Traditional vs ‘Lean Beans’

Accounting Paradigms

Themes in Accounting Today

There are "themes" today in Finance and Accounting that are certainly true in order for any business to be successful.  One of the most important themes is that Accountants must transform themselves from "bean counters" to "business partners."  Another prevalent theme is that we, the Accountants, need to present financial statements in a language that all associates in the business can understand.  Thus we promote the "check-book style" P&L in the 'Lean Beans' Lean Accounting cost management system. 

We Accountants also need to change our focus away from Cost Accounting and onto Cost Management.  Another theme in Lean Accounting is to mind what you measure!  We do not want to measure only what is easy to measure, but rather we want to measure whatever is driving our continuous improvement.  And these metrics should be quantity-based, not necessarily financially based.  Measuring a product line manager based on Inventory Turns is a better metric that measuring him based on Operating Income.  Over the long-term, improving Inventory Turns will net you good Operating Income.

Old v New Paradigms

Another old paradigm is MBO: Management by Objective.  The new paradigm would be MBV: Management by Value, or what creates Value for the customer.  We also want to be concerned with how we are achieving success.  The old paradigm would have us re-classing some items on the Balance Sheet to "make-the-month." The new paradigm would ask us, "Have you really achieved a success that counts towards long-term improvements?"  Another old paradigm is the vertical organization of the company.  The new paradigm is the horizontal organization of the business, with empowerment of the people.  Here also isolated "functions" and "Lone Rangers" are replaced with integrated teams.

Many of my students and some of you who have attended our One-Day Lean for Accountants seminar have asked if I would summarize the differences between Traditional and Lean Accounting.  Below I have detailed what I believe to be the Old vs New Paradigms, where the "Old" are traditional standard cost accounting, and the "New" are Lean Beans accounting.  I hope that you find this summary helpful as you work to understand what Lean Accounting can do for you! 

   Traditional                vs             'Lean Beans' Accounting

FERF: Financial Executive Research Foundation

In 1994 we saw the first of the "new management paradigms" when a group known as the Financial Executive Research Foundation (FERF) came on the scene.  This group described the Accountant of the 1990's as a "bean counter,"  messenger of "doom and gloom," who was concerned only with "control" and "variance analysis / paralysis."

FERF told us that we need to look at the old paradigms and create new paradigms.  They encouraged us, as Accountants, to focus on MBV (Management by Value) rather than on MBO.  They told us that "how" we achieve success is what is most important: the process, not the transaction.  FERF encouraged us to move away from controlling and policing the business, and focus on empowering people.  Essentially they were telling us that we needed "soft" skills in addition to "hard" technical skills and GAAP knowledge.  They also encouraged us to flatten our business, making it more horizontal, and work in functionally integrated Teams to achieve many improvements often, as opposed to just one big improvement each year.

FERF went on to say that there would be implications to changing paradigms.  How will the Accounting "function" operate in a process or team-oriented organization?  And is a "functional" approach to organizing Accounting still relevant?  FERF, in its initiative on organization and strategy in financial management, told us that there needs to be a commitment to cultural change.  This is Lean!  Lean is a cultural change management initiative, and it is a journey_ not a destination.  FERF has challenged us, the Accountants, with LEADING this organizational change!

FERF told us that we need to make the numbers count!  We need to add "Value" to the organization.  We, the financial community, need to not just report the business, but get into the trenches with the business Teams and add Value to the business.  Lean Accounting is just such a financial system.  Lean Accounting is proactive!  It is concerned with creating a managerial cost system that will drive the correct behavior in our business, and simplify management reports such that they serve Production, Marketing, Engineering, and the entire enterprise!  We need to turn our focus upon the Customer rather than just focusing on Cost.

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 We will also customize our Lean Beans Accounting one-day seminar specifically for your organization, and facilitate the seminar on-site at your facility.  Then, too, we can offer a short two to four hour session with just your management team if you wish!