Lean Transformation: Revolutionizing the Housing Industry with Mike Kaeding


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My guest for Episode #486 of the Lean Blog Interviews Podcast is Mike Kaeding, the CEO of Norhart.

They design, build, and rent apartments. They are transforming the way this is done by incorporating technologies and techniques that have revolutionized other industries. This has resulted in improved quality and reduced cost of housing. Ultimately, they are committed to solving America's housing shortage and affordability crisis. And in doing so they hope to improve the way we all live. 

He was previously (May 2023) a guest with me on the My Favorite Mistake podcast.

In today's episode, learn how Kaeding's company, Norhart, applies Lean practices to uplift the housing sector. Their compelling ambition to bridge the labor productivity gap between manufacturing and construction industries lies at the heart of their Lean journey.

From their unique recruitment strategies to their effective lean techniques, Norhart aspires to reshape the housing industry. Kaeding outlines their intrusion on tradition by focusing on continuous improvement rather than mere experience. Discover how their Lean approach emphasizes flow in both construction processes and material delivery, spotlighting Norhart's determination to overhaul established construction norms.

Questions, Notes, and Highlights:

  • High-reaching mission — similar to Toyota
  • “The way we've always done it”?? How do you encourage everybody to get past that?
  • Hiring people who are willing to be different? How to do that?
  • How do you then maximize their potential?
  • The appeal of culture in hiring and recruiting?
  • Netflix “keeper test”?
  • “We want that person to be happier with us after firing…”
  • How to balance the right timing of hiring with growth?
  • Balancing jobs — cycle times and flows across trades? Material flow and synchronizing that
  • Toyota helping you on JIT — how to find this balance with long lead time or bad availability??
  • Mike on the My Favorite Mistake podcast
  • What's your Lean origin story? For you and Norhart?
  • “Not knowing what I'm doing…” was a benefit
  • Working with TSSC?
  • How did they help you frame or choose that initial problem to solve?
  • “Problems are not a bad thing”
  • Your role as CEO? Creating that psychological safety?
  • Wanting to be the best at what you do? You as a CEO? What does that mean to you?

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Episode Summary

Lean Transformation in the Housing Industry: An Interview with Mike Kaeding

Meet Mike Kaeding, the dynamic CEO of Norhart, a visionary company altering the state of housing by designing, constructing, and leasing apartments. At the heart of their transformation lies a passion to alleviate America's housing affordability crisis and enhance the way of life for all citizens. Their secret weapon – the Lean methodology.

Bridging the Labor Productivity Gap

For decades, the construction industry has somewhat stagnated in terms of labor productivity, with improvement over the past 60 years recorded at a mere 10%. On the other hand, manufacturing has achieved remarkable productivity growth of 760% over the same period. Not one to shy away from a challenge, Norhart aims to bridge this gap and breathe efficiency into the industry.

Incorporating techniques and technologies that have been revolutionizing diverse sectors, Norhart's focus has been on enhancing quality and reducing housing costs. Their strategy, in essence, is to learn the lessons gleaned from other industries and adapt them to the uniquely challenging world of construction.

Challenging Tradition: Selecting the Team

One critical aspect of Norhart's shift has been their approach to hiring. The construction industry, like any other, is to a large extent guided by traditions. Instead of fighting these norms, Norhart intentionally seeks out individuals who are unafraid of forging a different path.

This approach has led to an emphasis on hiring less experienced individuals who possess a pioneering spirit, a mindset of continuous improvement, and a willingness to experiment with new methods. The goal is simple – to change the face of the industry, Norhart believes they need only the very best people.

Enhancing Productivity through Lean Practices

One of the key techniques, and indeed a cornerstone of Lean methodology, that Norhart has incorporated in their operations is a drive towards continuous flow in the construction process. Breaking down the fabrication of a building into an estimated 120 tasks, the team transitions from one assignment to the next every five hours.

This embrace of flow has also extended to material delivery, through the establishment of a kitting system. This method allows for the efficient and timely delivery of construction materials to the right people at the right time, removing wastage and enhancing productivity.

Selection and Retention: The Keeper Test

Norhart has also found value in applying Netflix's “keeper test”, a preferred method for evaluating employee fit during the hiring process and beyond. The test involves determining how hard the company would fight to keep an employee if they were to leave.

In this way, Norhart continuously evaluates their team members, ensuring the company retains a team of A-players. This practice, they believe, accelerates growth and decreases the risk of stagnation within the company. However, they also understand the importance of treating employees who do not fit their mold with respect and aiding them on their transition.

Looking Ahead: Towards a Leaner Future

With Lean principles already showing promising results, Norhart intends to further infuse their processes with Lean thinking. One area for expansion in this direction is their supply chain, with the company now manufacturing some of their own components.

