Possibly one of the most important concepts to come out of the 1990’s was the idea of “Lean Management.” The idea of driving efficiency and reducing waste to improve customer value caught on in many different industries – hence, lean finance.
Everyone from small firms to the world’s largest consultants tout the benefits of adding lean methodology to a company. While lean as a concept was popularized by Toyota for manufacturing, many of the principles and learnings are still applicable today — even for startups. Does a lean finance approach work for everyone? Here are the reasons you may want to consider adding this set of tools to your company.
What are the Lean Finance Principles?
The term “lean” can refer to a number of different ideas, from working with a small staff to “doing more with less.” In a nutshell, lean is about value and efficiency. In the context of lean finance, it refers to a set of tools and working habits to improve efficiency within the team.
Although different manufacturing systems invented by Henry Ford and Kiichiro Toyoda utilized aspects of lean management, the principles were introduced in the now-famous book The Machine that Changed the World. The authors broke down lean management into five concepts:
- Specify the value desired by the customer
- Identify the value stream and challenge wasted steps currently utilized to provide it
- Make the value flow continuously through the remaining steps
- Introduce pull between steps
- Manage towards a process where time needed to move through until the time declines between steps
While lean management was created to streamline manufacturing processes, they can be applied to nearly every workflow imaginable. Among accounting teams, lean finance can be utilized to improve reporting, reduce the time needed to generate information, and ultimately create increased value for all stakeholders through more nimble processes and effective communications.
Why is Lean Finance Effective?
Much like lean manufacturing principles removes waste and improves efficiency from the assembly line, lean finance can help your team save time and create better workflows. When applied correctly, the approach can help your team save money, become more responsive, and create better strategic support for the leadership team and investors.
The primary goal of a finance team is to ensure fiscal responsibility and help the company grow based on the high-level goals. Utilizing lean finance practices can help your workgroup do that more effectively through efficiency management in reporting and other repeatable processes and waste reduction for data and communication flows. By taking a lean mindset, monetary savings comes from the ability to shift and adjust to changes quickly, resulting in faster analysis and projections.
Internal stakeholders aren’t the only ones who can benefit from adopting lean finance principles. External partners, like investors, venture capital groups, and mentors can also benefit from the added transparency and improved efficiency. By creating workflows that remove unnecessary steps, you can provide the information outside advisors need to help your company set direction towards future profitability and reduced burn rate.
How to Adopt Lean Finance Practices
If your internal accounting team decides to transition into a lean finance environment, the first step is to identify your stakeholders within the framework. Although your results generally don’t go out to a public audience, internal partners are glad to get the information you provide. Think of your output through the lens of the five lean finance principles:
Specify the value desired by the customer
What information do your stakeholders value most? How can you help them develop smarter conclusions faster?
Identify the value stream and challenge wasted steps currently utilized to provide it
As you look through your current workflow, where do stop points exist? What can you do to eliminate them and improve speed?
Make the value flow continuously through the remaining steps
Reporting and analysis speed shouldn’t suffer in accuracy due to speed. What optimization steps can your team take to present the best data?
Introduce pull between steps
A sense of urgency is required for lean finance practices to be successful. As one step ends, how can the next step create a seamless transition?
Manage towards a process where time needed to move through until the time declines between steps
Working through lean finance is all about continual improvement. Once the first round of implementation is complete, it’s time to go through and find additional ways to reduce waste.
Should We Adopt Lean Finance in Our Work Habits?
Efficiency is always a good goal to work toward, as is reducing waste, but focusing on lean principles can lead some firms to overlook other key aspects of their products and service offerings. Lean finance may very well be a good goal to work toward, but don’t adopt these principles if it means neglecting your company’s core principles.
While creating a lean finance organization isn’t for everyone, driving a mindset of continual improvement can help companies get more out of their accounting teams. By working smarter with your resources, you can create long-lasting change that will only benefit your entire organization for years to come.