- May 25, 2020
Best Practices in understanding the challenge for Improvement Kata
This is part 1 of a 4 part series on Improvement Kata. Once again, if you haven’t had a chance to read Toyota Kata by Mike Rother, I would highly encourage you to do so as a complement to these series.
Here, we are going to talk about what is understanding the challenge? why it is so important? what are some best practices in doing so? and finally, we are going to share some good tips on how to get better at understanding the challenge of driving Continuous Improvement.
What does it mean to understand the challenge for Continuous Improvement?
Understanding the challenge is gaining crystal clarity on the long term desired state of operation for your business. In this case, we are looking at a timeline of about one year for setting that challenge.
What are some of the characteristics that you might see in a good challenge?
#1. Has a good degree of difficulty. The challenge is going to require growth, it’s going to require change, and obviously, if your challenge is exactly the same as your current condition, there is really no growth required, you are already delivering to that standard on a consistent basis without much change or growth required. But if you have a great challenge, if there is a significant difference between your desired future state of operations and your current state of operations, that creates a need that Continuous Improvement will fill. When you think about a challenge, don’t just think about the outputs or the results you want to produce, also think about what you need to become in order to consistently and sustainably produce those results. A great challenge also provides a definition of success. It defines what success means for your company. What do wildly successful looks like for your company? If you would have to say what does wildly successful looks like over the next year, over the next two or three years, what would that look like for you? Then dial that back to what do we need to become in order to become wildly successful as a company?
#2. The timeframe. A good timeframe will be between 6 months and 3 years, and this is really determined by the market you serve. You are going for setting up your challenge to be just beyond the horizon. What I mean by horizon is, depending on the market you are in, you probably have a good idea of what the near term future would look like for that market. How you can produce the most value for your customer? how your competitors are producing value? and where you fit in the market and how you can be most successful in creating value?
So if you are in a volatile market that changes very frequently, you might want to set your challenge to be only six months out, because creating a challenge is in a sense creating a forecast and we know as Continuous Improvement people that a forecast is inherently unreliable, so you want to set your challenge based on what you can reliably predict and then set your challenge to be just beyond the horizon. You have your knowledge threshold and then the horizon is more of a read on the market itself and which way the market is trending and moving.
#3 It is strategic in nature. You want to set a challenge that is going to give you a competitive advantage in the market. You want to win, you want your company to win, you want your people to win, you want new opportunities being created for everyone in the company. This can only happen if you are succeeding, and of course, the way to succeed in the market is to maximize or bring the greatest possible value. In fact, Toyota’s strategy and the execution of what we now call Lean Manufacturing came from a desire to grow the top line. They realized that they needed to dramatically improve the quality and reduce the cost of their cars, and by doing so, they could be a lot more competitive against some of the other car makers like Ford and some of the European brands. So, Lean, even though we now understand it to be very bottom-line focused and sometimes we apply it more towards the bottom-line has the fundamental strategy to grow the top line, at which Toyota was very successful.
Why is it important to understand the challenge?
#1 Provides a general direction for improvement. Understanding the challenge for your company aligns the organization behind a common goal, a common purpose. It gets everybody marching to the same drumbeat. This is a very important role of leadership as the energies, the efforts, and the attitudes of everyone in the company could be diverging and going in different directions prohibiting progress. The real role of leadership is to bring that energy and all of those resources into a common direction and that is the direction that is going to help your company to be most successful. It sets the priority for your company. Up and down the chain of command from the C suit all the way to the value creation stream, a lot of decisions are being made on a daily basis for your company. In fact, a lot more decisions are being made, the deeper you go into the organization. It’s important that those decisions are made based on a common set of priorities. Especially decisions regarding hiring, firing, promoting, and compensating people. Of course, you want to bring in people and give more say and more power to people who are naturally inclined and have built the skill set to take your company in the direction that it needs to go in order for the company to win.
#2 Defines success for your company. All changes are not improvements. Your challenge is what defines real improvement. In fact, investing time, energy, money, resources in changes that are not improvements is a form of waste in itself. It is a more effective use of those resources to apply them in the right direction, which is in the direction of your challenge.