In the spirit of continuous improvement and efficiency, Norhart is committed to battling America's housing affordability crisis by paving the way for Lean methodologies in construction. Through this, they hope to provide a blueprint for other companies in the sector and hope to further narrow the labor productivity gap between manufacturing and construction industries.

In conclusion, Norhart's example demonstrates the impact the Lean methodology can have when its principles are thoughtfully adapted and tailored to any industry's unique challenges.

Culture Change: Vital to Lean Implementation

A key insight that Norhart has gained while integrating Lean methodology is that adopting Lean isn't merely about embracing a set of tools or techniques but fundamentally changing their organization's culture. This implies a shift in the mindset of supervisors, employees and, most importantly, the leadership.

Accountability and Learning from Failure

Kaeding explains how they have directly addressed concerns about consequences for making mistakes in an environment too focused on hiring the best. They encourage risk-taking and challenging the status quo. As part of the cultural change, they bolster the understanding that failure is an essential part of innovation and learning, not a reason for punishment.

Failure presents an opportunity for growth. It's important to note that employees are not let go for making mistakes, but rather if they resist change and fail to embody their core values. This promotes a culture of continuous learning, reinforcing their belief that making mistakes is better than stagnating.

Building up Problem Solving Culture

Another cornerstone of Norhart's lean transformation is their focus on addressing problems. Kaeding emphasizes that having problems isn't a sign of failure but rather an opportunity for growth. What matters is having enough problem solvers to tackle these issues head-on. Lean isn't just about utilizing tools; it's also about changing how individuals approach and solve problems.

Lean Communication: Video Creation

As part of Norhart's Lean implementation approach, the organization encourages all its teams to make Lean videos every week sharing improvements they've made within their sphere of influence. This lean communication tool not only triggers a culture of continuous improvement, but it also enhances team spirit and fosters a fun learning environment.

Transparency: Key to Honest Improvement and Viable Culture

Another value that Norhart emphasizes is transparency. They openly share their employee survey results, which include both positive and negative feedback. This practice fosters a climate of open, honest, and vulnerable communication. It also shows potential employees and clients that the company is genuinely striving for improvement rather than projecting a perfect, but false, image. Being “honestly bad” but working towards improvement is preferred over appearing “fake good.”

Kaeding holds a regular feedback session every six months where employees hear about the survey results, what steps he's taking to address their concerns and how they're continually working to improve the company's culture. By responding to feedback promptly, Norhart also ensures that employees see that their honesty is valued and leads to real action.

Role of the CEO in Culture Change

Transforming the traditional culture of a company cannot be achieved overnight. It requires constant input and mindful actions from the top. Aware of this responsibility, Kaeding positions himself as an open-minded leader who encourages disagreement, constructive criticism, and proactive problem-solving.

For him, being a good CEO doesn't mean amassing wealth or earning accolades. Instead, it means making a positive, meaningful impact on others' lives. To do so, becoming the best in their industry is a necessity. Each moment is perceived as a building block to continuously strive for excellence and deliver the utmost value to their customers.

Automated Transcript (Not Guaranteed to be Defect Free)

Mark Graban: Hi, everybody. Welcome to Lean blog interviews. My guest today is Mike Kaeding. He is the CEO of Norhart. They're a company that designs, builds, and rents apartments.

Mark Graban: They're transforming the way this is done by incorporating technologies and techniques, including Lean. That's why we're here today. They're techniques that we, me and the listeners, we all realize have revolutionized other, other industries. So they have seen improved quality and reduced cost of housing. And they're committed additionally when it comes to mission and purpose to solving America's housing shortage and affordability crisis.

Mark Graban: And in doing so, they hope to improve the way we all live. So, Mike, thank you for being here. Welcome to the podcast. How are you?

Mike Kaeding: Yeah, thanks for having me.

Mark Graban: The mission that you and this as a positive, it's a high reaching, ambitious mission that reminds me of the way Toyota talks about benefit to society and mobility. Is that coincidental thinking that sort of came to be from your side?

Mike Kaeding: Yeah. So the vision to solve America's housing affordability crisis, that's something that evolved for us over time. And certainly we work with Toyota and we're inspired by them, but they didn't actually lead to that inspiration.

Mark Graban: So I'm sure that was maybe part of the connection. Then we'll get into this more deeply of why Toyota and TSSC would choose to partner up with you in.

Mike Kaeding: This passion to solve America's housing affordability crisis. It's crazy. You look at the world out there and so many different industries, and we're just talking healthcare before this, and there's the world of manufacturing. And everyone on this call, you guys are like, my people, the listeners here, the Lean people. You guys have revolutionized so many different spaces and made so many significant improvements in society.

