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Lean Thinking in Finance

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Finace and Accounting processes in a company belong to a whole class of non-value adding activities, if you really think about it. They are needed by the regulatory authorities, shareholders and other stakeholders that have business with the company but for the life of me could not think of one way in which it adds value to me, the end customer.

How Ford Motor Company does its Finance and Accounting function has very little to do with the value it is adding to the Ford car I am thinking of buying!

It is interesting that even large companies like Dell and Cisco spent time thinking about how to make the Finance and Accounting function leaner.  

What they found was interesting. They unearthed lots of unnecessary processes and wasted human effort in all of their financial forecasting and regular accounting functions.

The surprising result of all of this is the elimination of a lot of unncessary reports.

As anyone who has watched the movie OfficeSpace and/or worked in a middle management or lower position in any company, we all know the reports we need to fill out periodically that we were convinced wasn’t going to be useful to anybody within the company.  

Time wasted in useless reports so satirized in OfficeSpace that people have designed coversheets for Initech T.P.S Report as a joke! IniTech is the fictitious company that features in the movie.

But seems like wasted human efforts and unnecessary reports are a reality in the world of Finance and Accounting and companies have found a lean approach to eliminating them!

But if you have not seen OfficeSpace yet, do not miss it! It’s widely available on DVD!

There’s no business like show business, but there are several businesses like accounting. – David Letterman

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Have you ever given a thought as to how much time everyone of us wastes in playing Email and Phone Tag?

We have more devices and more tools, but the time spent on wasteful emails and phone tag is increasing everyday.

Please do not read further if the following shameless promotion of my new start-up company offends you! 🙂 Otherwise, read on!

I was looking at Twitter and the incredible network effect it affords people. People interested in lean improvement, whether you are individuals or organizations or companies can all find each other and exchange information in real-time. If you find it interesting you retweet to others in your network of followers and so the network effect takes hold.

But it is only passive information.

What if the same kind of organization of people anywhere in the world could be leveraged for useful activity using the same network effect?

A large percentage of our emails and voicemail have to do with simple things:

  • Can you cancel my meetings next Tuesday?
  • Do you remember the name of the restaurant we went to in our last visit the Napa Valley?
  • Oops! I forgot to tell you to get some Asparagus also from the supermarket.  It’s not on the list I gave you this morning.
  • We need to have a sign up list for the potluck dinner. Need to make sure that it’s not all chips or all desserts! Everybody should be able to see what others are signing up for as they do it!
  • We need to find a suitable date and time that works for everyone for Jane’s Baby Shower.

Even with two people, coordinating many things becomes a game of phonetag. The last item in the above list  could turn into an email and phone tag maelstrom if one person does not take charge and coordinates.

What if this one person is instead, a service? Something you can access from anywhere, any device – Browsers or SmartPhone clients or even FaceBook?

The result is my new startup company that we are experimenting some ideas with at www.dunnitt.com .

So instead of a Tweet, you create a do,  which is an activity, a task, a question, a signup sheet, a Meet Up enquiry etc and assign it to yourself, your family members, friends or colleagues at work. Everybody will be able to see everybody’s responses as of that time, in real-time. If they have not responded, click on the remind button and it will send a gentle reminder to that person by highlighting that task and a gentle vibration on a smart phone like what you experience on some game controllers.  Most importantly, you should be able to do this anywhere, anytime from any device.

Like the shopping list gets updated from a browser window at home. You see it updated in real-time on your iPhone dunnitt client!

For more interesting stories on what led to this, and what we are thinking about implementing, visit my other company related blog at http://dunnitt.wordpress.com .  

We wanted to start with some fun consumer uses first to drive widespread adoption first,  but we can extend it to enterprise use by allowing attachments,  inregration with Project Management systems, Workflow systems, etc.

Email and Voicemail are inevitable. People may still want to see  a daily digest of  tasks or activities that are pending from themselves and others and follow up in easier ways. But in keeping with the Lean approach of cutting wasted time, effort, I think a lot of that could be done in an easier way if the proper mechanisms are available.

That’s what we are going for with this startup company dunnitt.

Check it out, take it for a spin, and let me know what you think. It’s pre-beta stage and so may have some rough edges!

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As a long time, intense student of Toyota Production System, and Toyota news in general, I can make some guesses as to where they went wrong.

Continuous Process Improvement can indeed go wrong some time and the Toyota troubles prove this in good measure.

First of all, the accelerator pedal going out of control in Toyota Camry’s was finally traced to a software problem and the fix is really a software fix! Here’s an excellent note on this – Toyota’s lesson: Software can be unsafe at any speed .

In the never ending quest to increase mileage and decrease fuel consumption, Toyota apparently replaced a completely mechanical system with one that was software driven and electronic.

The older Toyotas used to have a mechanical cable running from the accelerator pedal to the fuel injection system. They replaced this with a pedal that was mechanically disconnected from the fuel injection system but made local contact and sensors picked up what the pressure on the pedal was. This was electronically translated into increasing or decreasing the fuel injected into the engine to vary the speed.

