Leveraging lean across the finance function

January 2018  |  FEATURE  |  BANKING & FINANCE

Financier Worldwide Magazine

January 2018 Issue

Lean is a business methodology focused on customer value and resource efficiency – essentially a tool for optimising processes and underpinning sustainable competitive advantage. One area of business in which the application of lean techniques can be particularly beneficial is the finance function.

In today’s demanding business environment, where expectations are high but resources scarce, finance and accounting functions are being squeezed like never before. Lean, as a result, is being adopted by companies seeking to eliminate waste, work smarter and improve efficiencies.

According to PwC’s 2017 report ‘Stepping up: How finance functions are transforming to drive business results’, top finance functions are committed to a lean environment and driving continuous year-on-year improvements in how they work. This includes embracing change, particularly more visual and technology-enabled management styles and new behavioural techniques to get the best out of staff.

“Finance functions that successfully transform themselves on the back of lean spend 20 percent more time on insights and less on data gathering,” says Irene Liu, a consulting partner at PwC. “They are able to pay staff 25 percent more and still run with 36 percent lower costs than their peers. Moreover, an unsurprising consequence of the improvements is that staff motivation improves and turnover reduced.”

KPMG’s ‘Business partnership: Inside the intelligent finance function’ survey, released in 2016, further details how lean can streamline financial processes to eliminate unnecessary activities and highlight those that do add value. Lean finance, the survey says, allows companies to: (i) perform transactional and high volume activities outside the organisation, standardised, centralised and transferred to shared services centres or external outsourcing providers; (ii) further develop IT infrastructure to automate data consolidation, processing and reporting; (iii) automate routine processes to save execution time and reduce the risk and number of errors; and (iv) standardise processes by aligning roles, responsibilities and control points and measures within the finance function.

However, implementing this is easier said than done. Not only do lean techniques need to be effectively translated into everyday working practices but, first and foremost, the acceptance of lean ideology itself requires a fundamental shift in the traditional mindset of finance professionals.

Lean principles

Historically applied to manufacturing and logistics operations, lean principles began to take root in the 1990s when many companies set out to improve their back office functions. Lean, it is generally accepted, has three key principles: adding value, reducing waste and continuing improvement.

“Over the years, lean as a concept has evolved to gradually cover all areas of a business,” says Michael Weyrich, a managing director at AlixPartners. “A business can apply lean management principles in all or parts of their business, such as supply chain, manufacturing, customer support and service, sales and administrative support, among many others.”

Fundamentally, lean management is all about the evolution of a company based on the concept of continuous and incremental improvement. In essence, lean management leverages methods for eliminating or improving factors that waste time, effort or money. This, in turn, leads to an increase in productivity, quality, timely delivery and efficiencies.

“Lean is a quality improvement tool and a means for improving continuous processes across finance functions,” affirms Alywin Teh, a consulting leader at PwC. “Underlying lean principles around identifying and eliminating waste have driven a change in mindsets and behaviours. Many proponents of lean will see this as a transformation in culture. As organisations become more familiar with lean, which is primarily focused on processes, we see opportunities to take a holistic approach toward operational effectiveness and efficiency through the lens of people management and robotics process automation (RPI).”

Lean in the workplace

The process of introducing lean into the workplace is not easy. Companies need to gain a company-wide commitment to lean that involves all staff, from the rank and file to the upper echelons. Finance staff comfortable with tried and trusted working practices may be particularly unenthused at the prospect.

Without doubt, there are many examples where the rollout of lean has resulted in significant improvement in a company’s productivity, speed and quality.

Eric de Diesbach, a partner at Inform Consulting Group, believes the main issues faced by firms applying lean principles to their finance function come from their own employees. “Some employees may resist the change either due to fear of the unknown, or because they perceive the change as a threat,” he suggests. “Or they may think that lean ends when the initial lean transformation project is completed. But no, lean does not end there. Lean means continually looking for incremental improvements and some people may have problems adjusting to that mindset. In addition, employees must be educated that lean will deliver benefits for both the company and its employees.”

That a shift to lean within the finance function requires a fundamental alteration in established mindsets is, to a large extent, hardly surprising, particularly given the conservative and cautious conduct traditionally exhibited by finance people. Moreover, according to Ms Liu, only 24 percent of finance functions are currently spending time doing work that requires strategic thinking. “However, once lean is applied, job roles will be enhanced so that they provide insights on finance, rather being largely data extraction activities,” she says. “These insights can then be used to drive strategy and decision making.”