Mike Kaeding: When we look at the world of construction, it's been mostly flatlined. Over the past 60 years, manufacturing has improved labor productivity by 760%, but construction has done only 10%. It's terrible. And so for the most part, we're learning the lessons that your viewers have learned and applying it to the world of construction. It's remarkable to see those kinds of results.

Mark Graban: It seems like what you're describing is something that happens a lot in healthcare. People get really caught up on the way we've always done it. You don't understand. This is the way we've always done it. How do you and your position as a CEO of a company help challenge or encourage everybody to challenge the way we've always done it?

Mike Kaeding: Yeah, our industry is very much rooted in that. My dad did it this way, my granddad did it this way, my great granddaddy this way, and by golly, I'm doing it this way as well. There's like a rough and tumble, hardened, kind of stereotypical person in the world of construction, and that's a hard shell to break. And so what we did is we didn't work to break it. Instead, we looked to hire people that are willing to be different than the norm.

Mike Kaeding: So a lot of our energy, at least initially, goes into finding the very best people. And unfortunately, the world of construction, that sometimes means in certain positions that it's less experienced people, but are willing to invent and experiment and try new stuff. They have the right personality, the mentality for that continuous improvement. So foundationally, it's getting the people right first, and then you can inspire them to make the change. But I think it's really hard to try to take the wrong people and get them to change, because even if they nod and say, yeah, I'll do it, they're not giving you your heart and your passion, your soul, which is really what's required to make it work.

Mike Kaeding: Yeah.

Mark Graban: I mean, it's interesting to think about other companies where it said, know, they don't want to hire people with previous industry experience. I think this might have been true at Know. It's this question of, like, Toyota when they started in Kentucky. Do they want to hire people who had previously worked at other automakers and had moved from other states, or are they locating in a place where they can hire for I don't know what you would call it attitude? Aptitude, willingness to learn and then invest in those people?

Mark Graban: So let me turn it back to you, though, Mike, with you, and, like, tell us a little bit more about how you find and identify and select, and then how do you make sure you're maximizing the potential of those people that you've brought in.

Mike Kaeding: Yeah, to take it one quick step back. My own history is that my dad passed away relatively young, and my parents started this business, and so I took over at a fairly young age. And I think looking back, that was sort of some of the there was a blessing in that, because I didn't know what I was doing right. I didn't know the way things were supposed to be done, which enabled us to start asking questions and changing things. I had no idea how hard those changes would be.

Mike Kaeding: And maybe now with my experience, I would say I don't want to take that path. But as far as finding the best people, one of the first things we did once we understood how critical that was, is we ended up hiring on 14 recruiters. At the time, we were only 100 person company. We hired 14 recruiters, let that sink in. That was a tremendous investment for where we're at, at that size.

Mike Kaeding: But it really became clear that in order to change this industry, we needed literally the best people. And when we say best, we really mean, like, flying people in from other states to come work during the week. We have one give you some caliber example the caliber. We have one employee who Steve Jobs announces the iPhone in 2007. Steve Jobs walks off stage, and this employee follows that presentation on that same stage following steve Jobs.

Mike Kaeding: It's that kind of caliber and energy of person that we look to find. So I think getting the right recruiting infrastructure in place, the next thing is recognizing that the best people don't apply for jobs, they already have a job. And so our team then actually goes and identifies all the different companies that are competitors and who's working where, identify the best people, build relationships with those people over time and then try to attract them in. And then there's a lot about building the right culture. I think culture is fundamentally about hiring the right people.

Mike Kaeding: But beyond that, it's things like identifying and listing what your values, your purpose, your mission are. As a CEO, every Monday morning I am there doing orientation with the new hires. I do follow up orientation, I do engagement meetings. I am very much involved in that world, so I can shape that culture. Another interesting thing to mention here is the best people aren't necessarily the most experienced.

Mike Kaeding: Depends on the position, some positions, you need that. But what we look at is for any particular employee, are they on the journey to become best in the world at their niche? Right? So that doesn't mean to be there today. But they've got to have an amazing introductory.

Mike Kaeding: They have to have incredible abilities and passion and drive and energy to fight to the level of becoming best in the world at what they do. That gives you a flair for how we think about hiring.

Mark Graban: And I imagine there's a lot of screening. Are there assessments or things that people fill out? Or is it through interviewing to find that fit those mindsets, if you will? It's not going to be listed on someone's resume, right?

Mike Kaeding: Yeah. And we're literally working to find the unicorns, and they're very few and far between. For 10,000 applications, we may only hire 100 people or less. So the recruiters do the first round screening. And so they're really looking at values, culture, fit.

Mike Kaeding: There's some basic skills question that they do an evaluation, then depending on the position, the managers may get involved at the next stage. But I think the one unique thing that we bring in that's a bit different is for many of the positions, not all, but many will hire somebody on on a trial basis. You've already passed the basic screening, bring you on at a trial basis, and then you work with the team for at least two weeks and the team evaluates you and how they actually like working with you. And it's actually your coworkers that sit down at the end of the two weeks. They go through all the values, they go through your skills, go through your passion, say, do you line up?

