Definitely, Maybe Agile

From Vision to Execution with Mark Reich

Peter Maddison and Dave Sharrock Season 3 Episode 180

Why do so many organizational strategies end up as posters on walls rather than driving real change? In this episode, Dave and Peter dive deep with Mark Reich, who spent 23 years at Toyota before joining the Lean Enterprise Institute, to examine how Toyota's legendary Hoshin Kanri system transforms strategic thinking into coordinated action.

This week´s takeaways:

  • Systems Over Silos: Toyota's integrated management system creates both vertical alignment (connecting corporate objectives to frontline work) and horizontal alignment (ensuring cross-functional collaboration).
  • Value-Creating Managers: Middle management layers should be redefined as value creators and people developers rather than eliminated or reduced.
  • Improvement at the Gemba: Real progress happens by focusing improvements at the "gemba" (where work actually happens) with leadership's primary role being to remove burdens from frontline workers.

Mark explains the fundamental difference between most companies' approach to strategy and Toyota's integrated management system. Unlike conventional top-down cascading goals, Hoshin Kanri creates alignment throughout the organization. The discussion explores practical aspects of strategy execution: separating strategic initiatives from daily management, structuring cross-departmental collaboration, and developing people at all levels. Whether you're struggling with siloed departments, disconnected leadership, or strategies that never fully materialize, this episode offers a blueprint for creating systems that align vision with execution while developing organizational capability.


Resources: 

  • The Machine That Changed the World - by James P. Womack- https://www.goodreads.com/book/show/93903.The_Machine_That_Changed_the_World_ 
  • Managing Our Purpose - by Mark Reich- https://www.lean.org/store/book/managing-on-purpose/ 
  • Our Least Important Asset - by Peter Capelli- https://www.goodreads.com/book/show/75492283-our-least-important-asset?from_search=true&from_srp=true&qid=IGIsI50s8q&rank=1

Peter (0:04): Welcome to Definitely Maybe Agile, the podcast where Peter Maddison and Dave Sharrock discuss the complexities of adopting new ways of working at scale. Hello everybody, and it's really nice to be here again. I've got my good friend Dave and my new friend Mark, who I'm looking forward to having a conversation with today. So Mark, would you like to go ahead and introduce yourself?

Mark (0:25): Hello, great to be here. Nice to meet you, Peter and Dave. Thank you very much for having me on your podcast today. My name is Mark Reich.

Mark (0:34): I am with the organization called the Lean Enterprise Institute. We're somewhat known, particularly in our community. We're a nonprofit institute that was set up in 1997 by a gentleman by the name of Jim Womack. Jim came out of MIT as a researcher and had studied the automotive industry and wrote a book in the late 80s called "The Machine that Changed the World," which was kind of a seminal book in that it revealed to the world to a great extent what the Toyota production system was and why it was successful. So he got a lot of notoriety at that time because of that book and decided that he would coin the term "lean" for the broader community because not everybody does Toyota's version of the production system and not everybody's doing a production system. So he established our institute in 1997.

Mark (1:30): Our purpose is really—we believe that anyone in any industry can benefit from lean thinking and practice, and we're an educational 501(c)(3) institute that supports universities and other organizations who are attempting to do lean thinking and practice. So that's who I work with now. I spent most of my career—23 years of it prior to 2011, from 1988 to 2011—working for Toyota, and I worked in both Japan and also in North America. Maybe most relevant to this conversation, I spent seven years of that time as the general manager executive responsible for North American strategy and our corporate strategy group in our North American headquarters. Based on that—and we use a methodology called Hoshin Kanri for that purpose—based on that, that's part of why I wrote this book "Managing to Learn."

Peter (2:28): Could you tell us a little bit more about Hoshin Kanri, if our audience isn't familiar?

Mark (2:34): Sure. So Hoshin Kanri—and actually I think what I'll do is I'm going to read the definition from the book because it probably describes best what it is. "Hoshin Kanri is a management system for strategy that defines mid-term and long-term direction—both the objectives and targets—and annually builds alignment vertically and horizontally to the direction, manages annual execution to the direction, and develops capability of people throughout the organization." So I realize that's a little bit of a mouthful, but it's what I experienced, at least in Toyota, as Hoshin Kanri to be. Now, I mentioned that I led that initiative while I was in Toyota.

