The Economics of Lean – Part 2 of 4

The economics of lean can be explained in basic terms of supply and demand. By proving your customers lot more value, the demand for your company’s products or services increase; and you can command better prices. By eliminating waste, productivity across the entire company improves dramatically. This frees up resources to make more product, provide more services, make more sales calls, design more products, and run the company better; without increasing your costs. All the extra revenues come FREE. From a financial perspective, this means the growth rate of revenue is much greater than the growth rate of costs. This gives you much higher profits and and a tsunami of cash flow.

CFO is Key to Lean Success

So where does the CFO fit into all of this? The CFO has a key role to play in successful lean. lean will not be successful if the CFO is not driving lean forward.

As CFO you chart the financial strategy of your company. Whatever the business strategy, you need to project the financial impact of the proper execution of the strategy. You also have oversight to the management accounting system: the measures & methods that are used internally to measure how well a company is performing at any time. How you present the financial benefits of lean and how you measure business results will be the determining factor of the success of lean in your company. Your voice is also crucial to the company adopting a lean business strategy or merely thinking of lean as just a part of the strategy.

As a Lean CFO, it is important for you to understand the economics of lean, and for you to align the financial strategy with how lean makes money for the company. You will also need to make changes to the financial measurement & reporting systems, and you will need to measure the execution of the lean business strategy. I believe this is the single most important factor that prevents companies from realizing the true financial potential of lean. You need to translate the language of lean into the language of money so that everyone in your business can see why lean is the only way to go.