge I think organizations in that face is you're often— and we have this challenge at the, at our institute, people are wearing 3 or 4 hats. And so it's hard to get the time to do that sometimes.

Yeah. Yeah. It's definitely meaningful work. And I think clients, which businesses are there to deliver on the promises they make through to their clients, and those clients crave consistency. That's what keeps them coming back. Even more so than quality. Oftentimes if they know what they're going to get, that it will get them returning and referring. So I try and point that out. With a lot of the work that you've done, I don't know if there's a particular transformation that you've been a part of that was most rewarding, and I don't know if there's anything in particular that made it really meaningful for you if you think back over your career.

There's a lot, but I'll stick with this construction company I talked about. I'm still working with them. They've, since the time we've been collaborating, their business has grown about 75%. They went from like a, more than that, 100%. They went from about a $12 billion company back in 2017 when we started working with them to now they're around $25 billion. Some of that's attributable to Lean, some of that's just attributable to the construction industry in the US. But I guess the reason it's rewarding to me though, is that, you know, I started this work I mentioned to you at this organization in Toyota, the Toyota Supplier Support Center, TSSC. Our mission of that organization was to, to some extent, build and strengthen the manufacturing industry in the United States so that, so that US companies and manufacturing companies could be more productive. And because it's a, I believe it's an important industry in our country. And I think I look at construction that way. And I, and the reason I guess I'm proud of the work I've done there is that is relates to a little bit what the story I told a moment ago is. It is an industry unlike manufacturing in many industries, I think, that has really struggled to change. It's the same kind of industry in many ways it was 100 years ago. And to the point of like safety issues, to the point of how work gets done and structured. And so it looked like a really big challenge to me, but I think that industry is making progress because we have to be, and I'm speaking about the US, but I think it's true of many countries. We get a lot of value from people in industry, in the industry of trades. So people who have, who are carpenters, people that, that type of laborer is It's extremely important for our economy. And so I think having to be able to go into that industry and know that you're going to be safer, your job's going to be valued and you can do like productive work as opposed to what I often see and have often seen in the past in construction is people are doing rework. Yeah. Significant rework. I think that's, I would say that's been a real highlight for me. Being able to help an industry like that.

Yeah, fantastic. We'll leave it there. I'll make sure I'll pop a link through to lean.org. Is that the best place for people to keep on top of the Institute and the work that you guys do? And is there anywhere else you'd like people to check out? Obviously your book as well. I'll pop a link through to that as well. I think Managing on Purpose is, is a good read for anyone in any sized organization. So that's another great place to start.

Yeah. So again, the book, I think, can be really helpful for small and large organizations to, to build, like what you were just talking about, build systems and stability for the organization to thrive and grow. I would highly recommend people go to lean.org, is our, our website. We have been around for about 27 years now. And we're a nonprofit, so part of our mission is to generate knowledge around process improvement, around Lean thinking and practice. And you can go to that website and pick about any topic you want, process improvement, standardized work, whatever topic related to Lean you, you're interested in, and just search, and you find hundreds of articles about that, and it's all free, pretty much. So it's a great place to go learn.

Yeah, a great resource. Thank you so much again for your time, Mark. Pleasure. And looking forward to chatting again soon.

Yeah, thanks for having me on.

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