Is Lean Finance a thing?

Lean management has been around for quite a while, but is again -or still- much talked about and widely utilised. Increasingly, lean management is being applied to services as well as manufacturing, where it once originated.

Finance is no exception, and in companies’ Finance functions there is often scope for improvement by applying the principles of lean. This is not necessarily new in essence, but looking at it through the lens of lean may well be for many organisations.

Let’s consider some of the central concepts of lean thinking as applied to Finance:

Customer value. Like any other function, Finance activities should be driven by customer value. The problem in this case might be defining who is the customer – in fact there are different customer groups, and the value they experience could well be at odds between the different groups.

One customer group is formed by the management and ownership of the company. For them value is accurate and timely information and analysis, as well as assurance that the company is fulfilling its obligations and managing its assets and risks effectively.

Another group is the employees using Finance-owned processes, such as procurement and reporting processes. Here the value is in minimising the suffering caused by these processes, or better yet minimising the processes themselves.

A third group are the authorities, represented to an extent by external auditors, for whom value is ensuring that laws and regulations are being followed, transactions properly recorded, reports filed, and overall good governance exercised.

External customers of the company are an important group. They care about the flow of processes visible to them, such as invoicing, but also about the efficiency, good corporate citizenship and longevity of the company as a trading partner able to provide value through their products and services.

Some of the value, such as good governance, is shared by all the customer groups. In other cases, the value experienced by one customer group has to be balanced against the value experienced by others. Employees’ desire to minimise administration activities could be in contradiction to the demands of controls and reporting accuracy. In these situations, Finance must make the call on where the balance should be set, based on real understanding of those different customer needs and their significance.

Eliminating waste. In most Finance functions, unless processes have been recently reviewed or are being constantly evaluated, there are reports being produced that no one really needs, and tasks being carried out that once upon a time had a purpose, but no can remember what it was. Focusing on the above point of what value is being created for which customer will help to identify these and to streamline activities.

Flow efficiency. Before knowing what flow efficiency is, we talked about minimising hand-offs. It is not exactly the same thing, or the whole thing, but an important element in improving flow. The concept of flow is overall a fairly intuitive one, and something that process improvement would always strive towards, but having it worded and conceptualised helps.

Visualisation. Thinking back, I have used Kanban boards fifteen years ago, when getting a stock management process sorted and needing to visualise both the problem and the progress made to the management team as well as the operations team. The tools where not very sophisticated -Trello was still some time off- and we didn’t call it Kanban since we had never heard the word, but the concept was the same, and it worked.

So yes, Lean Finance is a thing. Not entirely a new thing, but as of lately a much better defined, better packaged and better understood thing.