Mark (3:15): When I came out of Toyota and I was working with the Lean Enterprise Institute—because people had heard a little bit about the fact that I had done that while I was in Toyota—they wanted me to come see their companies to see if I could offer advice, and I found the world very different from what I experienced in Toyota. So over the course of the last particularly seven, eight years, I've been helping a lot of organizations in many different industries. Big and small companies apply the Hoshin Kanri as a methodology to help them, and it's been pretty helpful. So I also then realized I couldn't go to every company in the world, into every industry. So I decided I would write a book to maybe share a little bit broader the thinking that I thought would be helpful for organizations.

Dave (4:04): Can I ask, Mark, following up on that—you say you saw things that were very different. And as you're describing that, and what I've been trying to get my head around, if you like, around Hoshin Kanri, is the difference between a kind of classic strategic direction that we often see in organizations, where there's a vision or there's some sort of direction, goals over the next year or two years, which are cascading down and varying levels of how much of it is mandated and how much of it is in some sort of recursive discussion piece. But that seems to be the primary way that we see a lot of strategies being defined and then rolled out across an organization. Are you seeing similar things, different things? What was the kind of biggest aha or surprises that you saw as you went outside of the Toyota ecosystem?

Mark (4:58): Well, great question. Thank you, Dave. As I started—I mentioned I was called upon. Companies asked me to come see, and primarily what I would see is organizations that had established some direction, often a vision for the organization, like you just mentioned. So that was one component, but usually that dwelled in some kind of PowerPoint deck or maybe at best it was a poster on a wall that as team members walked by they were supposed to kind of look at. "This is what our vision is for the organization."

Mark (5:31): But there was maybe one big difference between Toyota and what I saw outside was that we established a vision too. I helped the organization do that when I was in the corporate strategy group. But we also put in place a methodology in a pretty structured way to help us execute on that vision. So I often saw organizations with a lot of lofty goals and objectives, sometimes fairly concrete, but no method to how to take that from... Actually I most frequently see three to five, even to 10 years out what organizations want to become. But how do you take that down to kind of achievement on an annual or even a monthly basis? That was not clear. So that execution and long-term strategy component was unclear.

Mark (6:57): But I would say also that the method, part of that methodology being how do we engage the organization, and like you kind of alluded to there, Dave, there was... This was also something that was usually developed by a fairly select small group of people and sometimes with a consultant to help them create their strategy, to define their business objectives, but there was very little engagement with people in the organization up and down. So that's another big difference I saw.

And maybe the third large difference was... well, yeah, I'm going to say a fourth one, but the third large difference was the focus on capability at all. In Toyota, this Hoshin Kanri or strategy was a way to develop particularly executives in the organization. And I talk about it in my book because it's an opportunity for leaders to kind of lead beyond their silo of responsibility. And this is another issue in organizations you see—they kind of function in silos because you can give a leader a responsibility for an objective that usually at the corporate level is going to span more than their function. So how can they build collaboration in the organization to ensure that it's successful?

Mark (7:43): We use Hoshin Kanri as an excellent way to develop capability of people. And I said I mentioned I'd say a fourth. The fourth is maybe the most fundamental thing, which I most commonly see—and I was just talking to a company this week about, actually this past week, excuse me—pretty big company, and pretty much their plans are some kind of budget. I mean, it's just a financial target, and so it's not really a strategic plan, but that's still pretty common.

Dave (8:14): There's lots of different elements that we can kind of pick into and look at, but I just wanted to draw attention to the point you made about developing leadership, because I think that's something that certainly in our experience—Peter perhaps will agree with this—what we see is a lot of really well-intentioned attempts to kind of get a vision cascading down through an organization, get engagement and some sort of continuous review of where that's going. But there's very rarely a conversation about that leadership responsibility to deliver that. And I think in the book you talk about the difference between leading by authority and leading by responsibility, and I just wanted to ask you to maybe expand on that one, because I think that's something that our listeners will not have come across. It's not a natural part of the conversation around strategy.

Mark (9:02): Sure, that's to me a really fundamental component of Hoshin Kanri and I would say of leadership, lean leadership in general, is that when you define long-term goals, objectives for an organization, let's just say at the corporate level—I mean those are corporate level initiatives—they're normally not going to fall within the scope of one leader's authority, other than, of course, the CEO who's got to report out to the board, so he or she has obviously some responsibility there for the whole organization. The rest of the corporate priorities are going to span multiple... have to span multiple functions to achieve those objectives for them to be successful.