Of course, this kind of fuel system achieved the fuel efficiency goals but what they overlooked was that when it comes to software, there is no such thing as 100% tested and bug-free software. With excellent coding discipline and extensive testing, you can approach the high nineties in % of bugs rooted out, but never 100%!

That’s probably what got them!

Of course, even newspapers reported that Toyota knew about problems and never ackonowledged them.

Beyond this there has been a lot of confusion about some of the parts manufactured in Japan, not having defects but those manufactured in Europe and the US having problems.  Just given the different ways way Toyota operates in Japan and outside Japan, there is a very real possibility of this being true!

In Japan, Toyota operates with parts suppliers very closely as this paper observes –  The Key Strategic Suppliers within Toyota’s Global Supply.

Toyota literally sends its people inside the suppliers’ operations, spend months and years teaching them the Toyota Production system and helping them achieve the quality tolerances they need to ensure a high level of overall quality. Most Toyota plants are near each other since Japan itself is a small country.

However, parts for the Toyota/GM factory in Fremont, CA comes all the way from plants in the Mid-West or South in the US. Not the same proximity, is it?

However, as this paper concludes at the end, an open question is still how this mode of operation works in different countries because of cultural differences and distances. My guess is that outside Japan, Toyota may not have the same degree of closely working relationships they may manage in Japan.

This becomes all the more important when you cut costs. Tighter tolerances, cheaper and cheaper parts and distance of the supplier to the manufacturer may only compound problems in the future, if not now.

Something to remember when doing lean improvement – What pressures are you placing into the whole execution chain? Can they snap somewhere in between.  Good things to ponder!

Everything we do has consequences.  – Dennis Potter

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Lean methods are those that cut waste in human effort, time, unnecessary movement of information or physical paper or objects.

It can also mean anything that does not add value to the end customer!  This is the basis of Value Stream Mapping, where you identify your internal activities that add value to the end customer, and eliminate those that do not. For example, someone bolting a door to a car in an assembly line is a value-adding activity. Them updating a sheet on a clipboard regarding their production statistics may be necessary from the company’s point of view, but not Value-Adding from the end customer’s point of view. After all, what do they get directly from something that benefits the company?

From this point of view, most Business Intelligence activities benefit only the company, providing them insights into what product is selling where, which sales person is selling what in what numbers in what regions, etc.

However, there is a new breed of Customer Intelligence solutions that provide direct value to the end customer.

On many store receipts, at the end of the purchase totals is a little section that is trying to persuade you to call a toll-free number or go to a web site and fill out a survey about your purchase when it is fresh in your mind.

I was chatting with Borge Hald, CEO of Medallia, and what they do. They provide a Software As a Service (SaaS) offering that enables these kinds of surveys to happen, collect Business Intelligence and provide insights about customer experiences to management.

But what is Lean about this is that it allows local Store managers or Hotel Managers to address the issues that the customer had with their experiences at their establishment.  Often, headquarters gets summarized abstracts of this kind of intelligence, but those never are Lean in the sense it benefits the end customer much. But allowing feedback about customer experiences to be channelled to the right local establishment and allowing the local management to address them directly in a timely, relevant way, Customer Intelligence becomes Value adding and as Lean as it gets!

Now companies like Medallia are making it possible to do this even from your iPhone closing the gap in time between a customer experience and the feedback to be channelled to the right people for them to take action! After all, if you need  come home, relax and start doing something else, you may never get to providing that feedback, good or bad, that you felt strongly at the location. Smartphones allow you to do that right then and there when the experience is fresh in your mind and your motivation is high!

Very interesting way to approach Business Intelligence, especially in the context of making it matter to the end customer. That’s Lean Business Intelligence!

You must learn from your past mistakes, but not lean on your past successes. – Denis Waitley

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Many a well-intentioned organizational change effort has been derailed by human beings!

Ask any of the large corporations that have spent millions and millions of dollars in ERP software the last two decades, only to find that the implementations were struggling to stabilize and work properly. All that money may just have been flushed down the toilet!

Checkout this story that documents well known ERP disasters at even companies like Hershey, Nike and HP that are supposed to be good places to work! – 10 Famous ERP Disasters, Dustups and Disappointments .

Many of them failed for many disparate reasons,  but one common thread among many of them would be failure to get buy-in from end users, and their inputs in trying to adopt the new way of doing things!

Therein, lies a very important lesson for many a Lean Improvement effort – Failure to get buy ins from end users!

When you change the way something has been done in the past, you are disturbing the steady state of many human beings involved in that process.

In ERP systems, the warehouse clerk may be used to doing things a certain way, and may be that’s all the skills they have to do, and care to do. Unless that person’s buy-in is obtained in the beginning or somebodyelse who will provide you that buy-in is brought in, the whole effort has a lot of potential pitfalls!

