What Should We Be Spending?
Accounting by its nature looks at costs and has to categorize each expense. It is all about recording history, rather than analyzing and determining what we should be spending.
Record the transaction
Create financial statements
Ensure all information and processes are compliant
Extract management information
This is where most organizations are…
…and where most finance departments stop.
However, this is all backward looking.
As organizations integrate planning and forecasting (trying to look forward), leaders are still looking at what we spent historically in order to incrementally project forward.
By projecting incremental marginal increases, it inhibits our ability to think of or enable breakthrough changes in market value.
We are constrained because we haven’t allocated the resources for it.
“There are too many decision makers with the freedom to direct the expenditure of money allocated to them simply on the basis of historical practice, measuring and making decisions in silos.”
The Efficiency Trap
The “efficiency trap” occurs when organizations and practitioners have become engaged in a never-ending cycle of incremental improvement, always looking backwards at existing processes, and setting goals that aspire, every year, to beat past performance.
“Think for a moment about the impact this has on business leaders and teams.”
If you know that your goals, your performance, and thus often your pay, is going to be measured year in and year out by your ability to achieve that incremental improvement…
… just how inspired are you to achieve breakthrough results in any one year?
I dare say you would set yourself up for failure going forward!
This brings into clear perspective the old adage:
“Be careful what you wish for.”
Are your customers AND prospective customers really at the table when making funding decisions?
In most cases, gaining customer input looks like this:
Perhaps we have a list of 50 things the customers have indicated they want.
Then we prioritize this list and identify the items we believe are going to add the greatest value.
This is still incremental, internal thinking - focused on making changes to the existing process.
Spending decisions need to be hyper-focused on creating new customer value, using definitive quantification of market needs – increasing competitive positioning and the opportunity to improve the lives of our chosen market.
This is external thinking.
Does this mean we see no future for continuous improvement (CI)? Far from it!
Certainly, there are tangible benefits to using CI to help keep costs in check. We are not saying this is bad per se, but we have to get outside of this, looking first at market-based value insights in order to identify the improvements that will drive the most value or to envision something completely new.
Lean Six Sigma has been intentionally deployed using a bottoms-up strategy, which can be good, but we will never be able to re-envision a new future unless we also look at it from top down. We will just keep carrying our costs, our work streams and capabilities into the future if all we ever do is ‘tweak’ the existing process.
To learn more about financial strategy and LEAN accounting with the Convene consulting platform, just click here. You will find a variety of consultants that can meet with you in person or online.
About the Author
Marita's 30-year career brings a unique skill set as an experienced CFO / CPA with financial analysis expertise, Enterprise / Information Systems knowledge, and Lean Six Sigma Black Belt experience in transforming operations. Combined, this enables her to assist business owners in tackling their challenges and growing profitably. Through her expertise as a wealth advisor and personal financial specialist (CKA®, CLTC®) she can advise regarding the most impactful ways to utilize your and your company's wealth.