So I would say that how you navigate that is... organizations struggle with significantly. I mean they tend, because in many cases the metrics are at the highest level, starting with financial ones, but it could be other metrics too, are defined often based on a functional basis and they just—to use the word you just said—get cascaded into the organization and then that leader is expected to achieve whatever objective is put in place.

Mark (10:30): But if you think about the objectives as these strategic priorities for the organization, that aren't just... they're not just a metric, they're something the organization wants to become. In my book I speak—my book, the case study I take people through, is it's a story of a lawnmower company. They're having... they're struggling a lot. It's not a real company, by the way, and I mean it's an amalgamation of experience that I've had. But they're struggling getting into the electric mower market, and so in order to do that, that requires a whole company effort. But what's key is you need a leader for that and the CEO can't manage everything.

So in the book the responsibility falls upon the leader of product development. In the book she needs to develop the electric mower and the motor to be able to operate it. But that's not the only thing that has to be done. Of course you've got to have the production ready to produce the mower. Marketing and sales has to consider how they're going to sell this product. But in the book we give authority to that product development leader for all of that. So it becomes a test of their leadership, I think, to see how well can they pull in production to ensure that they're ready and that there's good synergy between product development and production to launch the production of the lawnmower.

Mark (11:47): And how well is marketing and sales getting prepared and ready to get the lawnmower available? Get it ready and known to the public before it comes out. That's the example in the book, or an example that I can give you of leading... You have to lead by responsibility, not authority. Now you could say, "Well, we could just go to the CEO. If people aren't listening, go up to the CEO and tell them." But that's not what we want organizations to do. That's not efficient. Then you rely on one person to have to control everything. What you need is people in the organization that can kind of generate leadership and people will follow. I mean, there's a lot in sports. Actually it's pretty common that the captain of the baseball team or the captain of the hockey team... People follow that person because they know that they have special skills and capabilities to lead.

Dave (12:40): There's something really interesting there, because there's an implicit expectation of the leadership to acknowledge the kind of leadership coming from their peers effectively, or requests and dependencies coming in from their peers as well, which doesn't necessarily align if I'm siloed up and I have my department's focus on whatever it might be—product development and so on. There's a cultural element there which is definitely essential to that as well, I think.

Mark (13:08): Well, you raise a really good point, Dave, and I appreciate bringing that up, because this whole idea of lead by responsibility, not authority, is not only an individual issue. This is a management system issue. The management system has to support that too, meaning that we can't solely depend on an individual leader. Otherwise it's individually dependent. To be able to exercise that kind of capability, the organization has to have a management system in place to ensure that they get aligned.

So, for example, the example I just gave a moment ago where the leader of product development has to get the electric motor launched and they need support from production. Well, if the organization has a mechanism to define what support is really needed and when it's needed, and get consensus and alignment with that peer in the production—like the production VP and the people that support production—and define a concrete plan to support one another, that's required too. This isn't just about... you identify a great leader and magic will happen. It's a combination of the two.

Peter (14:27): Yeah, that interdependence between the various leaders to that goal, where every leader's got their own set of incentives and, as you say, they're usually cross-incentives, where they're "Hey, with your department, you've got to achieve these numbers" versus the "As an aligned group, how do we get all those pieces and all the ducks in a row?" Essentially, are we getting everybody lined up to agree that this is the top priority. We understand when it is. When are you going to need my people to deliver on this? And that we've got the concepts around that. What sort of tools does it bring to the table to help with that?

Mark (15:04): Thank you. Great follow-up question, because my book is a workbook. I wrote this because a lot of organizations said, "Well, we don't have a good instruction on how to do all this stuff. It's kind of fuzzy." So I wrote a book that's based on a case study but it includes a fair amount of practical application and some templates and tools that can be used, also based on fundamental thinking, when you're asking those kind of questions.

