Profit Beyond Measure
Author: H. Thomas Johnson and Anders BrÃ¶ms
Publication Date: 2000
Book Description: What’s the key message?
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.”
How does it contribute ot the lean knowledge base?
Tom Johnson, along with Robert Kaplan, rocked the world of managerial accounting in 1987 with the book Relevance Lost, declaring that the practices of accounting that had served managers for decades were no longer appropriate and useful. Since that time, both authors have pursued the solution, albeit in very different trajectories. Profit Beyond Measure represents Johnson’s path of study. The influences on this study are very clear. It is dedicated to Dr. Deming, a long advocate of a focus on systems. The foreword is written by Peter Senge, who popularized the concepts of organizational learning and systems thinking. Going forward, this book will ultimately influence many others. Few use it as a guide for implementation, but it is an important and popular thought starter. Tom Johnson is considered a founding father of the popular movement of lean accounting, and this book is the primary reason why.
What are the highlights? What works?
The central highlight, and benefit, is that this book uncovers a valuable perspective that will help any lean thinking that can not be found as well articulated anywhere. This is not to say this is “the” lean book, but it is unique. The relationship of lean to living systems, accounting / measurement systems and Management by Means can not be found elsewhere. The use of both case studies, Toyota and Scania, are useful. And the frameworks, concepts and language introduced here are some of the most original thinking on the topic available.
What are the weaknesses? What’s missing?
There are two primary weaknesses. The first is the redundancy of the same points being made over and over again. While repetition is the key to learning (we all remember our multiplication tables) this overdoes it. Most readers will “get it” by chapter 1 and while the rest of the book has value, too much of it gets tiring. The second is the lack of any practical advice on “what do I do?” This was never meant to be a how-to book, but there is a very large chasm between the theory of the book and the user being able to apply it. Some guidance at least would be helpful.
How should I read this to get the most out of it?
You should not read this as your first lean book, nor should you read this if you are not ready for its message. This book will not “sell you” on the concept. If you aren’t curious about living systems and lean, you are not likely to finish it. Read this as an intellectual pursuit and most importantly, work towards integrating the knowledge gained into your existing frameworks rather than attempting to apply it directly.