Introduction: Lean Accounting & Traditional Accounting Compared

Today I’m starting a series of blogs that will take a deep look at how and why Lean Accounting differs radically from traditional accounting.

Some people will think this is a waste of good blog space 😉 But these will be the people that “get it.”  They are: The early adopters, the enthusiastic people at the Lean Accounting Summits, the growing crop of people and companies who already understand and are passionate about Lean Accounting, and the Lean Accounting “thought leaders.” (See the list below for the names of these august people.)

Me?  I believe there still is a need to help people understand just what Lean Accounting is all about. There are:

  • people and companies who are not yet working on lean and think this does not apply to them;
  • companies where lean has taken root but who think their company is too big, or it’s impossible to change, or there are organizational barriers, or whose companies are “different” and “it won’t work for us;”
  • people and companies where it’s okay to rearrange the operational side of the business, but not for my department.

I know from comments I get on my blogs that there are definitely some Lean Accounting skeptics out there.

Back in the early 20’s, I used to teach at companies where Lean (let alone Lean Accounting) was new.  I almost always included a little module about mental models, using David Hutchens’ story book, Shadows of the Neanderthal: Illuminating the Beliefs that Limit our Organizations (Pegasus Communication, Inc.  (www.pegasuscom.com) 1999.)   I would often assign this humorous book as pre-reading for my trainees or ask someone in class to read it aloud.  Hutchens tells the story of Boogie, who strikes out from the safety of the cave to figure out what was keeping his people from making progress.  I would guide the class discussion, but invariably we came to conclusions similar to these:

  • The way you view the world depends upon where you are looking from.
  • Two groups can have a quite different understanding of the same situation according to their viewpoints and their assumptions.
  • These understandings can become deeply held beliefs.
  • People work to preserve their beliefs even when they acknowledge their inadequacy.
  • These beliefs often lead to conflict between two groups even when they have similar ultimate objectives.

In class this would lead to a discussion of mental models and how they affect organizational change.  Here’s a snippet from a slide I always used to help the people in class think about how their own assumptions were affecting their work as accountants, controllers, and finance managers.

So …….  how does this apply to our thinking about Lean Accounting these days?

To me it’s important to remember that there are always alternate mental models at work, even in companies that are authentically Lean, especially as Lean thinking is being applied in new and different kinds of companies.  I wonder whether mental models are limiting people’s thinking and keeping them tied to practices and activities that are non-Lean.    Further, I and other Lean Accounting proponents need to keep examining this and understanding our own mental models.  I thought it might be a good time to lay out a rigorous compare-and-contrast review of Lean Accounting and traditional accounting.  I’ll be breaking down the following topics:

  1. Costing
  2. Cost Accounting
  3. Performance Measurements
  4. Cultural Integration with Lean Manufacturing
  5. Process Organization
  6. Financial Reporting
  7. External Reporting
  8. Decision Making
  9. Continuous Improvement
  10. Data Gathering

The methods and tools applied by companies in these areas is where you see major important differences between the lean approach and the traditional one.  It really does affect what accounting and finance people do, what their work product is, and what they bring to the Lean effort across their organizations.  To me, this is definitely a good time for taking another look at the subject and to drop my own assumptions and biases.

Next week (this should be fun!) –  Costing.

NOTE: The Thought Leaders at the 2005 Lean Accounting Summit in Dearborn, MI, worked to codify the methods of Lean Accounting onto a single-page document called “Lean Accounting: Principles, Practices, and Tools.”  It took the team about 3 months to develop the Principles, Practices, and Tools (PP&T) showing the (then) current state-of-the-art for Lean Accounting.  These people included: Orry Fiume, Jean Cunningham, Brian Maskell, Bruce Baggaley, Jim Huntzinger, Norman Bodek, Robin Cooper, Fred Garbinski, Jerry Solomon, Mark Delusio, Bill Waddel, Bob Emiliani, David Cochran, Doc Hall, Jamie Flinchbaugh, John Coomes, Larry Grasso, and Michael Bremer.  To see the resulting interactive PP&T mind map visit this link: http://www.maskell.com//lean_accounting/subpages/lean_accounting/la_ppt.html