The book "Lean Thinking" by James Womack and Daniel Jones came out 10 years ago. I must confess I was rather underwhelmed by it at the time, but now lean is impossible to ignore - organisations of all sizes, in all sectors - from local authorities, to transport, to manufacturing - are adopting lean management. Lean is now on the agenda of organisations everywhere, and that means that accountants are increasingly being required to know lean techniques.
I strongly believe that "lean accounting" is a set of skills that will be much in demand in future, and I believe, equally strongly, that management accountants are well placed to take advantage of this opportunity. "Real Numbers: Management Accounting in a Lean Organization" was one of the first books on lean accounting published and is full of the pioneering spirit, exploring a topic not fully defined (at that time). The book offers some early insights into management accounting in lean organisations, and the skill sets we need to adopt to be a key part of the lean revolution, but it lacks detail on some areas as well as a clear strcture.
The book opens with a fine description of the challenge - "Accounting departments produce information that runs late and is often misleading. Few managers fully understand the columns of numbers and variances presented in their reports". The book then spends 25 pages arguing the case for change, and, throughout, regales the reader with the drawbacks of absorption costing, but never quite leads to a promised new land.
And that is the main problem with this book. Opening up a new subject area, it often lacks clear direction, or even structure. For example, the chapter on performance measures provides some interesting ideas, particularly on making ROI relevant to employees at all levels, and on using "total lead time" in indicators rather than just process time; but it fails to show how it all ties together. There are no worked examples, or "Balanced Scorecard" type structures to integrate different measures. Indeed, the book lacks worked examples throughout and this is another major weakness.
After the chapter on performance measures, we have a long and apparently structureless section about streamlining the finance function. This is more a random collection of thoughts, including how the desks should be rearranged, than any structured approach to restructuring the accounts department.
But there are several interesting sections in the book. The chapter on remodelling the profit and loss account is useful, and it contains a valuable warning that in the early years of lean, financial statements can show a reduction in profitability as stocks are liquidated; though this can be countered with the clear cashflow benefits. There is also some intriguing discussion of introducing Kaizen (breakthrough improvement) teams into the accounts department - sounds fun !. And the chapter on introducing the lean philosophy to capital budgeting (using lifecycle costs, including the impact on working capital) is excellent - though, again, is let down by a lack of worked examples.
The book closes with an illustration of how the cashflow benefits of lean finance future growth, with some outstanding examples from US enterprises. The final line of the book exhorts accountants to "rediscover your relevance". "Real Numbers" is an early attempt to help accountants rediscover their relevance. More recent books on the subject provide a more structured view of this important topic which is now coming to full maturity.