Lean Accounting and Traditional Accounting Compared – PERFORMANCE MEASURES

Continuing my blog series taking a deep look at how and why Lean Accounting differs radically from traditional accounting.  Once again, I’ll show how each approach does or does not support Lean Principles.  (Click this link to for our mind map showing the five principles of Lean: Five Principles of Lean )


In 1994 I wrote a small (and IMHO persuasive) book making the case for a new approach to performance measurement.[i] The picture at the left is from the book’s cover. It makes the case well.

Managing any successful enterprise is always hard work, but using the wrong measurement methods makes it well-nigh impossible. As hard as trying to roll a cube up a hill.

Customers expect a lot of value for their money.  They want 100% faultless quality and on-time delivery all the time.  They want innovation, flexibility, and low prices.  And within our Lean companies, our strategy has to be designed to meet these expectations.

Customers don’t care about our internal PPV information (down to the 4th decimal point.)  Machine utilization?  Not their problem. Customers really do not care about providing financial results that keep our accountants happy. How we measure ourselves, how we understand our strategy, how well we are executing it … not the customer’s issue either.

How well we create value and deliver the products they pay for … that’s what really matters.


Here’s an embarrassing example from my own experience. It shows how much waste can be created simply as an artifact of the wrong measuring system.  And, it also shows how important it is to change.

More years ago than I like to count, I was an inventory manager for Rank Xerox in Europe; I was responsible for spare parts inventory throughout 27 locations in 13 countries.

The company measured my department by how well we achieved monthly inventory levels for each country, according to the department’s budget.   For example, if Denmark was over-stocked and Sweden was under-stocked, we raised orders to “move” materials from Denmark to Sweden.  Of course, we knew the Xerox cost accounting system was designed so that when an interplant order was raised, the material was automatically shown on the books as having “moved” instantly.   It was easy for my department to manipulate inventory levels to meet our budgeted numbers.  Naturally, we spent several days each month raising supply orders, then canceling them later.

Was this a good use of our time?   Did this activity add value or serve the customers?  Did we even think about it?  No. The inappropriate measurements we were using drove us to do meaningless, wasteful things just to “make our numbers.”

Times have really (and rightly) changed!

Nowadays, I teach BMA’s customers to use a practical method for aligning their performance measurements at all levels with their Lean business strategy. We take a broad view of delivering customer value, by organizing into value streams, not narrow departments.

Working with my customers, I use visual tools to set this up; we call it a “linkage chart.”  Here’s an example.

Starting with the company strategy, we develop measurements that show the achievement (or not) of strategic goals.

The next step is to link these with measurements at (for example) a plant level. Within the plant we link their measures to value stream performance measurements, and finally we link to measurements in production cells plus all of the operational and administrative processes.

As you can see on the picture (above) the linkages look at the goals at each level and the critical success factors at the lowest level. This enables the company leaders and the value stream teams to think through what is critically important and should be measured.

I also help companies understand that measurements need to be primarily non-financial, and they have to be able to flex by location and value stream to address changing business conditions.  They have to be simple, visual, and timely because this empowers the local people to see problems, then control and improve their own processes.

Plus, measurements have to be designed to foster Lean continuous improvement, and not to monitor past performance.  They must NOT be used – in the traditional way – to punish those who fall short. Rather, they are used to motivate and empower people.

You will notice that I have not listed specific measurements. There is no one-size-fits-all set of “Lean measurements.” You always use the linkage chart to develop measurements needed for your value streams and their processes, based on your local needs and your business strategy. A well-designed and thoroughly discussed linkage chart leads to the “vital few” measurements that will work best to establish control, foster continuous improvement of at all levels, and monitor significant results.


Short answer:  you really need Lean performance measures, sooner rather than later.

For Lean Accounting, operational performance measurements are just as important as the financial results. Financial results do not happen on their own. Financial results get better when good things change in the company’s operations, such as: increasing sales, eliminating waste, freeing up capacity, controlling processes better, flowing faster, etc.

It doesn’t take Lean operations people long to “get it.” I worked recently with a division of a massive multinational company in the UK. Their management team was interested in Lean Accounting to support their nascent Lean initiatives. On my first visit I reviewed their current operational reporting. It was a 52-page series of reports drilling down into the company’s copious financial variances. Speaking with the VP of Operations was one of those meetings that are actually funny – but you can not laugh. His level of vituperation about these reports was splendidly eloquent and colorful. He understood well how far off the mark the company’s traditional measurements were, and how little they have to add to the Lean conversation.

Truly Lean companies integrate their operational and financial control systems so that the value stream managers have a full picture of what they do that creates customer value, grows their business, and makes tons of money. Their ideal measurements and financial reports are on single pages, focused, and meaningful. That’s the way to create empowerment, control, and improvement.

I’ll go even further: I believe you just can’t run a Lean company with traditional measurements (operational and financial.) If you do, you will not be able to sustain Lean manufacturing (or Lean product development, Lean sales and marketing, etc.) because your measurements will “push back” against your efforts. Moreover, you cannot have two sets of measurements; one for financial control and the other for operational control.

What you can and should do as soon as possible:

  1. Replace the traditional cost accounting and mass production measurements with performance measurements that are designed to motivate and monitor Lean behaviors and improvement;
  2. Develop a set of measurements throughout the organization that thoroughly reflect the company’s strategy and goals;
  3. Make it automatic!  When people work to improve their measurement results they will be actively working to achieve the company’s strategic goals.
  4. Make this an integral part of the lean culture you are developing within your value streams and indeed the whole enterprise.


I just today read an article about some recent research into performance measurements (published in IndustryWeek, Dec. 18, 2012.)  The author, Dr. Pietro Micheli, Associate Professor at the Warwick Business School   has identified “7 Myths of Performance Measurements.” These myths are things companies want to get from their operational measurement systems, but 9 times out of 10 they get disappointing results. Reading the article, I recognized that Lean Accounting resolves all 7 of these myths. Here’s a link to this article: http://www.industryweek.com/compensation-strategies/seven-myths-performance-management (accessed January 3, 2013.)

For more about setting up your own linkage chart, read Section B1 in The Lean Business Management System. Lean Accounting: Principles and Practices Toolkit.  [ii](You can buy a copy from us at https://www.maskell.com/secure/shop.htm.) There is also an excellent treatment of the topic in Practical Lean Accounting [iii] (available on our web site as well.)

Coming up: We continue our way around my mind map. Next:, Lean culture and how Lean Accounting helps to create and sustain it.

[i] New Performance Measures, Brian H. Maskell.  Productivity Press, 1994.

[ii] The Lean Business Management System. Lean Accounting: Principles and Practices Toolkit. Brian Maskell, et al. 1st edition, BMA Press,2007.

[iii] Practical Lean Accounting. A proven System for Measuring and Managing the Lean Enterprise.  Second  edition.  Brian Maskell, Bruce Baggaley, Larry Grasso. CRC Press, 2012.