Mike Kaeding: What's amazing is when you built a team of A players, they don't want to deal with anyone less than an A player. And so they are very quick to say no, don't want them on the team, don't want them on the team, and our hiring rate out of those trial periods is fairly low. But that's how we really ensure that the people we get are incredible. And then beyond just the hiring, we're very thoughtful on how we do the evaluation of who stays in the company long term. We don't always get the hiring right, and we got to be quick about letting people go that are not the right fit.

Mark Graban: It seems like there's opportunity for different feedback loops. There PDCA or PDSA? Cycles of thinking. Okay, if that initial filter is letting people through who the team is rejecting for some reason, is there a loop back then to change some of the filtering along the way? Or before we started recording, mike and I were talking.

Mark Graban: A couple of emails that I tried sending to Mike got blocked. Right. So there's not an awkward analogy, but there's the false positive of letting an email through when it's spam, or letting an employee through when the team's going to say, no, not a fit. And then there's the false reject. Yeah, you don't always know.

Mark Graban: I was able to tell you all my emails got rejected. But back to that point of it would be harder to know if the filter is blocking employees who would really be a good fit.

Mike Kaeding: It sure could be. The way I look at it, though, the amount of cost involved in hiring the wrong person is tremendous. Not just in dollars, but in just wasted time and driving up new initiatives. And so I'd rather, as hard as it is to say, I'd rather make a mistake in not hiring the right person than to make a mistake in hiring the wrong person.

Mark Graban: Sure. Even with the ability to correct for a quote unquote bad fit hire after some period after the initial two weeks, is that kind of an ongoing assessment that takes place if a supervisor or a manager or somebody detects or does a team sort of at some point, if you will pull the figurative and encore to say, hey, there's an issue.

Mike Kaeding: It varies depending where the source of like, there's an issue. Here it comes from. The team sometimes brings that up. Sometimes it's the managers. The bar that we use, we actually stole from Netflix, but I love it.

Mike Kaeding: It's called the keeper test, which is that if a particular employee were to leave, how hard would you fight to keep them? If the answer is, I would fight tooth and nail to keep them awesome, they're the right person. If it's anything less than that, it's not good enough. And so for many companies, they know to get rid of the bad people. They know they want the best people.

Mike Kaeding: Many companies are okay with the average. We're just not there's nothing wrong with the average. There's many great places to work. This is not what we need to change this industry. And we're very upfront with that.

Mike Kaeding: That's a whole chunk of our orientation is talking about that. And I think to do that well, though, you have to support people well on the way out. Right. A great severance, really respectful exit plan. A lot of time, people actually get noticed that we're going to let them go so they have time to find a new job.

Mike Kaeding: That whole process as well. So it's continuous evaluation in that regard with everyone. And occasionally every few months or a year or so, I might come down and say, all right, guys, let's really think about this right now. Like, where is everyone on your team? Do you feel that they're where they need to be?

Mike Kaeding: Yeah.

Mark Graban: And as you pointed out, this can all be done respectfully. A great thing to hear when it comes back then to culture and the mindsets and just not just what are we doing, but how are we treating.

Mike Kaeding: People, what I fight to do. It doesn't always work out this way, but I've got quite a few cases. It has. I want that person to be happier with us after firing them than beforehand. How could that even work?

Mike Kaeding: Right? Well, a few things, right. If you give them in many cases, we can give people notice so they can find their own job, they get a severance, they get paid on top of all that. And then if we help them find a new job that's a better fit for them, they're actually happier. Right.

Mike Kaeding: Because our jobs are pretty demanding. We're trying to change the world. But if that's not your spirit, if that's not your energy, you just want a nine to five kind of basic, run of the mill job. Let's help you find that. And now you're going to be super happy in your new role, and you should be happy that we moved you to that position.

Mike Kaeding: Yeah.

Mark Graban: And so tell us a little bit about the growth. You mentioned 100 employees you're at. How many employees today?

Mike Kaeding: Ballpark of around 250. Okay.

Mark Graban: Yeah. And there's a lot of growth in the future, I'm sure.

Mike Kaeding: Yeah.

Mark Graban: Projected growth. And then there's this question of how do you forecast that or how do you plan for that? Or hire, I imagine there's this process. Come back and talk about the business a little bit at Norhart are these projects known well enough in advance. Like if you win a project, you can then hire accordingly.

Mark Graban: How do you find that balance of supply of talent and your demand or need for talent.

Mike Kaeding: Yeah. So we're trying to solve for housing affordability, and that makes you redesign the system in so many different ways. And one example, one of the volatilities you mentioned was a demand for people to build a building for them. Okay. That causes headache in the hiring process, causes extra waste in the factory.

