The Controller's Function in the Lean Enterprise

The classic or traditional operating model of the Controllership function does not fully meet the management and process control needs of organizations that operate according to the concepts and philosophy of the Lean Enterprise. In a lean environment, besides performing the accounting, legal and financial functions considered classic or normal for the area, Controllership takes on a broader, more complex and more participative role, becoming directly involved in the operational aspects of each department. It comes to support value stream management, exposing and fighting waste and losses, becoming a facilitator at the disposal of all the other areas of the company, stimulating and motivating improvements through objective, simple and meaningful management information for everyone involved in the company's processes, and developing, maintaining and improving a structured, logical and consistent management accounting system in order to quickly identify problems and provide input for reaching definitive solutions to them.

Establishing or defining the exact and clear functions and responsibilities of the Controllership area within organizations is an almost impossible task, because the role of Controllership is influenced by several variables and undergoes adaptations and adjustments according to: the company's industry and type of business; the size of the organization; the company's capital structure; the region, country or countries in which the company operates; the type of product, process or service the company provides; whether or not it participates in capital markets; its relationship with customers and governments; the management style of the company's administration; the financial risk tied to the company's business; social responsibility; and environmental responsibility. In reality, the role of Controllership depends on a combination of some or all of the factors mentioned above. Each organization adopts the format of the Controllership area that best fits the combination of its type of business with the needs generated by its management model and company culture. Thus, in organizations guided by the traditional model, the functions of Controllership align with that system, clearly displaying an equally traditional stance.

In organizations managed on the basis of the Lean Enterprise model, on the other hand, the Controllership area plays a fundamental and decisive role in the success of the lean company, being directly involved in the programs and tools of the lean system. In this environment, it is natural and expected that Controllership efficiently and effectively manage all the classic functions and responsibilities that are necessary for the routine of the business, but it is imperative and necessary that the Controllership area also act within the principles of the Lean Enterprise, carrying out its tasks with more speed, more accuracy, more security and less complexity. In the lean environment, Controllership is fully involved in the micromanagement of processes, which means getting involved in the details of each department, acting on strategic, tactical and operational issues, and making valuable information available at all levels, according to the needs of each user, team or department. With this stance, Controllership plays a critical role in transferring authority with responsibilities to all employees, strengthening the empowerment of teams and, as a consequence, of individuals.

Below, we analyze the details of some functions and responsibilities of the Controllership area that, in a lean environment, are common attitudes and practices in its day-to-day work:

Inventory planning and control:

In companies managed by traditional models, the role of Controllership also involves tight control of the company's various inventories, whether for legal, operational or financial reasons. However, in companies managed with the lean concept, this role takes on critical dimensions, due to the following aspects: a) In lean organizations, powerful tools such as kanban, just-in-time, continuous flow, FIFO, etc. are routinely and widely applied so that all input, intermediate and output processes operate with minimum inventory levels and, in this context, the Controllership area must incorporate these tools into its information system and make them part of formal accounting; b) The minimum inventory levels practiced at all stages of its processes require Controllership to lead or facilitate the adoption of electronic and visual systems that control inventories separately with almost exact accuracy, developing systems with real-time updating and reducing to a minimum (or eliminating) the bureaucracy for moving materials; c) It is also the function of Controllership to establish continuous training mechanisms that involve the whole organization, so that the strict premises of the lean system - regarding inventory management - are incorporated into employees' normal routines and throughout the organization; d) On the other hand, the low volume and tight control of inventories in all areas of the company make some functions of Controllership easier, such as physical counts, which must be fast, frequent and accurate. Another benefit is that, in this scenario, the generation of obsolete or slow-moving items is minimal.

Planning and control of expenses and spending:

In lean organizations, identifying, fighting and reducing waste in all processes and workstations, technical or not, is also a culture, a habit. This makes each area, each department, each team, everyone directly responsible for planning and controlling the expenses and spending related to the tasks and processes under their control. Thus, the Controllership area also experiences a strong impact on its functions and responsibilities, compared with companies managed in the classic way. Dividing responsibility for expenses and spending across the whole company makes it easier for Controllership to manage targets and results, but this participative environment, with strong empowerment, requires additional effort from Controllership to: a) Develop, maintain and improve a decentralized system for controlling the company's general expenses, in which each department of the organization has knowledge of, control over and action on the accounts related to its tasks; b) Design systems that track and monitor these expenses and spending in real time, so that work teams can quickly identify undesired deviations and take immediate action to maintain the expected result within the current period itself, rather than just waiting for the end of the period to conclude that “gee, something got out of control and, because of that, the target was not met”; c) Establish mechanisms to stimulate and control continuous improvement projects throughout the company, ensuring that each project adds value to the organization; d) Validate the gains of the projects suggested by the teams, making resources available to implement these projects while respecting the organization's financial management policies.

Information technology (IT):

In a lean environment, information systems, from visual systems to electronic systems, are fundamental to providing security, speed and effectiveness in identifying improvement opportunities and in decision-making at all levels of the company, from top management to the shop floor teams. Thus, Controllership, when in charge of IT functions, takes on the following responsibilities: a) Develop, maintain and improve an integrated information system, with the main data available in real time, with fast routines and quick access; b) Plan, implement and keep up to date the hardware, software and training resources – which are needed to meet exactly what users need – in all areas of the company, customizing solutions, integrating with the visual management system and in tune with the speed of the actions and decisions generated by the teams in their routine of fighting waste; c) Develop and maintain reliable systems to obtain and keep, accurately and consistently, all the records needed to fulfill legal, managerial or operational obligations; d) Establish procedures and routines so that records can be easily retrieved, compiled, stratified, analyzed and interpreted by any level of user in the company, in real time when necessary, and with the exact content needed to perform the task at hand at that moment.

