One of the most underrated voices in the “lean” world is Tom Johnson. I still regularly recommend his latest book, now 6 years old, Profit Beyond Measure. It's a little hard for some to read, but the point and purpose of the book is such an essential message. We've had reviews from The Lean Library before, a site we've contributed to for content. Here's a portion of the review for Profit Beyond Measure but the entire review can be found here.
Profit Beyond Measure establishes “True North”, or the ideal state, for the growing lean accounting movement, a growing sub-set of lean. Tom Johnson, the lead author, has a rather aggressive view having stated that “it is time to take the accounting out of management.” Although extreme and not necessarily adopted by other lean accounting authors, there is no question that Profit Beyond Measure sets the standard. There are two primary messages that best summarize the content of this book. The first is MBM, or Management by Means. This is a direct counterattack to MBR, or Management by Results. MBR focuses on quantity. It focuses on the outcomes of processes, using motivation, incentives and trial and error to achieve the desired outcome. In contrast, MBM focuses on relationships and processes. Means are ends in the making. If you get the processes and relationships right, you will get the desired outcomes.
The middle of this book explores three examples, two based on companies and one solution set, based on the concept of Management by Means. The first is titled Product to Order and focuses on Toyota. Johnson's over 30 visits to Toyota help him relate the concept of Management by Means to Toyota's production system. He discusses concepts including jidoka, takt time, standardized work, just in time and Heijunka, but not in great detail. He equates the Toyota Production System to a living, organic system. Perhaps the most revealing section of this chapter focuses on Management accounting at Toyota in Georgetown versus in Japan, explaining that the Toyota Production System in Japan succeeded in spite of their traditional standard cost systems, and took the time to design a new system when launching in the U.S. The next chapter is Design to Order, and it focuses in on Scania, the Swedish heavy truck manufacturer, as a case study. The case places a heavy emphasis on modular design, which by itself is not that original, but emphasizes the design and management system designed around the modular design as the key to their sustained success, which the company truly has had. The next chapter, Assess to Order, returns to the primary author's roots with a focus on measurement systems. This chapter is significantly more theoretical than the previous two chapters. A section heading “moving managers from targets to pathways” gives you a good idea of the message, but it focuses much of its time on analysis by order-line, which is almost a unit-by-unit, not average unit, costing system. The details are sorely lacking, however, and while helpful conceptually leaves many of the details to the reader.
The final section of the book brings it all together with an emphasis on living systems. The most valuable element of this are the principles of living systems. While applying these principles is no trivial task, they could be used in organizational and process design and management. The first principle of living systems is self-organization. A living system is able to organize itself naturally towards its objective. From the book: “creative energy continually and spontaneously materializes in self-organizing forms that strive to maintain their unique self-identity.” The second principle of living systems is interdependence. Everything is dependent on something else. Every action has some reaction. And you can't just do “your thing.” In the words of the authors: “interdependent natural systems interact with each other through a web of relationships that connects everything in the universe.” The third principle of living system is diversity. This is not in the human-resources sense, although that would be included, but diversity of all kinds. Diversity is a positive outcome of natural systems and the relationships build within. As stated in the book: “diversity results from the continual interaction of unique identities always relating to one another.”
The reason I'm writing about this now because Tom has just provided us with more to think about with a new article in Manufacturing Engineering titled Managing a Living System, Not a Ledger. Tom makes it very clear that we do not need better lean accounting, such as is promoted through the Lean Accounting Summit. What we need is to be better able to manage the living systems of our organization. He states that “lean accounting embodies a fatal flaw common to all ‘lean' activities.” That fata flaw is that these activities “do not change the principles that shape how [the work] is carried out.” I couldn't agree with that point more wholeheartedly. Lean must change the principles that shape peoples' beliefs, behaviors and actions. This is such an important point it is the central theme in The Hitchhiker's Guide to Lean and our flagship course The Lean Experience. Johnson goes on to describe a lean organization as “countless nonlinear feedback loops in a complex, self-adaptive and self-corrective living system.” As an engineer and a scientist, I find that to be an incredibly descriptive and insightful articulation. As a manager, my response is more like “uh…what?!?”
In an act of either poor editing or incredibly ironic contrast (and knowing the editor, I'm sure it's the latter) the very next article in the magazine is on the very topic that Johnson has such disdain for, lean accounting. It is titled Accounting for Lean and is writing by Mark DeLuzio, a contributor like myself to the Lean Accounting Summit. This article attempts to describe accounting for lean.
Here's my personal low-down on this. I believe Tom Johnson's view is right-on. I believe we need to better understand our systems, our people and how work is done, and accounting is rarely the lens to achieve this. That being said, my major quesiton or problem the point is this: how do we get there from here? If someone wanted to learn to fly and half-way down on a parachute jump cut off their chute, that wouldn't not be a good path. How do we get to Tom's vision of how a company should work and think? You can't just rip off the bandaid and the organization is different. For me, this question is what should drive the “lean accounting” community.
Coming full-circle, I've always strongly recommended Profit Beyond Measure. For any serious student of lean, it's a must read. To miss it would be to miss important perspective in shaping the mind of the lean thinker. Read more about it at The Lean Library or find it on Amazon below.
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