Mike Kaeding: We have to have capital to handle the time off that people have to have as a result of not having a job. So what do we do to solve that? We build the buildings for ourselves so we can have that very consistent pipeline. Because when we're renting out to residents, that demand is way more consistent than the demand of developers wanting us to build a building.

Mark Graban: So instead of working with the developer, I mean, there's still a process. Imagine of you're working with cities. The project has to be approved more. So winning the business, I guess, is the difference between you and other builders.

Mike Kaeding: Yeah, it's a similar process in that regard. We have a team that sources and finds new sites and then work on the design of that site. They go through the city council planning commission, the entitlements of that project and then work to get approval on that. That then becomes an approved project that hops in our pipeline for the team to just consistently flow from one project to the next.

Mark Graban: There's a word you probably don't hear a lot in construction there flow.

Mike Kaeding: Yeah, it's so true. I mean, I see trades all the time. They come in and be like, dude, I want an entire floor cleared out so I can just work on this floor, come in and then leave. Right. There's no flow there.

Mike Kaeding: It's an up and down and back and forth. We've definitely applied lean techniques. We take the building, break it into small chunks, and then each team is moving through the building every 5 hours right now between units. And so if you're an electrician, you're just wiring one unit to the next, to the next, to the next. A very consistent loadout.

Mike Kaeding: I will say it's really hard to do that and we're dealing with the mud and the pain of that right now. But our dream is to drop that down to an hour or even 30 minutes where a new apartment unit is produced that quickly. Yeah.

Mark Graban: So there's this question I imagine then of, I mean, this is really getting into the details of work design and work balancing and flow, of like what's the cycle time of different jobs, of who's doing what? And then you've touched on this idea of well, how do we eliminate waste? I know you're not trying to say like, hey, just do it faster. You're eliminating waste and balancing these different trades and these different jobs and specialties to create flow. Is that what you said?

Mark Graban: Something here was really difficult. Is that the difficult thing to get it to flow?

Mike Kaeding: Right? Yeah, because you got to get everything working in sync. And if any one thing gets out of sync this is true with any lean process, it can create havoc on everything else, especially when everything becomes more and more tightly coupled as that chain gets tighter and tighter to what you're doing. There's cases you can add buffer and stuff between different jobs, but eliminating that buffer actually helps improve the productivity of the site. So yeah, our entire building is broken down into about 120 different tasks, everything from the dirt all the way to handing off as a key.

Mike Kaeding: And then every one of those tasks are being done every 5 hours for the most part. There's some things that are off batch still that we're working on. Another really big interesting challenge, this is true again, with any lean process is just material flow, right? Delivering. I mean, think about how big an apartment building is.

Mike Kaeding: This isn't just a product anymore. This is just tons and tons and tons of materials that now have to be delivered to the right person at every 5 hours in just the right amount. Not too much, not too little. And so that's another huge problem that we're working on right now. And part of the solution is we've started expanding all the way down that supply chain, even to becoming our own manufacturers in some cases.

Mike Kaeding: Wow.

Mark Graban: And then there's this question know? So you're working with Toyota and TSSC has been helping you you mentioned you know there's this, I think, pragmatic Toyota view of maintaining flow, finding the right balance know, just in time inventory like an occasional stoppage creates tension to improve where a lot of organizations would want to just buffer everything to where there's never a stoppage. How do they help you think through materials? I'm sure when you've got long lead times or questions about availability help us understand the thinking where just in time doesn't mean like in a dogmatic way. Zero inventory.

Mike Kaeding: Yeah, it was one of my first questions when we met with Toyota. I said, dude, you guys just in time inventories, you don't have any was. This was during the chip shortage with their vehicles. And I said, how are you dealing with the chip shortage then, Mike? Just in time doesn't mean no inventory, it means being really thoughtful with that design.

Mike Kaeding: And so when we started looking at, before this even happened, our different supply chains, the chips were one of those points of risk, of failure. And so we identified that and therefore we actually built up a stockpile to handle the fact that that was a key failure point in our system. And so they didn't have as big of an impact, at least at that time with the chip shortage. And that really opened my eyes. And so, yeah, for us, we will buy container loads of materials out of other countries like China.

Mike Kaeding: The best that they can get me is maybe a plus or minus several week window of when it's going to show up. But I now have to transfer that and it's a huge sum of materials into every 5 hours. And so that's one of the key things we're working on is, okay, we take the materials, deliver it to the site. And the idea right now is that there's this area on site where we've got the materials built up a small inventory and then there's a team that takes inventory out of those container loads and kits them and then delivers it into the factory every 5 hours. So they're smoothing out that flow.

