The Business of Value Generation

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Integration of 7 Capital Investments

We characterize the seven capital investments, we named Magnificent-7 (M-7), into three categories: Those investments that have to do with people (who get work done), those around tasks (or how we get work done), and those that facilitate (link) people working on tasks. On the people side, there are Human Capital and Relational Capital investments. On the task side, there are Organizational Capital and Physical Capital investments, or collectively Structural Capital. The three capitals that facilitate (link) the people-task efforts include Financial, Customer, and Spiritual Capital investments. (See more M-7 in Blogs of October 24 & November 7.)

We believe that many managers do not fully appreciate where the value in organizations reside. It is much more than funds on financial ledgers. The graphic below illustrates the integration and interconnectedness of the M-7 investments. Value is found in its people (human capital) and their relationships with each other and with people outside the organization (relational capital). There is value in intellectual property, the unique systems and processes, and the brand of the business (called organizational capital), along with value in facilities and hardware (physical capital). Collectively, the latter two may be called structural capital. What is often overlooked is what value in knowledge, network, feedback, and ideas the customer brings to the business (customer capital). We mentioned the obvious monetary value (financial capital). Finally, we often hear about the chemistry of a team within an organization, but don’t really ascribe a monetary value to it. Sometimes we speak of the heart of an organization, where there is meaning in the work and great morale and chemistry in the working environment. This area is called spiritual capital. Together these seven capitals work to support and enhance the value of an enterprise. This capital framing expands the term capital investment to be broader than investments in tangible things (fixed assets)! Indeed, if any of the capitals are neglected, the business is not optimized for value or high performance.

On the graphic, we have included types of investments for each of the M-7 to illustrate what might be included in those investments. Notice that these capital investments cover all aspects of an enterprise — both the tangible (task – green color) and intangible (people – yellow color) sides. To appreciate the value of the intangible side, one only has to consider the loss of valuation of a merger when two companies, with perfect task-side complementarity unravel. Why? Their two cultures clashed. Relationships (chemistries and team synergies) that existed and worked well in each company were eliminated by the merger. The spiritual capital on both sides were ignored and thus eliminated. The merger focused on the tangible side investments such as organizational, physical and financials. This tangible side was easier to appreciate and be recognized of value because traditionally capital investments refer to this component.

At the heart of the capital investments are the investments that provide the communication linkages between people and tasks. This set of capitals includes the two modes of exchange (Financial and Spiritual) that facilitate interactions between people and tasks that result in the production of goods and services. Thus financial capital provides the tangible currency of exchange and the spiritual capital the intangible currency of exchange with both important if optimization of an exchange is expected.

value-generation

We remember that the purpose of the enterprise is to serve the Customer. Effectively, all the investments are made to better serve each Customer. In this model, the Customer provides important feedback and input to fine tune all products and services, an invaluable service. This is the customer’s investment into your business. Hopefully it is clear that every capital investment is best served by addressing both the task and the people sides. Again, in order to increase the wealth of a business enterprise, all capital investments need to be considered!

© Dr. Baldwin H Tom, FIMC
www.geoddgroup.com

» Healthcare, Lifestyle » The Business of Value Generation
On November 21, 2016
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