Mark (15:30): In the book it goes into a fair amount of detailed explanation around the basic thinking and practices of what we call horizontal alignment and vertical alignment. And Peter, what you kind of referred to and what we've been talking about a little bit is this horizontal alignment component. So in the book, for example, I introduced what's called a horizontal alignment matrix, but it's fundamentally a worksheet for the organization for each objective and each activity that organization is planning. And, with the leaders, define what support they need from other groups and then create a mechanism to meet, define what that support will be and do they get consensus or not, and if there's not consensus, maybe homework needs to be done and they need to come back.

I mean, this is the way it operated in Toyota and it's operated... I keep mentioning Toyota, but I've applied this in other organizations too and it's successful. People actually, when you get them working together, they kind of get along. It's often the management system. In Toyota, we never blame the person. I would say in 99% of the cases it's the management system that's not effective. It's not bringing people together to kind of build alignment.

Mark (16:57): I also want to take the opportunity—I don't know if we want to ask another question, but I want to also talk about vertical alignment and the development involved with that.

Dave (16:57): I was going to say you should take off, otherwise there's more questions coming.

Mark (17:01): Well, we focused a little bit on leader development, but it's not just about that in Hoshin Kanri. Hoshin Kanri is both bottom-up and top-down because the organization at a high level defines what the corporate priorities will be. But you also—at least particularly if you're in a small organization, you don't need to do this—but in any medium to larger size enterprise you're going to need to break down that corporate level of Hoshin to the next level. So, for example, in Toyota, or in the book with the lawnmower's case, we developed a plant Hoshin. This is what the objectives of the plant level will be at the plant level.

Mark (17:49): Now some of those are going to come from corporate, like the example I gave that we're going to launch an electric mower. So the plant where that mower is going to be launched is obviously going to be part of their Hoshin. But there are things on the plant Hoshin that might be unique to that plant but allows that mechanism of the bottom-up problem solving to occur both top, middle and at the front line in the organization. So people develop not only through the leadership capability development we were talking about, through defining clearly your responsibilities to achieve those higher level objectives and then solving those concrete problems around those issues, around each issue.

So the example of the lawnmower I talked about—at a high level we're saying we need to enter the electric mower market. That's a corporate objective. Well, we have developed a prototype but we can't get it launched. Well, there's specific problems that exist that prevent us from launching that mower in the prototype stage, related to cost and other issues. So defining those things and solving those problems, that has to happen lower in the organization. You're not going to solve that with a team of eight executives at the top.

Dave (18:59): If I can kind of build on top of what you're talking about there, Mark, because you also talk a little bit about that middle management layer. You talk about the leadership, the middle management and the frontline, and you talk about how important it is for that middle management layer to their role in both problem solving and developing the people around them. And certainly I think our experience in the technology space right now, there's a lot of talk of sort of thinning out that middle management layer. So that feels like there's sort of two tensions coming together there where, on the one hand, you've got this almost this fertile space where you're looking for your middle managers to solve problems, to grow people around them, but there's a tension on the other hand where organizations are beginning to look at that middle management layer as either too broad or as something that needs changing and needs reducing. What are you seeing, what observations do you have around that sort of trend that certainly Peter and I are seeing?

Mark (19:59): Yeah, I hear you and I can understand why some organizations may feel that way around the middle management, the issue of should we thin them out. I think that's the wrong direction. I think the fundamental thinking is wrong. The fundamental thinking should be everybody needs to create value in the organization. And so if you're—and this was true in Toyota, I think it's true with good organizations—if your job as a middle manager is handing off to your subordinates what your boss tells you what to do, then you're not value-added.

Mark (20:35): Let's just flip that on its head a little bit and use that example I just talked about. If your boss has determined that we're going to develop electric mower this year and you're the engineering manager and you're responsible for developing the electric mower and, let's say, the motor itself and that's the struggle, well then your job is figuring out with your team to define how you're going to solve that problem and that's your concrete responsibility. So I think the approach should be less about... because sometimes this conversation around "We should thin out the middle layer, it's too..." all of this is too existential to me. Like what is the work? That's what we need to start with and you need to... So what is the work is one thing, and then you need people to develop people.

Mark (21:23): If you thin out the organization too much in the middle, you don't have any people to develop the younger people that are coming in the organization. And so I would say, create a mechanism, a management system that ensures that everyone's work at every level is valued, and then utilize that system to create roles and responsibilities that people can create value from. And I don't want to dismiss the idea that people who listen to this podcast think "Well, Mark supports fat organizations." Toyota's not a fat organization, we're a lean organization, and I think good organizations are. But that's because they look at the problem from the point of view of how you create value, as opposed to how you merely eliminate heads.