Mark Graban: And when you say factory, is this to some degree modular where you're preassembling and then going and installing on site, or are you referring to the construction site as quote unquote, factory?

Mike Kaeding: We're doing both. So the precast concrete, so giant beams and columns and stuff are all poured and cast off site and delivered. Wall panels now are done in a literal factory that takes coils of steel in one end and produces completed exterior wall panels out the other and they drop them in place on site like Lego bricks. And so I see more of it heading that direction where it's done a little bit more off site. The kitting, for example, right now is all done on site, but I've got a feeling that eventually we're going to have almost a warehouse kind of distribution area that takes the large loads in one end and sends out the kits out the other just because of the physical space.

Mike Kaeding: To do that on site is very limited.

Mark Graban: Yeah, well, and that's where I mean, you use the word thoughtful. I think in my experience and what I've learned, it's really more about a thoughtful approach as opposed to something that's dogmatic of always this or never that or the world is complicated. There's gray area and there's the dynamics where your business is very different than Toyota's. And you've got this question of how to adapt to your business. And I do want to point people I should have mentioned up front, mike was previously a guest on the My Favorite Mistake podcast.

Mark Graban: And in that episode, I don't think we need to repeat all of that here about what's different about Norhart and some of the model. And maybe you can touch on that as we talk more of the lean stuff, if that's okay with you, Mike. But the question I usually ask people right up front, we got into some details here. What's your lean or TPS origin story? Like you Mike, and then you meaning Norhart.

Mark Graban: Maybe that lines up one and the same.

Mike Kaeding: Yeah. So I think in some ways we were thinking lean before I knew what lean was. Growing up, my dad, my parents started the business. It was really scrappy, right? We were just kind of figuring things out on our own, like experimenting, trying new ways to do things.

Mike Kaeding: But that helped lower costs during that time. And then as you grow, the scrappy methodology doesn't work very well and you got to apply new techniques, right, and learn as you go. But I think kind of my dad passing and me taking over, not knowing what I'm doing was again, partly I didn't know it at the time, but Lean thinking, like, how do we just solve the problems in front of us to be as efficient as possible. But what really kicked off Lean for me in a more meaningful way was I was speaking at a conference, and the head of TSSC happened to be there. And we ended up connecting and talking, and he dude, like, we've been wanting to spread Lean into the rest of the world in different areas, and specifically, they were looking to do it in the world of construction.

Mike Kaeding: And so we just hit it off, and they ended up coming out here working with us. We've been out there a number of times as well, and it's been a really great partnership because I think there's a lot of principles of Lean that you can read and learn from a book. There's something deeper about sitting beside someone, looking at the same kind of problem and watching them think it through that I've learned so much from working with them.

Mark Graban: And then how much of their style is them helping you and your company think things through? Like, I've seen videos where they go into hospitals, and the hospital people say, they didn't fix it for us. They taught us how to improve it. Like when they worked with a soup kitchen, there's this common theme. So this is a leading question.

Mark Graban: I shouldn't ask a question I think I know the answer to, but tell us about how they work with you to teach you as opposed to fixing you.

Mike Kaeding: Yeah, they certainly don't come in and just fix the issues, because what they find and this is I could totally see it, is then they leave and everything reverts back to the old way. Right. Nothing really changes. And so, really, you're working on culture change, not just a tool or technique. And that's one thing they've really hounded in me is it has nothing to do with the tools.

Mike Kaeding: Right. It's about changing the mindset of the people working on these different tasks and yourself as a leader. So we've specifically worked on one little task together, solving that one thing, and we're watching that, and then we're trying to apply that to the rest of the company. I think one interesting insight that happened recently so we had all the executives from TSSC come out recently do kind of a big update. And one of the main guys pulled me aside for a half an hour and sat down and talked with me.

Mike Kaeding: And he said one really important lesson that I didn't deeply understand is that in order to change the fundamental culture, I had to change the way I was thinking and about looking at Lean. And so I firmly believe in it. I was involved with it. I was out on site on different parts of it. But where I was failing is that I wasn't doing my daily or weekly or biweekly walks to the factory, the different sites.

Mike Kaeding: And the reason that was a fail is because that wasn't because doing that inspires your other leaders to be doing that same thing and goes down the chain. And so we talked a lot about how it starts with me, and I've got to ask the right questions. I got to present myself in the right way to make it really clear that as an organization, this is a priority see change in.

Mark Graban: Yeah, well, and I appreciate you sharing. I mean, I think another good habit that you're demonstrating here, like you did in the episode of My Favorite Mistake, is being willing to share and admit a mistake or a failure or a gap or something that you were working on. Hopefully then that flows through and inspires other people to have that same sense of reflection and continuous improvement on their own.

