Ian Burton, TRI Cap Director, Chairman of TRI Cap’s Monitoring Group, Captain of Scottish Borders Exporters Association and Director of Scottish Borders Chamber of Commerce explains how the philosophy of continuous improvement should drive the investor / investee relationship.
Continuous improvement is the key to business success. Because if a business is not going forward then it is going backwards. But this is not a new idea. Since the rebuilding of Japanese industry after the Second World War, the philosophy of continuous improvement known as Kaizen has driven many successful companies forward. It applies to the whole organisation, from the chairman to the cleaner; from tiny incremental changes enacted swiftly in the production line environment to the flow of materials and information.
Toyota is famous for its adherence to the Kaizen business principle with workers encouraged to identify small improvements in process to improve output. But the philosophy is not the preserve of large production-line companies. The ISO 9001 standard requires businesses to plan, do, check and act. And nowhere is continuous improvement more important than in the business of investment.
Firstly, it applies to investee companies. Those whose businesses have been supported by outside investors are presented with an unrivalled opportunity to pursue the principles of Kaizen. Because those who invest have a wealth of expertise which should be utilised. Unlike those who work within the business on a daily basis, these individuals have experience of other successful companies, other production systems and other business environments. They are uniquely well-placed to be a ‘critical friend’ because they are invested, both financially and intellectually, in a business idea and are therefore also invested in its success.
In a variety of roles, from chairman, non-executive director, observer or monitor, these investors are there to challenge. Either in the boardroom or behind the scenes, they have the success of the business at heart but they would be irresponsible if they did not use their experience to chip away at continuous improvement. But their intention is not to undermine; it is to encourage forward momentum. Even if a business is meeting its financial targets, there may be underlying issues which will affect future performance and it is their responsibility to bring these issues to the attention of the board. And as the goalposts change, it is to assist in the re-evaluation of targets.
Secondly, the principle of Kaizen applies to the investment vehicle itself. If we as investors do not learn from our experience then we will also be moving backwards. At TRI Cap we now understand that we want to engage with those who wish to engage with us. We do not simply aim to hand over our money and sit back and wait to see what happens. We know that the potential of people and their ideas is more important than their current financial position. If a business idea is fundamentally flawed, no amount of strategic input will make it a long term success. But if the premise is a good one and the management team is responsive and engaged, we will be able to provide the expertise to help manage the business so that it moves forward.
At TRI Cap we are also continually developing our own management systems. We have recently undertaken an exercise to gather the views of our investment members and are taking steps to act upon it. We are also in the process of revising our monitoring function and developing ways to improve the flow of information.
Yet ultimately, and perhaps bizarrely, our aim is to become redundant. Ideally, our investment of both money and ideas will lead to a successful exit. It has never been our intention to hold investments over a long period of time but to see a company moving on to the next stage in its development. For us, this is a vital aspect of the continuous improvement process.