Many companies I worked with over the years require reporting total headcount to management along with explanations as to why headcount changes. What a mistake, especially in a lean company.
What should matter to senior management is consistently improving productivity 10-20% annually. Productivity is defined as increasing output with the same resources. People are not productive for one reason – the processes they work in, which have been designed by the company, are not lean. Poor process design is not the fault of the people that work in the process. Measuring headcount sends the message that poor productivity is their fault.
As an accountant, it’s important to understand that you will hire more people the more waste there is in a process or company. Here is a simple example. If there is a value stream that has 50% waste in it, this means 50% of the time the people who work in the process cannot do value-added work because they are working on waste. If the company wanted to increase value-added capacity by 1 person, it would have to hire 2 people to get the output of 1 person because of the waste.
Here are 3 things that accounting can do:
First, create a productivity measure such as units per person for a value stream to measure itself. The numerator should be what is being sold, or what the value stream contributes to the final product or service. The denominator should be the resources required to achieve the value-added output. It could be people or simply total hours worked. Make sure it any measure is the simplest & easiest that a value stream can calculate on a weekly basis.
Second, senior management must set annual improvement targets. Companies that are very good at lean usually see 20% productivity improvements annually. Even early in the lean journey, set targets that are difficult, but attainable with the right effort.
Third, train & educate everyone on the lean tools & practices to identify and eliminate waste. Management needs to support all continuous improvement efforts by removing all roadblocks preventing improvement. Remember, most waste in processes was created be design. If the company created the waste it can eliminate it, if it has the will to admit mistakes.
In a lean company the environment is one of increasing productivity, so adding more people means that demand is increasing. As long as productivity improvement is maintained, it doesn’t matter how large your headcount. You will be making money.