Mike Kaeding: Yeah, if you think you know it all or if you get in this mindset of, like, I can't admit to mistakes, I get why a lot of people go there, because it's hard. It's hard to feel that way. It's hard to admit to where you're at. But if you're failing at that level, you've got a deeper level you have to fix first before you can even get to lean. Right.

Mike Kaeding: Because you've got to be really honest about where you're at. And the truth is, whenever we start something new, we're always terrible at it. That's human nature. Right. We're born that way.

Mike Kaeding: We can't walk, we can't talk, we can't add. And so being comfortable in your own skin that, hey, I am not perfect. Hi, I'm Mike, and I have problems, is an important first step to seeing.

Mark Graban: Real growth and yeah, well, I'm sure that's mean you talk about wanting to revolutionize the way things are done, trying to be innovative, that's going to lead to trying things that don't work out as you would have thought or would have hoped. How do you help view that as an opportunity for learning as opposed to something that leads to punishment?

Mike Kaeding: Yeah. For me, that starts at orientation, where we actually talk about that very thing, because one scary thing about a culture that focuses on hiring the best is, well, does that mean if I make a mistake, you're just going to let me go? We address that very point in orientation. No. Think about it for a moment.

Mike Kaeding: How do we decide who to hire and to fire their values? Is there anyone in our values that say that if you make a mistake, you're going to be fired? No. In fact, it's completely the opposite. We look for people that are challenging the status quo, that are willing to change things as a result of that.

Mike Kaeding: That means you will fail at trying new things. Failure is not bad. In fact, if you were not failing, I'm a bit concerned that you're not really trying. Right.

Mark Graban: But you can see where people, if they've worked in other workplaces, they may hear of, like, the best means. The best means never. Makes mistakes, but it's great that you address that head on. It seems like you've learned to even anticipate or bring that up proactively of what that culture means there at Norhart. I want to ask you one other question just about the approach of working with TSSC.

Mark Graban: You mentioned earlier what matters is problem solving. You think of john Shook, formerly of Toyota, loves asking, what problem do we need to solve? Like, there's that very strong orientation. David Meyer, former Toyota guy who is running his distillery in Kentucky, when I visited him, he said point blank, he's like, oh, people visit me and say, Why aren't you doing five s? And he's like, no, it's just I'm trying to solve the most important problem that's in front of me.

Mark Graban: In my business, it's all about problem solving. I'm kind of paraphrasing him. So the question is, how did they help you frame or scope out or choose the initial problem? Like something that was meaningful enough, a good challenge, maybe not too big. I'm just curious, how do you decide what the starting point is?

Mike Kaeding: Yeah, first I'll mention just with problems, as you're exactly right. In fact, I often tell our team, we have 10,000 problems. Problems are not a bad thing. People see a lot of problems, like, Dude, I'm failing. That's not the case.

Mike Kaeding: The challenge is always to have enough problem solvers to handle the problems as they come in. But if we had no problems, then we're not growing, and I'm not pushing the organization well enough. The way that we decided to move forward with TSSC was we just picked probably one of our biggest bottlenecks in the overall construction chain. And for us at the time, it was framing and wall assembly. And so that was just a very specific window that we could see the most meaningful impact within the organization.

Mark Graban: Yeah, that idea of choosing the bottleneck, there's a time and a place for that. It seems like that strategic focus while also in parallel or once you've developed some capabilities, as it says on your website, and you've already mentioned 10,000 problems, solving 10,000 little problems, how do you help that coexist of having to be strategic on maybe some of the bigger problems while encouraging people to work on all the small ones?

Mike Kaeding: So we have a team that helps initiate kind of the lean stuff within an organization. They're working on the framing, the wall panels. They're now expanding to a number of other teams to provide support and driving that down. But the energy about solving problems and changing that culture, that doesn't have to wait for any team to come work with you on. And so one of the things I learned from I've written the author's name, but the two second Lean book, paul Acres.

Mike Kaeding: Paul Acres. Yeah. One of his insights that was really useful to us was to have the teams make a lean video. So literally every week, all our different teams produce another video of something that they've made their own little improvement within their team on, and they shared off on the company YT meetings and they have like an NBA bracket, so they're all cheering for each other and they usually make them a little bit funny, so they're a lot of fun. It's like a culture building thing as well, but it's really reinforcing every single week.

Mike Kaeding: Do we actually have to think about ways to improve?

Mark Graban: It comes through very clearly this orientation around mission and purpose and culture and values, all of that being more important than tools. There's so much and I'll encourage people I'll put a link on the website, so much great stuff on the Norhart website about culture and what you're growing and how it's evolving. We did touch on this in my favorite steak podcast, but I want to ask you again for this audience here around the values of transparency as you describe it, being open, honest and vulnerable and sharing employee survey responses out there, not on the intranet, but on the Internet, where someone like me, you linked to it. I wasn't spying. Like it was there for me to go take a look.

