only had to work out its production capacity in a year and it could then estimate sales, having backed out the expected movement in inventory.
Large production runs, lengthy month-end processes, were the order of the day. Charles Horngren's “Cost Accounting: A Managerial Emphasis” and books like it were locked into detail and a view into costing, budgeting, and allocation of overheads that is directly opposed to the lean movement.
When I was studying commerce at Liverpool University I was taught well to deliver services that Ford might have needed when building the model T Ford. The accounting profession has learned many bad habits:
Maybe It Is Time for Therapy
Two hundred years ago, when the Napoleonic Wars were raging, the English Navy had a device for retribution. It was called the cat o' nine tails. The English Navy stopped using this multi-tailed whip a long, long time ago, so why do so many accountants pick up the cat o' nine tails and whip themselves time and time again?
If it is not the cat o' nine tails, it is shooting ourselves in the foot. This book is about stopping this self-inflicted punishment and changing our ways.
Escaping the Catch-22
Joseph Heller's iconic 1961 book, Catch 22,2 introduced a new term to popular culture. The Oxford English Dictionary defined “Catch 22” as “a situation or predicament characterized by absurdity or senselessness.”
I see many finance teams in this situation. The slow month-end reporting, the never ending annual planning process, and the long, drawn-out annual reporting cycle are both beautifully summed up by the above Catch 22 definition. How do we get out of this Catch 22? The finance team needs to create time for change, to have more time to act. Where do we find this time? We find it by aiming for these lean finance team benchmarks:
LEAN MOVEMENT
The finance team needs to embrace the lean movement to slim down all of its processes so it can be less locked in to the past. This change will have an impact on the workload of the team, as shown in Exhibit 1.2, which compares an antiquated team and a lean finance team.
EXHIBIT 1.2 Lean versus a non-lean finance team
The significant increase in advisory time will lead to:
● Adding more value to the business units the finance team supports
● Selling and leading change, in particular with regard to new systems
● Leading the battle against waste as Jeremy Hope has suggested3
● Having time to adopt the profound lean practices such as Post-it reengineering, Scrum, Kanban, and action meetings
The end result will be participating in more rewarding work and a happy and more fulfilled finance team.
Background to the Lean Movement
The lean movement is largely credited as a Japanese process that was responsible for the meteoric rise of the Japanese multinationals over the period 1960 to 2000. However, when you look at its origins, you see the influence of American writers such as Edwards Deming. Over the years, there have been many institutes and consultancy methodologies that make up the lean movement as we see it today.
The lean movement has been part of workshops for more than 20 years, but lean accounting has been a much more recent phenomenon lead by a series of thinkers and dates back to roughly 2004. The key players include:
● Jeremy Hope4
● Brian Maskell5
● Jean Cunningham6
● Frances Kennedy7
Although most corporate accountants are aware of the revolution of lean and its positive impact on private, government, and nonprofit sectors, few have realized the profound impact it has on the accounting function. The pioneers of lean accounting have now blazed a pathway that all corporate accountants need to walk along.
Indeed, the lean accounting movement has been gaining momentum around the world. Thus, it will not be long before CEOs start asking questions about this hot topic. It is imperative that corporate accountants, sooner rather than later, understand the concepts of lean accounting and its implications for their finance team and organization.
In fact, the movement has progressed to such an extent that there is now an annual lean accounting summit, which can be found easily on the Internet.
Lean Is About Eliminating the Eight Wastes
In lean there are eight types of waste. These wastes are seen within the whole organization and within the accounting function. I have outlined the eight wastes below:
“Most businesses processes are 90 % waste and 10 % value-added work.”
Liker points out that Boeing reduced over a trillion internal transactions through adopting lean.
Toyota's 14 Lean Management Principles and Their Relevance
I believe Toyota to be possibly the greatest company in the world. It has 14 lean management principles which are the backbone to its culture and Toyota can embed these principles in all countries it operates within. Its Kentucky plant in the USA exceeded all Toyota expectations with its acceptance of the Toyota Way. To understand the Toyota principles one needs to read Jeffrey Liker's book The Toyota Way. He has broken them down into four categories as set out in Exhibit 1.3.
EXHIBIT 1.3 Jeffrey Liker's analysis of Toyota's 14 principles
Source: www.jeffliker.com
I believe that Toyota's 14 principles should be embedded in all private, government, and non-profit agencies as best they can. They would make a profound impact on the organizations, benefiting the staff, management, board, and customers. I have included an overview of Toyota's 14 management principles in the attached electronic media.
IMPORTANCE OF ABANDONMENT
From the time we were at kindergarten we have had a fear of ever admitting we were wrong. In our personal lives we have, in some cases, held onto an abusive relationship for too long because we were scared to admit, to the world at large, we had made a mistake. The longer the relationship goes on we hold onto the hope that it will
Ibid.
Ibid.
Frances Kennedy with Brian Maskell, “Why Do We Need Lean Accounting and How Does It Work?”
Jean Cunningham, “The Lean vs. Standard Costing Accounting Conundrum,”
Kennedy and Maskell.
