November 09, 2015

Capital Investment and Business Success

In business, you cannot succeed if you don't invest in the effort, an absolute truism!  Yet, we don't do it well.  Most of us are unaware of, or don't pay attention to, the multiple investments involved.  There are two types of investments -- tangible (task-side factors or what we do, the things we do) and intangible (attitude, culture, morale, teamwork or people-side factors).  From a strategic perspective, we can expect optimal success if we pay attention to all the invested capitals.  From a tactical perspective, we want to know what capitals are involved and what needs to be optimized.  Finally, we will want to know what balance of capital investments are needed to be fully successful as an organization.  Then, we will have done all we have control of to optimize a Return-on-Investment!

Over the years we have dissected the view that there are seven (7) capital investments that build value in organizations.  Interestingly, 4 of the capitals are on the people-side and 3 are on the task-side.  Hmmm?  that just validates my prejudice that people are more important in this equation!  Here are the 7 capital investments starting with the four people-side ones:

1. Human Capital (HC): HC includes investment in knowledge, skills, and competencies. It reflects the synergies possible with diversity of peoples and thought processes. HC creates knowledge -- the wealth in organizations.

2. Relational Capital (RC):  RC includes the relationships built with partners, suppliers, and customers, where the potential for synergies reside.  RC also includes the synergies within high performing teams.

3. Customer Capital (CC):  The customer is the reason for everything we do. CC includes important feedback from customers and reflects the return-on-investment of all the other capitals. Investing in CC offers invaluable returns in fine-tuning future investments.

4. Spiritual Capital (SpC): SpC reflects the culture and the norms of the organization. It is the intangible input/investment from people in an organization that gives meaning, values, purpose, and feelings of well-being to people.  SpC provides the psychic power and energy in the creation of knowledge and wealth.  Ignoring SpC destroys morale and, subsequently, the performance of an organization suffers financially.

5. Organizational Capital (OC): OC includes investments into systems and processes, intellectual property, brands and corporate image; OC provides the means and ‘accelerators’ that help produce knowledge.

6. Structural Capital (SC): SC includes facilities, hardware, tools and machinery, or the traditional groupings we refer to in capital spending.  SC provides the constraints that support consistency of products/services, including quality assurances and quality controls.

7. Financial Capital (FC):  Tying the People- and Task-sides together are investments in FC. FC (revenue, cash, debt, investments) provides the WD-40® lubricant to accelerate knowledge creation as well as products and services.

Of important consideration is that to optimize a people-side investment, there needs to be a concomitant task-side investment and vice versa.  For example, if we invest in new technology (structural capital) and not invest in the people (human capital) to learn and exploit the new technology, then we will have wasted our investment in technology.  If we invest in an organizational capital (new customer software) and not inform and educate our customers well, we lose out on building customer capital and potentially on relational capital as well.

Finally, as a means to monitor the success in investments, a scoring can be developed for a business by using each capital as a measuring stick. 

© Dr. Baldwin H. Tom CMC, FIMC