#3 Aligns the company with the market and the customer. Markets are always in flux, it’s natural for your company to get out of alignment with the market, it’s really important to recalibrate in a periodic basis between what the market needs, what the demand is for the market, what the customer values, and what your company does. Review your company’s value proposition to make sure you have a strong product to market fit. Your challenge is going to be strongly influenced by the data, the trends, the facts, the things that are happening external to the four walls of your company. Not only that, but you also want to make sure you have a good grasp of the competitive landscape and understand where you fit in that skim. All that adds up in enabling you to achieve and sustain true market leadership. There are two ways to grow revenue as a company, and revenue is a great measure of success in business. You can increase your market share with a flat margin or you can increase your margin if you got a flat market share or some combination of both. Either way, the goal here is to maximize value creation for those customers and then orient your business in a way that ensures that you are delivering the maximum possible value.
What are some best practices for understanding the challenge?
I see understanding the challenge as a two-sided coin, and I often talk about this in terms of your strategy as a company. On one hand, you have your strategy development, this is understanding what you need to do to win in the market. On the other hand, you have strategy deployment, this is understanding how gaining alignment throughout your organization and then the execution of the strategic plan. There are tools on both sides that help you do both of those things effectively on the what side, on the strategy development side, you got Voice of the Customer (VOC), you’ve got swot analysis (strengths, weaknesses, opportunities, and threats) and of course, you got PESTLE analysis ( Politics, Economics, Social, Technology, Legal, and Environmental) On the strategy deployment side you’ve got Hosin Kanri, Journey mapping, and you’ve got the X matrix. There are more tools out there but those are a great place to start. A couple of key points to call out here: No strategy is a substitute for culture and adaptability. A strategy, and even understanding your challenge is in a sense a forecast. You are forecasting what you think for the next year or two, three years or even more would be like and you are positioning your company to be successful in that future state. The reality is that all forecasts are inherently inaccurate. To hedge against that liability you want to create adaptability within your company. So, adaptability and being able to embrace change and change course when new circumstances arrive, like the recent pandemic. The most adaptable companies always have a competitive advantage generally speaking, although understanding your challenges, thinking strategically, these things are also good practices to set you up for success in the future, and both of those need to work in conjunction.
The other key point here is that an effective strategy includes the input and output of the entire ecosystem. That is not just your internal company, that’s not just your employees and your peers and your bosses but it’s also the world outside of your company, its the customer, it’s the government, it’s the environment, the people in the community that you serve, it’s the entire ripple effect that happens when your company delivers on what it does. Your challenge is made up of inputs from all of those things and as you execute the deployment of your strategy, you’re cascading of aligning people behind the challenge and committing them to help you fix or address the challenge or meet the challenge. You want to make sure to capture all the inputs and outputs of all of those factors to enable your company to be as successful as possible.
Tips on how more effectively understand the challenge
#1. Focus on value creation. What you want to do and develop as a culture within your company is to put the customer first. Obviously, with no customer there is no business, there is no need to optimize processes and streamline the bottom line if there is no top line. So the key is to understand who the customer is, who you would like the customer to be, and then put that customer first. Understand how they perceive value and configure your company around being the best machine to consistently create that value for those customers.
#2 Encourage Creative Commitment. A great way to do this is to coach folks at all levels within the organization to not only understand the challenge, but also grasp the current condition, and then set their own target condition. It’s a lot easier to engage the hearts and the minds of the people that are going to do the actual work by letting them decide, letting them look at their facilities, and then determine how they are going to contribute to helping the company to meet their challenges.
#3. Execute, execute, execute. A plan without execution is just a dream. Yes, it is great to sit up in the ivory tower or even go in a fancy retreat and sit in the room and come up with an incredible strategy, incredible plan, understand the challenge, so on and so forth, the hard part is putting the rubber to the road and bringing that strategy to fruition. And that strategy and your challenge are not just hitting a certain number or producing a certain outcome or result, that challenge is becoming what you need to become to produce those results in a consistent and reliable basis. That is the challenge ahead.