This is part of a five part series on a recent McKinsey series of article on lean manufacturing. Other posts in the series: Introduction, Public Sector Lean, Lean in IT, Lean in China, Lean in Finance.
Richard Dobbs, Herbert Pohl, and Florian Wolff take a stab at applying lean methods to an organization’s financial operations. Unlike the previous articles that fully embrace lean, these authors remain less than fully committed, but do come up with some areas that would benefit from a lean approach.
The finance function eludes a standardized lean approach.
I don’t quite buy that introductory statement. The process nature of most financial functions seems specifically appropriate for lean methods.
We have, however, found three ideas from the lean manufacturing world that are particularly helpful in eliminating waste and improving efficiency.
Almost sounds like the authors were told by some superior to "find a way to relate lean to finance," and they did it a bit begrudgingly. But in any case, let’s explore these three areas sto see if we can learn something.
First, many finance departments can become more efficient by making external customers the referee of which activities add value or create waste.
Although lean isn’t purely about "efficiency," I’ll still accept that. Define value from the perspective of your customer… a fundamental concept of lean. Looking at your processes from that perspective would be a useful activity.
Second, the power of an efficiency-focused mind-set is cumulative, for a single initiative frequently exposes deeper problems.
Obviously the article goes into a bit more detail about each of these three areas. This second thought is interesting… sort of a kaizen, sort of the power of respect for people. Leveraging the knowledge and experience of employees coupled with training to be able to identify waste. Lean transformations have a habit of reaching a tipping point where they can either start accelerating or flounder.
Third, the finance function’s answer to many problems is often to add a system or data warehouse. While such moves may help companies deal with difficult situations, they seldom tackle real issues.
True to some extent. We’ve all been in companies with customized reports too numerous to count, where one initial objective of a lean transformation is to simply understand and then streamline the number of reports. Everyone needs to be looking at the same set of data the same way. In a way this aligns with their first lean opportunity: define value from the perspective of the customer.
In reality I could come up with twenty other ways basic lean could be applied to finance. The process to purchase and track inventory and expense items, the budgeting process, the reconciliation process. Not to mention all the "lean accounting" potential of reducing transactions, shifting from absorbtion to value stream costing, etc. The McKinsey group left a lot of meat on the table with this article.