Mark Graban: And I did. Tell us about the thought process of being so transparent.

Mike Kaeding: Yeah. So we share all of our employee survey results openly to the public. You actually go and look at that on our website and it's not all pretty, right? It's the good, bad and the ugly. The comments are all in there.

Mike Kaeding: And the reason we do that is because I don't want to be fake good. Right. I think a lot of leaders want to gloss over it, be like, yeah, we're really good. Well, that's not what your people say, right? I much rather be honestly bad, but working to improve than fake good.

Mike Kaeding: Just good on the surface. Because being honest is the first step to growth and improvement. Every six months we do the survey every six months. That's the first thing that the team hears from me is what my results were, how we did as a company, what steps I'm taking to work to improve the issues that they raised. And I think that's an important, iterative continuous improvement process.

Mike Kaeding: In order to improve the culture of your.

Mark Graban: Like from your role. Mike, as CEO and other leaders that you have in different roles or different levels, how do you help ensure that the honesty is rewarded? Like, this comes back to psychological safety. Whether it's literally pulling an and on cord in a Toyota factory or whatever mechanism you have for people to speak up and call out a problem, how do you see that part of the culture flowing from you through other.

Mike Kaeding: Know? I think one of the first things is communication. When I meet with the different teams, I often talk about how my favorite people to work with are the ones that respectfully but nicely call me an idiot, right? Say, hey, dude, they're not actually going to use those words but disagree and say, hey, you're not doing this right. You're not thinking about that, right?

Mike Kaeding: If I'm working with someone and they just feel like a yes man to me, just nodding, agreeing with everything I say, I don't want to work with them. Right. So it's almost like creating this environment, this culture, this expectation that if you're just telling me what I want to hear, then you're not going to stick around very long. But if you're telling me how everything is not doing well in a respectful kind way, and then here's ways that you can improve it and we can get better, dude, I am all game. I am all yours, and I'm excited to be with you.

Mike Kaeding: And so I think it starts with that communication, and I think it then trickles down with the rest of the leadership. We don't always get it perfect. I know another piece of it is taking appropriate action. I remember we had one team that the manager was not lining up to our values. They were not being very respectful and kind to their team.

Mike Kaeding: They were very nice to managements. We had no idea the team were newer team members. They didn't really understand the culture that we were creating, and so they were afraid to come up to upper management about the issues. We had one employee on that team quit who then shared the insight of what was going on. They quit one day and literally the next.

Mike Kaeding: We got the information. We did a deep dive. We spent a couple of days interviewing all the different team members, getting the honest feedback where things were at. We corroborated all the different examples that they gave and found out they were true. And within a couple of days, the bad manager was let go and they were actually let go before the employee quit.

Mike Kaeding: Right. So it's being very attentive to when people actually raise issues and take action on that so people can know that you mean business when it comes to your values.

Mark Graban: Yeah. Well, I guess today again, Mike Kaeding, the CEO of Norhart. Maybe one other question. Mike and I feel like, gosh, we're scratching the surface. Maybe we can do another episode or I can come see you in company someday.

Mark Graban: But you talked earlier. I think it was really inspiring to talk about this notion of wanting to be the best at what you do as a company and individuals. You've got, I think, a lot of time ahead of you as CEO, an opportunity for growth. And what does it mean to you to say, well, I'm putting words in your mouth, but it seems like you want to be the best CEO. What does that mean to you?

Mark Graban: How do you make progress toward that?

Mike Kaeding: What a really high level? My dad died relatively young, and it really makes me realize how short life really is, right? We only live about 5000 weeks here on earth and I think a lot about how do I want to spend the minutes I have here on earth. And for me I want to make some kind of meaningful, positive impact on the world. And so getting a ton of money, who cares?

Mike Kaeding: They're going to shove $100 bills in your grave. What point is that? Or even be known as a great CEO? That is not something I'm striving for either. I'm really striving for what is the impact I can positively make on other people's lives.

Mike Kaeding: I'm trying to optimize for that and to do that in a powerful way requires us to become best in the world at what we do and so that's the heart and spirit behind trying to become the very, very best.

Mark Graban: Well, I appreciate you sharing some of your story and your openness and willingness to learn from TSSC and helping other everyone else there lead the way. So thank you for spending some minutes out of one of your weeks here with Think. It's been enjoyable and meaningful for me and the audience and Mike, hopefully the same for you.

Mike Kaeding: Yeah, thanks for having me. This is a lot of fun.

Mark Graban: Yeah, well, thank you. Great talking to you again. I hope people will check out the My favorite mistake episode. I'll link to that in the show notes and I'm glad we could have you here as well, Mike. Thank you.

Mark Graban: Thanks so much.

Mike Kaeding: Thanks.

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


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