Lean Accounting and Traditional Accounting Compared– Continuous Improvement

Continuing my trip around the LA v TA mind map … we come to “Continuous Improvement” – and how Lean Accounting supports it.  If you have missed any of the previous installments in this series, you can get caught up at this link:   https://maskell.com/?tag=compared

First Some Background

The guiding principles for any truly lean organization are shown in my first diagram (below), which is based on concepts posited by James Womack & Dan Jones in their foundational book Lean Thinking. 

Lean PrinciplesWbLg

One of these is “Pursuit of Perfection” which boils down to the intention to eliminate all waste from the value stream.  In Lean Thinking, the authors make the amazing statement:  “Perhaps the most important spur to perfection is transparency, the fact that in a lean system everyone … can see everything, and it’s so easy to discover better ways to create value.” [i] 

Now put that together with what we know about the “Toyota Way” [ii] 

In the next diagram we see that one of the pillars of the Toyota Way is Continuous Improvement (or kaizen) – our subject for today.  But we also see that this pillar rests on Genchi Gembutsu, which means “go and see for yourself.”  

In this way we get back pretty quickly to transparency.



What’s this got to do with Lean Accounting?

This one is easy. 

If you are motivated to change something, improve it, or eliminate waste from the process, you have to be able to see what’s happening.

In his book The Toyota Way Jeffrey Liker describes how the Ohno Circle works.  Basically, you draw a circle on the floor, then stand in it  and watch the process, for as long as it takes until you figure out what is really happening. Mr. Ohno was really asking the people to step away from the indicators of what is going on (things like variance reports, for example) and instead to go see what is actually happening.[iii]  If you are motivated to change, you need to be able to see what to do.

Liker goes on to say, “…it is difficult to imagine this … happening in a U.S. factory. Most young engineers would be irate if you told them to draw a circle and stand for 30 minutes …” [iv]   

This is not unlike the irate reaction I often get when I tell cost accountants to step away from standard product costing and to put aside variance reporting as a tool for pursuing perfection. 

Telling a person who is professionally invested in measuring their business “by the numbers” that non-financial measurements do a better job of motivating Lean change is not easy. As a humble consultant, I bump into this a lot.

But there’s no escaping it.  Simply put, Lean methods and Lean Accounting’s ways of measuring processes allow the people in the value stream to see what’s really happening, and to improve it themselves.  Traditional full absorption cost accounting does not.

In this area, the contrast between traditional accounting and Lean Accounting is stark.  The following table tells the story.



The Lean tools and methods, put together with empowered value stream teams, make continuous improvement a way of life within Lean companies.  Open and timely information, in a usable form, is what brings meaningful pursuit of perfection to life. 

Next blog, we’ll jump into how solid business decision making is best supported by Lean Accounting.  


[i] Womack, James P. and Jones, Daniel T., Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Revised and Updated, (New York, Free Press, 2012.) Part 1: Lean Principles.
[ii] The Toyota Way came about because Toyota needed a way to preserve and teach its guiding principles as it expanded globally. This elegant diagram is an example; it was used by the company in its Environmental & Social Report 2005.  https://www.toyota-global.com/sustainability/report/sr/05/pdf/so_02.pdf  Accessed January 15, 2012.
[iii] Liker, Jeffrey K., The Toyota Way. 14 Management Principles from the World’s Greatest Manufacturer.  (New York, McGraw-Hill, 2004)  Page 226.
[iv]  Ibid.