Peter (22:08): And I think you're saying it quite well—they're looking at the problem to be solved and they see this as a solution to that problem, whereas I think some people are looking broadly and quite often at the numbers and just saying, "Well, I don't need these people," without looking really at what is the problem these people are solving for me? Why is it valuable to have them here? How can I, if they're not valuable, work out how to grow them, how to help them improve?

Mark (22:36): I read a great book last year called "Our Least Important Asset." It's written by a gentleman named Peter Cappelli. He's a professor of work and economics. His hypothesis is basically because organizations have become hyper-focused on finances and shareholder value, without considering employee value and customer value, we tend to make wrong decisions about it and we're not necessarily defining good measures to determine what is the real value of people. Capability—that's not measured. It's only measured as a cost.

Peter (23:16): That's a common problem we see. So outside of... and we've talked a lot about sort of the alignment both vertically and horizontally within the organization. What other elements are you bringing to the table to help the organization get that strategy to execution alignment, or strategy to action alignment as you describe it?

Mark (23:35): Just take a step back, Peter, from the... We kind of delved a lot into the breakdown and how people are involved, but take a step back. One of the fundamental kind of illustrations or structures that's explained in the book is that Hoshin is a process that functions on an annual basis to ensure we're executing on strategy. But it's a process. So, like any process, there are inputs to that process and there are expected outputs to that process. And part of what I delve into in the book is what are those necessary inputs? Things like are we aligned to a longer term vision you had mentioned? What do we know about our market and our customers? What's our current situation there?

Mark (24:22): I mean, these are things that many companies in fact do study to a great extent. What are our employees saying? Have we done any benchmarking to understand where we stand in the industry? All those can be good inputs and plus, how have we been doing—our reflection—and those inputs we can incorporate into our plan and then that should produce some outputs, such as improved processes or improved products, improved capability of people, that result in better business results. The difficulty often is we start from the right side. We just like "Let's get better business results" without thinking about the process that'll produce that. So that's one thing that's introduced and I think that's important.

Mark (25:10): The other thing that's important—kind of structure in the book, it kind of forms the whole structure of the book—is Plan-Do-Check-Act. Now, most people might be familiar with that if you're in the lean world, Plan-Do-Check-Act. That's really kind of the origin of Hoshin Kanri, which started in Japan out of the teachings of Deming in the late 50s and early 60s. Toyota is one of those companies that really started it, but it starts with really like how did we do? Almost like... It starts back with the check function and then, based on how we did, what's our plan? And then how do we execute on that? How do we go about confirming that we've done okay?

And then another important part of the book is the relationship of... When we get to the end of the year, some of those things we said were objectives. If we've achieved them, how do we define we've achieved them and how do we move them to daily management? And that's another important component of the book is the differentiation of daily management and strategy.

Peter (26:09): I know that's something I've seen organizations struggle with. The BAU work gets mixed up with the strategy work and they can't differentiate between these two. So they end up setting up a strategy which is really just them tracking a sort of business as usual metric throughout the year. It's not really a strategy. It's not changing how they're operating or solving a problem.

Mark (26:36): That's right and I think we need to look... I mean it was easy in a manufacturing environment in Toyota, but I think having worked in many industries—construction, health care—I mean there are daily metrics that we need to be tracking, and those need to be tracked quite rigorously. Quality, safety, cost, those type of things and we should be improving. That's the foundation of continuous improvement in the organization. To me, that's different from our strategic direction as an organization, because we're looking more for innovative leaps in that scenario.

Dave (27:15): Can I just want to follow up a little bit in that sort of continuous learning environment? So coming from an agile context, we talk about very similar things, right? Plan-Do-Check-Act, and we're going to use different terminology in the Agile community, but the principles are very similar. And we come across a lot of organizations that believe they're doing continuous improvement. They believe they have either Plan-Do-Check-Act, some retrospective, some sort of iterative learning process or habit in their organization. And yet when you actually go dig into those organizations, you find that there's very little... it's difficult to do. And I just wonder, from when you go into an organization that is very proud of their Plan-Do-Check-Act habit, their Plan-Do-Check-Act systems, what do you look for to tell you whether or not it's really working and they're seeing continuous improvement? Or what are the signs of sort of an in-name-only Plan-Do-Check-Act application?

