With 2009 here I wanted to revisit Relationship Capital (RC) and look back at the Laws of Relationship Capital Series I ran from October, 2007 – August, 2008 and expand upon a few of their points. In fact, I realize (in hindsight) that I never suggested an actual means by which we might calculate RC, although I hope to show how we already do this consciously or otherwise when we “size people up”.
A Review
When we think of “capital” we think of money – the stuff that puts food on our families’ tables and keeps us in our homes and gets us that 42” plasma screen TV. But when we begin to look at how we acquire money (Financial Capital), we realize that any Financial Capital that we’ve ever received has been the result of who we know and what we know. The “what we know”, I have come to call “Intellectual Capital” (not that I have coined this term, but this is what others have come to call it who work in the area of Intellectual Property). The “who we know” refers to RC.
This is the basis of the Ninth Law of Relationship Capital, which states that “Financial Capital is merely a reflection of and cannot exist without some combination of Relationship and Intellectual Capital”.
The U.S. Dollar is one of the world’s leading monetary units, even considering the current global economic crisis. Yet what is the true value of such a currency? At one time, the dollar was backed by gold, one of the world’s most precious metals. In 1933, the Roosevelt Administration did away with the easy conversion of dollars to gold (and back) and in 1971, under the Nixon Administration the gold standard was altogether replaced by the Federal Reserve determining the value.
Whether backed by gold, economic modeling, chocolate (as was once used by Aztecs in Mexico) or something else, the issue is that currency is something external and valuated based upon perception. In this regard, it is an invention of the mind to which most people have agreed, yet when it stops working, more people begin to question its validity
Many regard Intellectual and Relationship Capital as a truer currency in that it can’t be taken away from us like Financial Capital can. Both these forms of capital cannot be devalued without:
Our consent, or
The applicability of who and what we know given specific circumstances.
As it is, Intellectual Capital is being used more and more in the determination of corporate valuation. In fact, the “intangibles” of an organization, mainly Intellectual Capital items like patents, copyrights and even branding have become as much as 80% of a company’s appraisal value (whereas around the turn of the century 80% of appraisal value was based upon tangible assets). Individuals are considered candidates for jobs if they meet initial criteria of a higher-education degree, specific knowledge of computer technologies, or prior knowledge of regulatory issues.
Calculating RC
While there are very few commonly accepted practices to calculating Intellectual Capital, there is even less in terms of RC. That being stated, I figured that I would put forward a suggestion based upon observations of the real world and the Third, Fourth, Fifth and Sixth Laws. Therefore calculations should be based upon the following:
- Number of connections – in the world of online networking, we tend to size people up by how many people they “know”, whether they truly know them or not. In terms of mailing lists, we look see how many people have “opted in” to receive it
- Quality of connections – eBay uses a system of stars to determine whether or not the buyer or seller of products is reputable. In a corporate setting, we use a similar numbering system in 360 degree evaluations and annual reviews.
It should be noted that such a calculation of RC is good for one snapshot of time and can change – I’ve written about this time dependence of RC in my discussion of the Fourth and Fifth Laws.
The calculation of RC is based upon a scaled perception of an individual (or brand) from -10 to 10 with:
- -10 being viewed as highly unfavorable or distasteful
- 10 being viewed as highly favorable and/or attractive, and
- 0 as being indifferent or completely unknown.
Individual RC
RC can be calculated for a myriad of entities and purposes, such as in the case of the study of one individual within the workplace. For example:
In the above illustration, we are evaluating Bob’s RC Value (or RCV) in his organization/business unit, by polling his co-workers, Beth, Butch, Brian and Brianna. Each one rates their perception of Bob on a scale of -10 to 10, an average is taken and the result is 4.25.
Of course, Bob has his own perceptions of his co-workers, and in several cases, considerably different from them...
Relational RC
Based upon the average of employees’ perceptions of each other, we can also tie an RCV to the individual relationships between these employees. It should be noted here that each employee (network node) and each relationship (network tie or link) has its own value.
From an individual standpoint, and knowing these numbers, an employee might ask the following questions:
Why is my own personal RCV what it is and what can I do to improve it?
Why is there such a large discrepancy between my perception of my co-worker and their perception of me?
What specific actions can I take to improve my relationship with my co-worker?
From a managerial standpoint we can ask the following questions:
- Which one of these individuals should be considered for promotion?
- Does it make more sense to invest more into an employee like Butch (like getting him additional training or coaching) or is it best to consider termination?
- What are the acceptable RCV levels for:
a. Employment?
b. Year-end bonuses?
c. Dealing with clients/customers?
Organizational RC
RCV can also be aggregated for the entire organization/business unit by simply averaging individual RCV. In this organization of 5 people, organizational RCV is 4.4.
As a manager/director of this organization/business unit, the following questions might be considered:
1.) What steps must we take to improve organizational RCV?
2.) How do the other business units within the organization “stack up” against this one?
3.) How does organizational RCV change with:
a. Key employees leaving/joining?
b. Problem employees leaving/joining?
c. Major economic upheavals?
d. Changes in corporate policies?
4.) How does organizational RCV effect:
a. Innovation?
b. Morale?
c. Profitability?
d. Return business?
Cohesiveness
Teamwork is essential to the effectiveness of any network, organization, business unit, etc. Up until now, this measure of cohesiveness was measured in end-results and a general “feel”. With measurement of relational RC, we can determine the average of all the links within the organization to determine the RCV for cohesiveness. In the above example, the RCV of the four relationships would yield a result of 2.875.
Similar managerial questions should be asked as with organizational RCV. What would be interesting to study is the relationship between organizational RCV and cohesiveness. As well at what levels (if any) cohesiveness is too high as to produce unhealthy co-dependencies, too low to keep a team together.
Other Considerations
The “map” of the organizational network in the examples used are somewhat simplified as Bob is not the only one who has a relationship with others – the others may all have relationships as well with each other, creating a vast mesh which can be analyzed in similar fashion.
As stated earlier, this type of analysis is looking at an organization at one “snapshot” of time. People and relationships change and when we look at the way RCV changes over time, we can begin to see how events, both internal and external to the organization is affected. We can also use this type of analysis along with statistical probability methods (like Monte Carlo analysis) to predict future behavior and growth/constriction of the organization as well.
A Future Economy
If we can come to agreement and begin using RC analysis within companies or any other group of people, we will make significant headway, much like we’ve done with Intellectual Capital, in valuating people, brands and companies. The key to a newer, more effective global economy is developing the means to tie both Intellectual and Relationship Capital closer than ever to Financial Capital. This might allow us to realize, in time, that true wealth is internal, yet also relies upon our abilities to communicate and work effectively with one another in a cooperative manner under a unified sense of purpose. When this happens, we can achieve anything.
Coming Up Next Month…
It’s a tradition…the 4th annual State of the Industry Address. Stay tuned!
The Emergence of the Relationship Economy
Relationship Capital is the cornerstone of the Relationship Economy, which RNIA defines as “a measurement assigned to individual and organizational entities based on the relationship interactions between them, and the interactions they have internally.” 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.
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HEADLINE: Relationship Capital in the Workplace
By Lori Richardson Northwest Bureau Chief (Washington, Oregon, Idaho, Montana, Wyoming, Alaska)
Forceful people push their way toward their own goalposts. We all know these people - they believe in success at any price, and that it is all about the end result and not the means.
