Theory of Constraints Handbook - James Cox Iii [244]
Align employee behavior with strategic goals;
Provide relevant and timely feedback to managers;
Promote better decisions;
Improve operating performance (Lawson et al., 2003; Buhovac and Slapnicar, 2007; Anonymous, 2008, 80).
Unfortunately, most of these expectations are unfulfilled for the majority of adopters.
Disadvantages of Balanced Scorecards
It is estimated that up to 70 percent of organizations have adopted balanced scorecards (Angel and Rampersad, 2005). However, even proponents of balanced scorecards admit that up to 90 percent of adopters fail to execute well-planned strategies (Weil, 2007). For whatever reasons,10 balanced scorecard promises have not been delivered. One author came up with a list of “Top 10” problems with most scorecards (Brown, 2007, 9). Most researchers conclude that a balanced scorecard:
Encourages too many measures that divert focus from what is important;
Gives obvious priority to financial measures; bonuses are rarely based on non-financial metrics;
Excludes, too often, appropriate measures for learning and organizational growth;
Provides an unfavorable cost/benefit ratio;
Produces measures from diversified divisions that cannot be aggregated at the corporate level;
Neglects to clearly connect strategy with action at the individual employee level;
Provides lagging metrics that do not produce timely information (Bourne et al., 2002; Speckbacher et al., 2003; Brown, 2007, 9; Weil, 2007).
Lean Accounting
Borrowing liberally from English translations of Toyota’s development of Lean operations, all the way from The Machine That Changed the World (Womack, Jones, and Roos, 1990) to The Toyota Way (Liker, 2004) and The Toyota Way Field Book (Liker and Meier, 2006), Lean accounting intends to adapt to accounting the basic principles of eliminating waste, reducing time and cost, and developing value streams.
Lean concepts were developed in the manufacturing industry, but even service industries now are adopting Lean techniques. For example, in an attempt to reinvigorate its operations, Starbucks recently introduced Lean techniques in its coffee shops (Jargon, 2009). An executive search firm (recruiting Lean executives) has begun using Lean concepts (Brandt, 2009), back offices are implementing Lean (Brewton, 2009), and even hospitals are trying it out (Does et al., 2009).
Connection to Value Stream Analysis (Cell Manufacturing Analogy)
The traditional accounting approach consists of gathering, by department, division, or segment, direct costs, which include all variable costs of production plus fixed costs benefitting a single unit, and allocating common costs (shared fixed costs) to all units that benefit from the common costs. In contrast, Lean accounting, like Lean operations, focuses on establishing, for a value stream (a production flow for a particular product or family of products), a flow of data that rapidly produces high-quality information (Maskell and Baggaley, 2004, 9–10). For example, if processing accounting transactions individually, one by one, speeds up the flow of information to operating managers, that methodology is preferred even though batch processing of data may be a more cost-effective process. Most Lean accounting advice, though, applies to operations, not to activities of the accounting department itself.11
Applying Lean accounting concepts to an operation where costs are aggregated by value streams, established for each product line or family of products, requires “dedicated” value stream resources. Each stream is designed to speed the flow of production and minimize arbitrary cost allocations. Dedicating resources to each stream results in some duplication of resources. Duplication of resources, of course, increases costs. Production, however, is speeded up and revenue is earned more rapidly.
Lean accounting recognizes the arbitrary nature of allocating common (shared) fixed costs and attempts to avoid this issue either by dedicating resources to individual value streams where allocations are limited to product