An active investor is one who is participating in the day to day management of the business he is investing in.

The goal of the active investor is to improve the business in order to increase the ROI when he sells the business.

Prior to investing in a business, the active investor already has an idea about the business, its market and its potentiality.

The active investor initiates several procedures like:

• Duly scrutinizing financial matters by accountants;
• Examining legal and regulatory issues by lawyers;
• Preparing a business plan and calculation of ROI and IRR by economists.

Each of the abovementioned topics is done thoroughly, and yet, this is not enough – too many investments are failing!

What is that the active investor is missing?

The answer is the lack of synchronization between operations, finance and information technology.

The pillars of the business

Each of the abovementioned terms aims at a different target:

• Operations – How to produce the product or deliver the service to the client in the most efficient way; it is «how we make things done».
• Finance – How to get the money needed to pay for all expenses and investments of the business; it is «how we manage our money and track our spending».
• Information Technology – How to use technology to enable the business to take place; it is «how we run our activity».

Those terms are the foundations of the business or the pillars, which the business is based on.

Each pillar encompasses several different elements:

• Operations – People, machinery, materials, goods, deliveries, standards, regulations and methods.
• Finance – People, costing and financial data, cash flow, standards, regulations and methods.
• Information Technology – People, hardware, systems, servers, embedded systems, databases, programs, communication, networks, applications, standards, regulations and methods.

Each pillar has its own complexities, disciplines, professional language, standards and methodologies.

Each pillar has its own best practices, experts and professionals.

All these differences draw the borders between the pillars. In other words, the pillars are divided by their differences.

To demonstrate we can see the division between operational systems and information systems.

Indeed there are some differences, mainly at the application layer, but they are all serving the same big target – advancing the business.

It is all about technology, therefor systems should be united by their uniqueness.

It is rather awkward to see the artificial separation between different types of technology reflected even by an organizational separation.

Hopefully IoT (Internet of Things) will be the first step towards unification.

We should think about technology not about information and operational technology.

If that is the case inside the (information) technology pillar, one can imagine the thickness of the borders between the 3 pillars.

Processes

Processes are sequences of actions or streams of the actions needed to be carried out in order to achieve the business’ goals.

The major processes are cross-pillars, which means that they involve processes in each one of the pillars.

Other processes are in-pillar, that is to say they do not cross the borders between the pillars.

The smoother the stream of actions the better the goals are achieved.

It is used to describe processes in a fish-bone diagram (Ishikawa diagram). However, in many cases the spaghetti mesh is more suitable.

The more bumps, obstacles and borders that exist the harder the actions stream along the processes and the business’ goals are hardly achieved.

When those pillar are not synchronized lots of problems arise. Just imagine some:

• What happens if technology doesn’t support operations?
• What happens if operations do not deliver sufficient data?
• What happens if finance do not support with timely flow of financial resources?
• What happens when financial reports do not match operational reports?

In order to streamline all actions, all 3 pillars must be synchronized.

What is actually done?

Each pillar is cumbersome, has its own goals and aims, has its own methodologies, its own professional language and needs its professional checkup.

ERP systems are trying to streamline many processes from operational to financial and financial documents.

Do they do it? Depends on the viewpoint.

If you look at the half full glass you can say that definitely they are doing good job by unifying some logistics and operations and finance.

If you look at the half empty glass you can say that ERP systems are built of different modules and you still have double inputs and that you need to add some assisting systems and of course some spreadsheets.

Businesses have at least ERP, CRM, BI and the core system of its core deliveries.

It is a long evolutionary process and we have a long way ahead.

What is done wrong?

The answer is that generally speaking, active investors do not check thoroughly the processes, let alone the cross-pillar ones.

During due diligence the numbers in the financial statements are scrutinized. Even some costing data is checked.

However, the processes that create those numbers are not checked, at least not as they should be checked.

Sarbanes-Oxley audits delve, one might say in a rather technical way, into some final phases of the financial reporting processes, ignoring other processes.

One example can be the profitability model.

Profitability model is built on a unique system with some spreadsheets.

The input data is derived from different systems with automated interfaces.

The profitability model of any transaction or product or service and of any client or region is not scrutinized.

Many questions are not asked like what are the operational processes that create the data, where data is collected from, by who, what type of data is not collected and why.

Another example can be the BI system.

BI system has a model according which data is collected from other systems.

The “supply chain” of data to the BI is not examined and the model itself is not questions.

The teams of the people who examine the different aspects of the businesses are professionals and experts at their own domain of expertise. Thus, accountants check the books lawyers check the contracts, engineers check production lines, etc.

To sum it up, it can be said that the combined streams of actions across the pillars are not evaluated.

What should be done?

Like in many projects an integrator should be added to the team.

It is not enough for the active investor to work with different groups of experts, who examine each pillar separately, without integrating all that work together.

More than that, a thorough examination of the synchronization between the 3 pillars is a must.

The integrator is the one with the capability to look at things in a holistic manner.

The integrator can examine the business architecture, delve into cross-pillars processes and check the synchronization between them in order to decide about the flow of the processes and how all actions, manual or automated, are streamlined.

The integrator uses different methodologies from different disciplines and uses them all together as a combined tool to scrutinize the cross-pillars processes. This combined tool enables the integrator to check processes end-to-end, from operations, through logistics, deliveries, technology, finance and so forth.

Conclusion

In order to increase their ROI active investors must carefully check the 3 main pillars of the businesses: operations, finance and (Information) Technology in a holistic attitude. This means to focus on the synchronization of these 3 pillars, by examining the cross-pillars processes that stream actions between these pillars.

In order to do this an integrator, who uses a unique combined tools and methods, should be added to the team of experts examining the business prior to the investment.