Lean Enterprise: A Way to Improve Profitability and Creditworthiness
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Lean Enterprise: A Way to Improve Profitability and Creditworthiness

LEAN COMPANIES RECORDED A BETTER RETURN ON INVESTED CAPITAL (2.7% MORE) AND A BETTER NET FINANCIAL POSITION/EBITDA RATIO (3.6% LESS), ACCORDING TO DATA FROM THE FIRST LEAN THINKING OBSERVATORY BY ICRIOS BOCCONI, WITH THE SUPPORT OF BANCO BPM AND AUXIELL, PRESENTED TODAY

Companies that undertake a transformation process inspired by the dictates of lean thinking have a better return on invested capital (2.7% more) than non-lean companies and a better net financial position to EBITDA ratio (3.6% less). And the performance differential increases over time. On the one hand, companies that apply Lean Thinking are more profitable and more "attractive" to investors. On the other hand, companies that suffer from a competitiveness gap can use Lean Thinking as a management model to improve and be credible in their financing applications. These are the results of the first Lean Thinking Observatory by ICRIOS Bocconi, authored by Arnaldo Camuffo, deputy director of the Invernizzi center for research on innovation, organization, strategy and entrepreneurship (ICRIOS) of Bocconi, with the support of Banco BPM and auxiell and in collaboration with Assolombarda and the patronage of the Club dei 15, the lean thinking project of Confindustria.
 
Lean is a production, organizational and managerial model based on the adoption of the scientific method. It is aimed at eliminating waste and unnecessary variability in all business processes through an incessant process of experimentation and resolution of business problems.
 
The Lean Thinking Observatory relies on the AUB Observatory, which every year collects the balance sheet data of all Italian companies with a turnover of more than 20 million euros, and compares 171 companies that have embraced the lean philosophy with 3,614 comparable companies which have not done so. Companies are compared both from a static point of view (differences between a lean company and one that is not) and from a dynamic one (what happens as a company goes further in its lean path) according to three variables: return on invested capital, net financial position to EBITDA ratio and EBITDA.
 
The advantage of lean companies compared to the first two variables is evident since the introduction of the lean methodology and improves further over time. For each year of lean adoption, the return on invested capital improves by a further 2.3% and the ratio of net financial position to gross operating profit improves by 2.2%.
 
The EBITDA margin, on the other hand, is different, as it is generally 0.8% lower in lean companies than in non-lean ones, but it improves over time in lean companies, at a rate of 0.4% per year. «This figure reflects the fact that, at the start of Lean Transformation, companies bear higher costs, for example in terms of reorganization and staff training», explains Prof. Camuffo, «all changes that begin to bear fruit only after a while».
 
The Observatory repeats the same analysis for the 30 Italian companies recognized (through awards, previous studies, etc..) as the protagonists of the best implementations of a lean transformation and notes that these record a very high return on invested capital (+8.3% compared to non-lean companies) and an EBITDA margin comparable to that of non-lean, while the ratio of net financial position / EBITDA is only moderately better than that of non-lean (1.1%).
 
«From the numerous case studies conducted in support of the research», concludes Prof. Camuffo, «emerge some critical factors for the success of a lean transformation: singling out a clear strategic problem to be solved, identifying which processes to improve, with which lean tools and which KPIs, investing to imnprove capacity, and supporting this effort over time».
 
«Banco BPM gives a positive assessment of companies that have adopted a lean approach», adds Luca Manzoni, Head of Corporate at Banco BPM. «The work of the Observatory has in fact highlighted how lean companies are more competitive, have superior performance and have a better rating than the sector average. For this reason, the adoption of this methodology by our clients represents an important element in our evaluation of their creditworthiness».
 
Riccardo Pavanato, CEO of auxiell, says: "Lean Thinking, although in continuous evolution, has been widespread for at least 20 years as a management system. Yet it is difficult to relate its application to the financial performance of a company. We are, then, usually restricted to first level indicators, very important but often far from the logic of the Boards. With this study, we want to help bridge this gap, reducing the distance between middle managers and entrepreneurs or CEOs, key players in lean transformation».

by Fabio Todesco
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