Mark (28:20): Well, in my world you go to the gemba. The gemba—just not to throw another Japanese word out there—but the gemba is where frontline work is occurring. I work in a software industry too. Actually I was just on a call this morning. So the frontline work in the software industry is where the coding happens. But it's not just where the coding happens, it's also where you define specifications of the customer and ensure you have... ensure that development occurs and when bugs happen, how do you repair them and do you repair them quickly. That's frontline work in the software industry. In construction it's building the building and healthcare is taking care of the patient. We need to go to that spot, those areas in the organization and talk to the people and see and hear what improvements are happening.

Mark (29:16): One of the things I've been spending a fair amount of time in healthcare and I think one of the things I see that is a struggle sometimes is there's a tendency to create artifacts, which is boards, that... and a sprint can do this, but create a board, that kind of monitors and people get around the board and kind of confirm how they're doing. But a lot of times those systems, those daily systems, struggle to sustain because they haven't really engaged the frontline people and it's solving their problems in their work.

And so, like I mentioned healthcare just now, the people you want to focus on are the nurses, primary doctors... I mean those are particularly nurses, I would say. I mean they are day to day dealing with usually the operationally after effects of whatever procedures happen to the patient while they're in the hospital.

Mark (30:15): And there's just... it's a lot of detailed frontline work and they're busy and they struggle. And this... I mean it's a... let's face it, it's a profession that's in dire need of help for many reasons. It's a profession that's in dire need of help for many reasons because of the situation since the pandemic. It's really been a challenge in that industry for those people, and how we focus on helping their work get better, that has to be the primary focus of leadership. How do you take away burden from those people so that their work becomes easier.

Peter (30:48): I see that a lot in organizations where we've got this great plan where we're going to improve... even in software, where we're going to improve everything for software developers, but the decisions to improve are being made independently of the people actually doing the work. We could very well tell you that that's not the problem that needs solving.

Mark (30:48): That's right.

Peter (30:48): Well, we're almost at time here and it's been fantastic having you on, Mark. So at this point in our conversations we typically come up with sort of one to three points that we can all say we want to take away from the conversation with us. So I'm going to start with you, Dave, and say what point would you like to take away from this conversation?

Dave (31:30): There's a lot to jump around from and we've really covered quite a few things, but just as I was reflecting on the answer to that last question, you touched on something which is, I think, something we forget a lot when you said—and I'm going to try and paraphrase what you said Mark—which was leadership's responsibility is going to the gemba and really taking away burden from those on the front line, and I think that sentence is something that sometimes people forget and that would be a key takeaway that I'm walking out of this conversation.

Peter (32:05): I totally agree with that. And Mark, what would you like to take away?

Mark (32:07): Well, I appreciate very much talking to both of you, the focus we've had on people. Admittedly, there are a lot of technical things—management system—that you can do in an organization, but the center of it all is human potential and people development. I mean, if we can tap into the creativity and capability of people up and down the organization, it's limitless. And I know that from having worked in Toyota, I know I personally am a different person than I was 30 years ago before I worked in Toyota, and that's because Toyota puts such an emphasis on developing people. I do see that in other organizations and I appreciate that we've had the chance to talk a lot about that today.

Peter (33:03): Awesome. I think for myself... I think those are wonderful points too. I think one of the pieces that I would take away is earlier in our conversation, where we were talking about the breaking down the silos and the responsibility and getting alignment across the leadership team and the criticality of that—that so many times organizations just don't bring into perspective. They don't give leadership skills, they just say, "Hey, you've got to do everything in your silo. I might make you in charge of this, but culturally we're still operating very much independently of each other," which really dooms you to failure before you've even started, because you're not going to be able to cross those boundaries very easily.

So with that I mean thank you both for a wonderful, enlightening conversation. I really enjoyed it. I learned a lot today and I would like to leave everybody... once they leave comments, they can at feedback@definitelymaybeagile.com and look forward to next time. Thank you.

Dave (34:02): Till next time. Thanks again.

Peter (34:04): You've been listening to Definitely Maybe Agile, the podcast where your hosts Peter Maddison and David Sharrock focus on the art and science of digital, agile, and DevOps at scale.


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