Accounting for a Lean Environment

Lean thinking is rapidly becoming the dominant paradigm in manufacturing. Kennedy and Widener (2008) use a case study to develop a lean environment model that illustrates the importance of lean accounting practices. We build on this work using a congruence model of organizational design (Nadler & Tushman, 1992, 1997) to shed more in-depth insights on the role of value stream costing (VSC) and lean accounting practices that exist in a cross-section of manufacturing firms. Using data from 244 U.S. companies that have implemented lean principles, we test a structural equation model that examines the role VSC plays in the lean environment. We hypothesize and find that top management support is associated with lean manufacturing practices, which in turn are associated with a decreased emphasis on traditional management accounting practices and an increase in the lean accounting concepts of simplified accounting practices and VSC. We also find that VSC is associated with employee empowerment and the use of visual performance measures. We find the existence of a second, better fitting model that confirms the importance of VSC as a critical element in the lean environment. However, the alternative model supports VSC as the final outcome in the lean process, rather than an intermediate step, suggesting that in a cross-section of firms, lean accounting may be the laggard in the implementation of lean principles. This study provides evidence on the internal alignment of a firm’s manufacturing, accounting, and control environments in a lean context.