Cost planning and control:

In lean companies, the massive and routine use of lean concepts and tools generates, as an automatic consequence, an accurate and customized cost system for products or services. Materials, expenses and labor are carefully and meticulously allocated, controlled and known. Logical process flows are determined so as to maintain cycle times, manufacturing times, processing times, transport times, setup times and waiting times, which are established and respected. The entire chain becomes more robust and predictable. The effect of abnormalities is quickly measured. Variations and surprises are reduced or eliminated, so that the cost system effectively reflects the reality of each product or process, enabling real analyses of productivity, profitability and contribution margins, both by top management and by the various teams that manage the departments. In this environment, Controllership plays a central role in the analyses related to setting targets for expenses, material costs and the selling price of products and services.

Management Accounting:

Traditional or classic management accounting usually provides information for decision-making to top management, with no transparency for most other people in the organization, and problems are usually identified late, after the period has closed. Moreover, there is a myopic focus on the symptoms of negative results, almost always without identifying the real causes of the problems. In general, managers perceive and act only on the consequences of these problems, without considering that those who are actually involved in the tasks are the ones who know the processes best and, therefore, can most easily identify the true causes of the problems. A company managed by the Lean Enterprise model should rely on a Controllership that implements and maintains management accounting geared toward supporting value stream management in real time, stimulating throughout the organization the systematic elimination of sources of loss while still within the measured period, so as to correct negative trends in time.

Investment planning and control:

In lean organizations, the management of investments is more detailed and complex than in traditional companies. Controllership must establish procedures and systems to evaluate the economic aspects of an investment project, as happens in traditional companies; however, in addition to the financial aspects, the evaluation processes must include analyses related to the principles and concepts of the lean model, assessing the effects of the investment project on the company's value chain, such as, for example, the impact on inventories, on the cycle times of products, processes or services, on leveling and balancing demand, and on employee well-being, among others.

Strategic planning:

Lean organizations operate with their resources sized to the limit of the market in which they operate, including infrastructure, equipment, personnel, materials, etc. In lean companies, expansions need to be very well planned, mainly because of the complexity with which existing processes are interconnected and the impact the new project has on this balance. For this reason, top management must review its strategic planning frequently, to quickly identify any variations in the company's macroeconomic scenario and make the necessary corrections naturally, without affecting the value chain already established. In this scenario, the Controllership area takes on a direct role in drawing up strategic plans, contributing data and analyses generated by structured, efficient, real-time management accounting.

Human resources:

In any organization and, especially, in lean companies, human resources management is decisive for consolidating systems and tools and, once again, the Controllership area plays a strategic role in this function. In addition to the traditional tasks related to the financial implications of the workforce, the Controllership area must, above all, be a facilitating agent of the collective effort for continuous improvement and waste reduction, structuring management accounting in tune with lean programs, tools and principles and adapting it to the activities of the teams and work groups. Furthermore, Controllership acts as a catalyst for the empowerment of these teams and of the individuals who make them up, developing, among other things: a) Performance evaluation systems at the level of teams, departments, areas, company and corporation, building a system of transparent and comprehensive indicators, suited to each level, but focused on the results of teamwork, and not only of each individual; b) Making resources available for employee training, qualification and safety in long-, medium- and short-term financial planning, ensuring the continuity and continuous evolution of the programs, processes and pillars that support the Lean Enterprise model; c) Guaranteeing all employees access to any and all information, technical or not, that is relevant and adds value for carrying out their tasks. The exchange of information between top management and all employees is one of the keys to creating an environment of empowerment in the organization and an essential condition for establishing a lean system. Controllership's function is to lead the process of using and sharing information, properly applying the criterion of value added to the task.

To conclude, we find that the role of Controllership in organizations managed on the basis of the Lean Enterprise model has significant differences compared with the same function in a traditional company. Although the classic functions and responsibilities of Controllership must also be performed efficiently in lean companies, these functions and responsibilities have a more detailed and segmented focus, which means that Controllership, in a lean environment, has its responsibilities increased both quantitatively and qualitatively. In return, the strict control of inputs, processes and outputs means that legal and mandatory routines are carried out quickly and reliably – with few surprises –, thus requiring less effort and fewer resources from the area to manage them. Thus, almost naturally, the area's greater effort comes to be directed toward the organization's internal systems, where Controllership comes to have much closer involvement with all other departments of the company. Perhaps, compared with the traditional system, the role of Controllership in relation to employees/people is the one with the greatest impact, because, in the lean model, Controllership effectively takes on the role of facilitator, acting in all departments as a catalyst in the fight against waste, using information wisely, and developing in each team and in each individual the financial mindset – which is nothing more than creating a financial culture throughout the company, in which each employee acquires the habit of seeing the financial impact of any task performed or decision made.

The Table below presents a summary of the main differences between the role of the Controllership area in a company managed in a traditional or classic way and the role of the Controllership area in organizations managed on the basis of the Lean Enterprise model:

Source: Table prepared by Normides Carbonera Junior in Dec/2007.

Normides Carbonera Junior: Director of New Mindset. He acquired his lean knowledge while a manager at Invensys.