A key requirement in establishing lean within a company’s finance function, or in any other area for that matter, is that the tone from the top should be positive and encouraging. This means that senior management need to believe in the value of lean, incorporate lean thinking into every project undertaken and foster a culture of rewarding employees who utilise lean to streamline their work. To help accomplish this, companies may see fit to appoint a senior member of staff to champion the virtues of lean.

“When rolling out a significant transformation programme such as lean across all or part of a company, a substantial investment in time and effort is necessary,” advises Mr Weyrich. “In order to do this successfully, a business needs people from many functions and levels across the organisation to be involved. In our experience, it is key for top management to be actively and visibly involved. The effort really needs to be led from the top to ensure that results are achieved.”

Lean consequences

For every upside, however, there is a downside. Having overcome the challenges of implementation, what then are the potential downsides of rolling out lean? “The application of lean principles should have a positive impact on quality and productivity,” says Ms Liu. “However, if lean is not implemented properly, for example without proper communications, the repercussions can be highly disruptive. Staff may be demotivated, suspicious of management intentions, view the process as a mere cost cutting exercise or be unsupportive toward the entire project.”

Without doubt, there are many examples where the rollout of lean has resulted in significant improvement in a company’s productivity, speed and quality. Some estimates put this uptick in performance in the 2 to 5 percent a year range. That said, it must be recognised that continuous improvement programmes such as lean are unlikely to fit the requirements of every company.

“These programmes tend to make more incremental change to often siloed processes,” affirms

Bob Cecil, a principal in the shared services and outsourcing advisory practice at KPMG. “If you need to look at end-to-end processes and the application of leading practices, then a more traditional, process re-engineering approach may be necessary in order to achieve a one-time step change improvement. Similarly, if you need to fundamentally change a process to meet customer demands, processes such as design thinking and journey mapping may be more appropriate. One set of tools, including lean, does not fit all situations.”

Lean culture

For all the challenges involved, it is clear that developing a workplace culture that is receptive to lean methodologies can pay dividends. Lean principles – whether utilised in a company-wide lean project or introduced wholesale – can be extremely effective and encourage the appetite for new ways to improve.

“Many industries are experiencing constant pressure on their profitability, with a challenging market environment impacting their pricing and market share, and raw material increases putting a strain on cost of goods management,” notes Mr Weyrich. “Most companies need to keep a constant eye on their overhead costs to stay competitive. When delivering a significant operational transformation, a company needs to be highly receptive to rapid and significant change as typical transformation loops are getting shorter and the requirement for change increases exponentially in most industries.”

According to Mr de Diesbach, if lean is implemented effectively it will deliver positive results in terms of productivity, costs, quality and timely deliveries. “I am yet to see one lean implementation that has not delivered multiple positives,” he states unequivocally. “Lean is about adding value to customers, reducing waste and continuous improvement. How could it not deliver positive outcomes?”

Lean in future

Many commentators foresee lean becoming a way of life for companies in the years to come. Indeed, in particularly progressive organisations, lean is expected to align the finance function with the risk function – a merger of functionalities which significantly overlap in terms of data gathering, reporting and analytics. “This creation of synergies actually breaks down barriers in traditionally separate functions and can become a model for management to rethink how departments are being segregated,” suggests Ms Liu.

Some, however, caution against lean as a panacea. “Lean is an important part of the overall toolkit for process improvement, but it should not be the only tool a company deploys as it develops a world-class finance function,” says Mr Cecil. “We are increasingly seeing centres of expertise for lean, global process ownership and intelligent automation being combined to drive a multi-dimensional approach to process improvement.”

Going forward, as industries becoming more and more competitive and change occurs at a faster pace, companies need to consider the ways in which they can transform their operational performance. Key to this is finding the right balance between making significant changes to their business models and oversight of their continuous improvement activities. “Lean is a natural part of this evolution,” suggests Mr Weyrich. “Yet lean principles are unlikely to be sufficient for companies facing significant and rapid change within industries where speed and results matter in the short term.”

Whether a panacea or passing fad or somewhere in between, opinion clearly varies as to whether lean is now a way of life for companies or a tool insufficient to affect significant change. Finding the middle ground between the two is therefore key.

© Financier Worldwide


Fraser Tennant

©2001-2018 Financier Worldwide Ltd. All rights reserved.