The ten Laws of Relationship Capital are divided into logical groupings:  the first two Laws discuss who can and cannot possess Relationship Capital, the next four Laws deal with mechanics, the seventh and eighth Laws concern themselves with Intellectual Capital and its relationship to Relationship Capital and finally the last two Laws focus on Financial Capital and its relationship to Relationship Capital.  Therefore, we continue this month with the last of the “mechanics” discussions, which will certainly appeal to any of those who have ever dealt in the areas of organizational development, industrial psychology, business analysis and valuation and/or management/supervision.

The Sixth Law

Based upon the first five Laws, the Sixth Law states that:

Relationship Capital of an organization is the aggregate of the individual Relationship Capital of its constituents

Therefore,

            RC_Organization = SRC_Participants + SRC_Assets

It should be noted that the term “organization” refers to business units (RNIA’s preferred term), network, club, culture, society, caste, political affiliation, family unit, affinity group, community, etc.

The term “participants” can be equally interchanged with employees, members, constituents, entities, customers, students, etc.

Lastly, the term “assets” refers to all non-organic entities of value (products) as well as conceptually-based assets such as brands or those assets that stem from Intellectual Capital (which we will talk about in the next two parts of this series).

New Performance Metric

The implications of the Sixth Law solidifies (or at least, further supports) the studies of industrial and organizational psychology, organizational development and management theory as well as facilities management and maintenance and supply chain analysis.  When we look at the many components of organizational performance like communications, customer service, number of defective parts, number of accidents, and so on we see that they all affect organizational RC.  In this way, organizational success becomes dependent upon whether or not Relationship Capital can be maximized.  Therefore from an overall perspective, maximizing organizational RC means managing and improving all interactions between RC-possessing entities within the organization as well as those outside who have dealings with the organization.

 

The above chart suggests that organizations may choose to define thresholds based upon monitored RC.  These thresholds (in this case, “synergy” and “dysfunction”) would be used to determine appropriate operational procedures and action steps to be taken to correct course.  In the case of recognized organizational dysfunction, emergency preparedness plans may be enacted.

What’s also interesting is that RC can be viewed at any level of an organization;  from group to department to subsidiary to company to the entire corporation.  And as the “one bad apple” saying goes, measurement, tracking and analysis of RC will allow for easy detection of problem areas.

When we also keep in mind that the Third, Fourth and Fifth laws provide areas of further analysis like measuring influence, impact as well as reputational mass, momentum and force using the latest in statistical analysis tools, we have highly-optimized, yet humanistic business transpiring at many levels of the organization, within and without.  We can calculate thresholds of fame and notoriety for our various products and services as well.  This truly changes everything.

Financial Implications

What changes as well is the way we view any organization - corporations with higher RC are worth more.  There are currently conversations amongst certain communities that Relationship Capital has the potential to replace the “goodwill” calculation of a P&L statement.  This means that RC will become a key determinant the valuation of an organization.  If this is the case, imagine how this impacts the financial services industry!

Everything from accounting to banking to securities changes as a result of RC as there is a now a new dimension to risk assessment, stocks and bonds and M&A…all tied in to what was once considered the intangible human element.  Many an investment in a new venture is made based upon the management team’s expertise and perceived synergy.  What if it can now be quantified by RC?  Remember…it’s truly the people that provide the value to any organization.

Imagine too, what this means to the field of HR and recruiting.  RC changes the way we look at talent acquisition in that those “strong people skills” that are compulsory for almost any high-paying position (except, maybe, research) can now be measured.  It will be fascinating to see research out of our major universities that indicate how closely RC influences annual salaries.  Can higher RC of an individual be leveraged for added benefits, bonuses and pay raises?  Time will surely tell.

First Impressions

Another implication of note occurs when considering customer, public and/or vendor interactions with the organization, individual impressions of the organization by outsiders are usually formed by interactions with typically only one “touchpoint” of the organization, i.e., their representative.  This is certainly true with people who represent their organization.  We’ve all experienced the good, the bad and the ugly when it comes to these interactions.  BNI is very effective at demonstrating this point in their meetings in that each chapter has a card file of all members arranged in alphabetical order, not by company name, but by last name;  this is significant in that we really do not have relationships with organizations, but with the individuals or assets that represent them.

Of course, we have all been subject to both positive and negative interactions when dealing with representative assets of an organization.  Why do people who own BMWs more likely to buy another?  There is considerable RC in the brand and in the cars (their representatives do a mighty fine job as well, or so I’ve heard – I do not yet own a BMW).  But what about the major phone companies and other corporations that employ the use of automated answering systems?  How much RC do you think has been created via interactions with customers here?

The Future of Corporations

Companies that are high in RC are more than just well oiled machines;  they have a human face as well.  The corporations of the future will:

·         Excel in developing talent in ways that can be easily measured in RC

·         Recruit those “diamonds in the rough” that might not have the exact degrees and/or technical skills being sought but have a high enough RC to show true potential

·         Focus on the highest levels of customer service

·         Utilize the best analytics to monitor hourly, daily, weekly, monthly, quarterly and yearly RC by individuals, assets, business units, divisions, etc. against their established thresholds

·         Deftly adapt to changing situations at all levels of the company from employees on the front line to executives when RC levels cross established thresholds

·         Effectively plan for contingencies and learn from past performance.

Relationship Capital takes networking to levels well beyond working a room, collecting business cards and adding online friends.  It is the gateway through which the human race synthesizes everything we have learned so far from the countless fields of study, research and disciplines, sums it up, adapts and creates a positive future towards sustainability.

Next month, in Part 7 of The Laws of Relationship Capital, we begin our discussion on the link between Relationship Capital and Intellectual Capital…stay tuned.

The Emergence of the Relationship Economy

Relationship Capital is the cornerstone of the Relationship Economy, which RNIA defines as an “economic system in which Relationship Capital influences the production, distribution, exchange, and consumption of goods and services.”  I am proud to have contributed discussion of the Ten Laws of Relationships Capital to the upcoming book The Emergence of the Relationship Economy, now out as an eBook and in hardcopy.  With a forward written by Doc Searls (of Cluetrain Manifesto fame), it is being considered a “must read” for anyone responsible for the strategic direction of their business.  If you would like to purchase your own copy of The Emergence of the Relationship Economy, please click here.

Kovitz Enterprises, LLC
Connecting, Educating and Inspiring Business
18 Rockwood Road
Levittown, PA 19056
(215) 945-3411

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