5 Principles of Lean Finance
Lean offers a framework and tools that can help your team improve its productivity and impact without disrupting the things you love about your culture. Lean began at Toyota and is widely used throughout the automotive and aerospace manufacturing industries. However, it has also been successfully applied outside of manufacturing environments in industries ranging from banking to law firms. The two pillars of Lean are Continuous Improvement and Respect for People. Lean emphasizes delivering value to the customer and empowering employees to improve their processes.
Implementing Lean can lead to higher employee engagement as well as improved results. It helps to define what it means to be better, empowers everyone to make improvements, and keeps score so everyone gets the satisfaction of being on a winning team. Team members are encouraged to “fix what bugs them” and to shift their workday toward the more fulfilling value-adding work and away from inefficient processes that waste their time.
I have successfully applied these 5 principles of Lean Finance to several Finance organizations and seen transformative results.
Each improvement starts with a challenge – to solve a problem or to reach a target.
Teams should identify and share key performance indicators (KPIs) and challenge themselves to improve them. We develop the people on our teams by encouraging them to set targets and to use the plan, do, check, act (PDCA) cycle to make improvements to realize them. Develop quarterly initiatives to take larger, coordinated steps toward a target state.
Each of us is empowered to make improvements in our areas.
Problems and opportunities are best seen where the work is performed. So the people closest to the work need to be able to “pull the Andon Cord” when they see an opportunity for improvement. We have both the right and the responsibility to do so. Add to your team’s list of improvements, problems, and opportunities (IPOs) whenever you see an IPO even if you need some help to solve it.
Continuous Improvement Mindset
This principle is about getting to the root cause of an issue and eliminating waste.
Don’t walk past a problem. Get to the root cause of errors and change the process to prevent them from ever recurring – even if the problem is coming from another department upstream. Review processes for the 8 wastes and seek to eliminate them. Continuous improvement means that when we close the books, we are also improving our process for closing the books; when we run payroll, we improve our process for running payroll.
Establish standard work and continuously improve it. Maintain process maps.
“Standard work” means the repeatable process or standard template used to get a consistent result. It is the foundation of continuous improvement. Where there are no standards, there can be no improvement. It is virtually impossible to optimize a process without documenting what it is. The as-is process maps become the basis for process improvements and must be updated each time an improvement is made.
Identify the customer (internal or external), seek voice-of-the-customer input, and optimize processes to enhance value to the customer.
Waste can be defined as “anything the customer would be unwilling to pay for.” So to understand what the customer values, we need to identify the customers and hear about the value we are delivering from their perspective.