By the Price of Business Show, Hosted by Kevin Price. The Price of Business is a media partner of this site.
Price recently interviewed Baldwin Tom. They discussed Tom’s recent book, 1+1=7: How Smart Leaders Make 7 Investments to Maximize Value. Tom says, “Every day, businesses lose money by not understanding or leveraging their investments.” When one considers the financials of organizations, it is clear that a significant portion of those investments are not captured in financial statements. Why? Because these are the people-side or soft-side intangible investments the accounting industry has yet to document. This may be a reason one views these same intangibles as not of significant value.
The Magnificent-7 (M-7). Of the 7 capital investments, two are strictly on the Task or tangible work side and five focused on People and what they produce. This means that 71% (5/7) of all capital investments are on the people, or the soft (intangible) side of the equation. Not surprisingly, there is hidden wealth and power buried in People-side investments. When people work together, such as in teams, there is powerful leveraging of intangibles such that 1+1 is no longer 2, but is more like 4 or 7.
TASK SIDE (tangibles)
- Financial capital — Financial capital is the monetary currency used to run the business by purchasing materials/resources and investing in people to facilitate business success.
- Physical capital — Physical capital is represented in fixed materials needed for products and services. This includes tangible machinery, buildings, equipment and computers together with land and labor.
PEOPLE SIDE (intangibles)
- Human capital —Just as with physical capital investments, without upgrades, technology becomes slow and/or obsolete. It is the same with people; there must be upgrades — training, coaching, education, and mentoring. Importantly, the value of this investment spreads throughout an enterprise — to organizational capital (patents, processes, procedures), physical capital (innovative products and services), spiritual capital (morale, work satisfaction) and to relationship capital (teamwork, customer relations).
- Relationship capital — It’s about power and influence. Building relationship capital delivers a host of ROI benefits resulting from a higher level of trust in products, sales, customer retention and even resolving conflicts.
- Spiritual capital — Spiritual capital in a business is derived from the values of the leadership. A people-focused culture energizes and enriches the human spirit, fostering social connectedness and personal satisfaction. It spurs people to go the extra mile. It is about ethical leadership and how people are treated. It is about consistency in leadership, e.g., no surprises. Such investments include a conscious effort to build a family culture that honors and supports each other.
- Customer capital —This goes beyond customer loyalty and includes customer feedback to the business, and partnering with the customer to produce new products and services. Value also manifests in the form of referrals and great press about the business from customers.
- Organizational capital — Organizational capital represents the value of an enterprise derived from intangible assets such as processes, procedures, systems, patents, trade secrets, reputation, brand and intellectual property. This is the memory of the enterprise that needs to be protected.
- Seven capital investments control the success and failure of business enterprises.
- The health and welfare of a business can be assessed with the seven investments.
- Five of the seven investments (or 71%) are people focused or derived, so people are clearly our most important asset. The ideal investments to maximize ROI are these intangible, soft-side ones. Leveraging intangible investments can transform organizations.
- With the understanding that people are truly the value generators, experts predict the Human Resource executive will soon focus more on generating value and wealth for organizations when dealing with personnel, than mere employee placement.