The Financial Controller and CFO's Toolkit. Parmenter David

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.”

– Dr. Jeffrey Liker

      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 come right and we can always then say to our family, “I told you so.” In reality this does not happen. If I was to go into a reader's garage, what would I find? Maybe an exercise machine that started off life in great excitement as we envisaged a leaner self. After a couple of weeks in the lounge it started its inexorable journey to the garage, there to rest under the dust cover for a day in the future when we would use it again so we could say “I told you so.”

      In the world of commerce this trait is equally damaging. We will hold onto systems, keep going with projects, keep writing that report that nobody reads because to remove it would mean a loss of face. Let's get over it.

      Management guru Peter Drucker,8 whom I consider to be the Leonardo da Vinci of management, frequently used the word abandonment. I think it is one of the top 10 gifts Drucker gave us all. He said, “Don't tell me what you're doing, tell me what you've stopped doing.” He frequently said that abandonment is the key to innovation. He left some rather telling statements.

      If leaders are unable to abandon yesterday, they simply will not be able to create tomorrow.

      Without systematic and purposeful abandonment, an organization will be overtaken by events. It will squander its best resources on things it should never have been doing or should no longer do. As a result, it will lack the resources needed to exploit the opportunities that arise.

      In finance, many processes are followed, year-in and year-out, because “it's the way things have always been done.” When staff question, “Why do we do this?” the CFO or financial controller will often answer, “There must be a reason; so please do it.” In order for the better practices in this book to work, there must be an adoption of:

      ● An abandonment of processes and procedures that are broken

      ● A letting go of the past

      ● A commitment to challenge the rules of the past

      An organization that embraced Peter Drucker's abandonment earmarked the first Monday of every month for “abandonment meetings at every management level.” Each session targets a different area, so that over the course of a year, everything is given the once-over. This process would work well in the finance team, except we should meet once a week to discuss at least two abandonments.

      Every organization I have come across should have an abandonment KPI measuring the number of abandonments that have been made around the organization last week. Teams that were no embracing the concept would soon want to get the CEO's attention and acclaim by embracing the concept.

      The act of abandonment gives a tremendous sense of relief to the finance team, for it stops the past from haunting the future. It takes

4

Ibid.

5

Frances Kennedy with Brian Maskell, “Why Do We Need Lean Accounting and How Does It Work?” Journal of Corporate Accounting & Finance (March/April 2007).

6

Jean Cunningham, “The Lean vs. Standard Costing Accounting Conundrum,” Finance & Management Faculty Journal, ICAEW (June 2012).

7

Kennedy and Maskell.