Lean Leadership – With Lean, the Piggy Bank will get full even if you never measure your financials
Recently, I was helping my husband with a change management assignment he was working on. He was interviewing me about improvements in the company I work for, Escea. One of the questions was about how we would measure an improvement we made. I said, ‘It’s pretty basic. If we’ve done it right, the lead-time and amount of work in progress we had would reduce’. He said ‘Great, but they’re asking for the answer to be in terms of SMART goals’. So I gave him some examples using lean metrics, cost, delivery etc, feeling like this was a bit of overkill anyway, but this still wasn’t enough. In all their wisdom, his assessors in change management wanted him to produce some text book cost accounting formula of how success is measured.
This launched me into a bit of a tirade on a subject I am passionate about. If you are taking the right actions, you don’t need cost accounting to tell you you’re on the right track. In fact, many times cost accounting will tell you NOT to do something sensible because of how it looks on paper, but that’s a subject for another post.
If you’re taking the right actions, the results will be obvious and varied. Lean improvements like one piece flow generate so many positive results that can’t all be measured by cost accounting. For sure, lean improvements impact the bottom line in a tremendous way but to me this is a given. They also generate less tangible improvements, like the feeling of spaciousness that comes from having less unnecessary stuff in your work area and the enjoyment that comes from processing a variety of products instead of boring batches of the same thing. Not to mention, when a defect crops up, it’s just the one defect and not hundreds.
When I analyse an improvement that leads us closer to one piece flow, the fact that batch sizes have gone down and work in progress has reduced is all I need to know. As long as delivery has not been affected by some unpredictable anomaly those facts alone mean that financial results are assured. Why would I spend my time analysing to the nth degree something that I can already see is making things better. All big lean improvements eventually show up financially in Gross Profit (GP) or Operating Profit (OP) anyway. Suddenly, you find your GP has been consistently up by a percentage point for a while and you’re over recovering labour and overheads left, right and centre.
I’m a big fan of FastCap and recently I asked their owner and lean maniac Paul Akers about Key Performance Indicators (KPIs) at FastCap. I already knew they focused on defects or mistakes and orders completed in their Daily Meetings by watching their videos but I wanted to know if they measured anything else. The answer was that this was all they needed. If they focused on reducing mistake and defects and meeting customer orders, the financials would take care of themselves and FastCap’s financial performance speak for itself.
So give yourself a break. I’m lucky I work for a privately owned company with a sensible CFO who agrees that less is more when it comes to financial management. We believe that financial management is the report card for the business, not the driver. By pursuing the right actions and a relentless journey towards demand based one piece flow, our financial results just keep getting better without any complicated financial KPIs in sight. Long may it continue.