Businesses lose money every day by not properly understanding or leveraging their investments. Clever managers realize that a significant portion of an organization’s value is not captured in financial statements. But, such intangible assets can be just as valuable to business success as those that appear on a quarterly report.
There are seven types of capital investments available to every organization, the Magnificent 7: Two of these are strictly “task” oriented, or tangible assets; the other five are focused on people and what they produce. There is hidden wealth and power buried in these people-side assets. When people work together, as in teamwork, they achieve powerful leverage such that 1+1 is no longer 2, but is more like 1+1=7.
The task side of the ledger encompasses a business’s tangible issues, like the work to be done, equipment, fixtures, and the workplace. The “people” side of the ledger lists the intangible issues and assets, those that concern the individuals doing the work, interacting, engaging in teamwork, promoting a workplace culture, and maintaining workplace methods and standards.
Tangible asset investments
1. Financial investments — Financial capital is the money used to run a business by purchasing materials/resources and investing in people to carry out its objectives. Financial capital is one of two currencies of exchange between people who do the work and the work they do. The other intangible currency is spiritual capital.
2. Physical investments— Physical capital is recognizable in fixed materials needed to deliver products and services. This includes machinery, buildings, equipment, computers, real estate, and labor. The benefit of timely investment in these things is that it helps to keep an enterprise competitive. Importantly, a commensurate investment in the intangible assets is necessary to maximize ROI.
Intangible asset investments
3. People — Investing in human capital is easy to understand. Note the necessity of capital investments in tangible assets without upgrades, technology becomes slow and/or obsolete. It is the same with people; the upgrades must be continuous. Training, coaching, education, mentoring, and internships are obvious ways to increase the value of people to an organization. Importantly, such investments spread throughout an enterprise as organizational capital (patents, processes, procedures), physical capital (innovative products and services), spiritual capital (morale, work satisfaction), and relationship capital (teamwork, customer relations.)
4. Relationships — With these investments, value is derived daily by leveraging human interactions. It’s about power and influence. The network of relationships (inside and outside an organization) that interact with a business is a significant resource. Building relationship capital delivers ROI by raising trust in products, sales, customer appreciation, and in dispute resolution. The ROI multiplier may appear small, but secondary impact and synergies of relationships can be huge.
5. Spiritual — Spiritual growth is derived from the values set by an organization’s leadership. With a great deal of spiritual capital, there is ethical decision-making built into a value-based culture, where shareholder gain does not outweigh gain for customers and stakeholders. A culture forms that energizes and enriches the human spirit, fostering social connectedness and personal satisfaction. It spurs people to go an extra mile. Ethical leadership establishes standards for how people are treated. It is consistent. There are no surprises.
6. Customers — Customer capital is the value that a business builds via relationships with its customers. This goes beyond loyalty and includes feedback to the business, and partnering with the customer to produce new products and services. Value also manifests in the form of referrals and publicity about the business supplied by customers. Every executive recognizes the importance of paying attention to the customer. But being nice is only a beginning for enhancing ROI. Working to develop partnerships is a true investment.
7. Organization — Organizational capital is the value an enterprise derives from mostly intangible assets, e.g., processes, best practices, patents, reputation, brand and intellectual property. Organizational investment is important because it enhances the “memory” of the enterprise. Building and maintaining a brand and reputation and protecting intellectual property are critical to sustaining the legacy of the enterprise. It protects the knowledge, skills, and expertise from being lost when talented people depart from the organization.
Intangibles determine success
To discern which of the Magnificent 7 investments were most critical in a merger or acquisition, the corporate, healthcare, and the accounting industries were studied. In nearly every merger, success or failure was predicated on alignment or misalignment of culture between the merging entities. “Culture,” in the Magnificent 7 outline, is established within the collective investments of Human, Relationship, and Spiritual capitals. Such investments reinforce the concept that intangible assets significantly impact success or failure in an enterprise.
Here are the steps to discovering and leveraging the wealth hidden in your organization?
1. Inventory your investments: Identify which ones have your focus.
2. Pair investments: Match any tangible-asset investment with an intangible one (e.g., if you invest in new technology, invest in personnel training too.)
3. Set goals for each investment: Determine goals and completion dates for each one.
4. Track the success in reaching investment goals.
5. Monitor progress toward goals: Evaluate the investments, and make corrections or change course as needed.
6. Celebrate success: Reinforce success to encourage new efforts.
7. Repeat steps 1-6
There is no doubt that judicious investing in intangible assets and matching those to tangible investments yields significant ROI. Leveraging the intangibles accentuates power, creativity, and innovation and thereby new products, services, and value generation in organizations.
Baldwin Tom is the author of "1+1=7: How Smart Leaders Make 7 Investments to Maximize Value." He’s also a medical school scientist, professor, leadership program developer, and founder of a science and technology firm. Baldwin is a Certified Management Consultant and served as the National Board Chair of the Institute of Management Consultants USA. For more information on Baldwin Tom, visit www.geoddgroup.com.