The warehouse clerk likes doing his work by filling out a paper form and is quite comfortable with it. Now you introduce a totally different way of doing things like fill out an online screen on a computer, they may not like the way it is done for whatever reason. It could simply be a case of “they didn’t ask me what I thought about this change”. They may be trying to sabotage the whole effort when no one is looking!

This is the Achilles Heel in not considering the Change Management, Human impact aspects of Lean Improvement upfront, before the analysis and redesign of the mechanical aspects of a process. If a certain person is likely to lose their job because of the improvement, it will be very difficult for that person to accept with happiness, how it is helping the company improve its bottom line. There is nothing in it for him, except bad consequences. On the other hand, if that person is convinced that they will be moving on to bigger and better things after the improvement is in place, they may be persuaded to enthusiastically engage in managing the change.

Lean Improvement is not just about cutting waste and doing things in a better way. It is also paying attention to ALL the factors BEFORE the effort is taken up so that the effort itself is successful.  What’s the point in undertaking an effort in cutting waste if that entire effort turns out to be a bigger waste of time, money and resources?

Failed ERP implementations are great instances for learning valuable lessons for planning and executing Lean Improvement efforts!

People are very open-minded about new things – as long as they’re exactly like the old ones – Charles F. Kettering

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Lean and Research and Development (R&D) don’t seem to fit together.

Lean is about cutting waste in effort, unnecessary movement and making sure anything you do adds value to the end customer.

Research and Development is about conquering new frontiers in Scientific Exploration, and in Industrial settings (Not academic), turning that research into Innovations, Advanced Development and Products.

In theory,  they could be poles apart. In practice, not quite!

We have all heard of legendary stories of very good research and advanced development not really making money for the company that invested in that research. Xerox PARC (Palo ALto Research Center) is famous for inventing the computer mouse but Apple was the company that made it into a commercial product. Corporate histories are laden with beauracracies totally killing innovative ideas.

The latest one is that General Motors spending millions of dollars developing an electric vehicle EV1, making many succesful production versions of it, leasing them, but buying every one of them and crushing them! There is a whole website devoted to this colossal waste of effort. money, research and innovation! . Now they are talking about producing an Electric Car! They had one and they threw it away before!

You might be surprised at the amount of money spent on R&D by companies that does not make a dime for the company. There is research for research’s sake but there are many companies that turn research ideas into products, ready for production, only to be killed by politics, economics or some other consideration!

Making sure that all your efforts at R&D are turned into something useful for the company is itself, Lean!

In addition, there are lots of others things companies can do for Lean R&D. Laboratories can be shared, resources can be shared by many research groups, cutting waste in the process.

There are some recent examples of how Pharmaceutical Companies have rationalized and Leaned their drug discovery efforts even! These are very large, very risky, very expensive projects and it only makes sense that you at least do not waste resources, efforts and the final outcomes are what you want as a corporation! 

Whoever thought that Lean and R&D could actually make sense together!

Misery acquaints a man with strange bedfellows. – William Shakespeare.

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My daughter was biding her time to buy a new laptop after she ground the last one to death for four years, We pounced on a great deal last week at one of the local Office Supply chains.

Of course, these kinds of deals always comes up with some mail-in rebates where you pay the store and get the money back from the store headquarters or the manufacturer.

The mail-in rebate we got this time was different like night and day from my previous experiences with mail-in rebates.

To me, they always appeared to be epitomes of waste;  involving me doing all kinds of cutting bar codes, filling out forms, sending them in with all the right attachments, and then waiting 6 to 8 weeks for the check to come in.

Usually these things are not worth the time or attention of any one, for anything less than $50 or so.

But this experience was an eye opener on how you can lean some of these processes, cutting a whole of waste of my time, their time and everything in between. They had leveraged the Internet very effectively for this one.

After we bought the system, all we had to do was go to a web site, type in the 20 digit number on the receipt, type in the serial number of the system, name and address and done!  From the 20 digit number, they figured out the offer, the store number, type of system, whether the serial number was a valid one, etc and all I had to do was just fill out the address details additionally.

To understand how much waste in people’s time, resources, etc that were cut out of this process, you need to follow how it was done otherwise. I had to fill out the form, cut the bar code out ofthe box, make sure that all necessary pieces of documents were all attached together, made sure that the envelope had enough postage and then mailed it.

Usually you mailed it to some rebate processing third party business in Minnesota. There someone opened up the envelope and checked if all the documents are in place, whether the rebates were all sent in on time, then someone manually entered all the information into a computer application for cutting the checks.

This entire manual cycle has been now cut out, cutting I imagine lots of my time, their time, and people’s time.

Of course, some one made a living doing this thing but I bet they were bored out of their mind doing this day in and day out.

The Internet has the potential of simplifying and cutting waste out of mindless ways of doing things like this one. If only, some one thought about the Internet as the first tool to explore before fancy Business process automation software!

Simplicity is the ultimate sophistication – Leonardo Da Vinci