Are you familiar with the term organizational capital? You might have read about it in research by McKinsey or noticed it in papers by organizational psychologists. If you’ve seen it, you might be wondering if you need it, how to get it — or maybe even what in the heck it actually is. If you haven’t seen it mentioned, well, maybe you’re wondering those things now!
Organizational capital can be one of those terms that is a little hard to parse. Like, for example, how is it different from other kinds of capital, like human capital or social capital? In fact, scholars from the Stern Business School have described it as “a stealth asset about which very little is known in academia and practice.”
As it becomes more known, we thought it might be helpful to unpack this rather academic concept — and give you the lowdown on how it fits in with your people culture, exactly what it can do, and how you can nurture and grow it in your organization.
1. Organizational capital is your secret sauce.
You can think about organizational capital as all the intangibles around the people and technology in your culture. This includes what people know, how they are organized, and their attitudes, behaviors, and beliefs. It’s no coincidence that these are the exact intangible things that provide you with resilience, innovation, and competitive advantage. Organizational capital is your secret sauce.
2. Organizational capital is hard to measure, but absolutely fundamental for success.
Broken down, organizational capital is your ideas and all the parts of your culture that help employees be more productive, creative, and resilient. It includes:
- Your intellectual capital — such as your patents and copyrights
- Your brand — including your company brand, employer brand, and reputation
- Your mission, guiding principles, and values systems — whether stated or implied
- Your culture and attitudes — especially around well-being, learning, collaboration, and risk
- Your explicit policies, governance, rules, and training — and implicit unwritten norms
- Your employee engagement — and employee voice and feedback channels
- Your business processes and systems — including how people interact with technology
- The relationships among the humans in your company
We bolded that last one because it is really the most important of all. How well your employees communicate and collaborate, how inclusive they are, and how well they know, respect, help, and care for one another are all foundational to the quality of your organizational capital.
This should come as no surprise. People connections have become absolutely critical in the post-pandemic world, as many organizations are reorienting to a new way of work that puts humans at the center of work. Companies are rapidly making the shift from an old model of shareholder capitalism to a new stakeholder model. This evolution is centering organizational capital as perhaps the most important currency any company possesses.
That can all be a little scary to organizations that are used to measuring their assets on a very clear and tangible balance sheet. By nature, organizational capital is difficult to measure. But rest assured, organizational capital is just as important as any other asset when it comes to your long-term success — if not more. Efforts to quantify and grow it will be well-rewarded in terms of ROI.
3. Organizational capital directly impacts your bottom line.
As the world of work changes, companies are recognizing that attention to employee well-being, flexibility, and connections — all components of organizational capital — are crucial factors that directly affect their ability to attract and retain talent.
But is this approach also what’s best for profitability and growth?
The answer is an unequivocal “Heck yeah!” The new human-centric approach and higher organizational capital are exactly what provide organizations with sustainability, resilience, and competitive advantage that lead to revenue growth. In fact, according to the McKinsey research we linked above, companies that focus on both people and performance outperform companies that focus on performance only by a wide margin — they are 1.5x more likely to remain in the top tier year after year, with about half the earnings volatility.
Organizational capital is important for companies because it allows them to:
- Improve productivity and efficiency: By investing in organizational capital, companies can develop efficient processes and systems that help them to minimize waste, reduce costs, and increase productivity.
- Foster agility, innovation, and knowledge transfer: By creating a culture of innovation and making it easier for employees to share information, companies can develop new products and services that give them a competitive edge in the marketplace.
- Develop more intellectual property: By protecting their intellectual property and proprietary information, such as patents and copyrights, companies can maintain a competitive advantage.
- Attract and retain top talent: By developing a positive company culture and investing in employee training and development, companies can attract and retain top talent, which is essential for long-term success.
- Enhance reputation: By investing in organizational capital, companies can build a strong reputation for quality, innovation, and social responsibility, which can help to attract customers and investors.
- Create more sustainability and resilience: When employees have strong affinity and communication — and understand the structures that support them — they can better weather organizational change or trauma, such as layoffs.
4. Human connection builds organizational capital.
When people feel connected to one another, they are more likely to collaborate, share ideas, and support each other, which can lead to increased productivity and better decision-making. Connecting people also helps to build trust across the organization, which is essential for effective communication and problem-solving — all important aspects of organizational capital.
Because of its close connection with inclusion and belonging, human connection also contributes to a more positive work environment, which can have a significant impact on employee engagement and job satisfaction. When people feel valued and supported by their colleagues, they are more likely to be motivated and committed to their work.
Human connection is crucial to building strong organizational capital because it:
- Creates stronger relationships and affinity to co-workers and the organization
- Supports a culture of feedback and enables employee voice
- Supports a culture of learning, mentoring, and helping
- Creates a network of emotional ties over which communication can flow from person to person, organization to person, and person to organization.
5. Here’s how to protect and grow your organizational capital:
- Connect your people: The #1 way to build organizational capital is to connect your employees to each other, information, and your organization. Help employees discover one another on a personal level. These friendships and helping relationships will become critical supports — both in terms of cultivating belonging and also helping work get done in your organization.
- Put your investment where your values are: Make sure the values and behaviors that guide how employees interact with one another and your customers are front and center, and not just words. Show people what it means to live your values — offering ways for them to participate in team-building and networking activities that encourage communication and collaboration.
- Focus on employee learning and growth: Proactively provide employees with opportunities to acquire new skills and enable the acquisition of new knowledge through training programs, mentoring, and coaching. These kinds of prompts can help employees to build skills, stay engaged and motivated, and improve their performance.
- Create clear, easy-to-follow processes: Focus on streamlining your processes to reduce waste and increase efficiency, and help employees understand what actions they should be taking, and when. This can be achieved by implementing process improvements, creating standard operating procedures, and offering guide rails that help employees remember to take important actions.
- Encourage creation and protection of intellectual property: Take steps to protect your intellectual property by filing patents, trademarks, and copyrights, and by enforcing your rights when necessary.
- Foster collaboration and innovation: Companies should encourage innovation by providing employees with the resources and support they need to develop new products and services and establishing an environment of support. This can be achieved by setting up dedicated innovation teams, providing funding for research and development, and creating an environment that rewards risk-taking and experimentation.
- Building a diverse and inclusive workforce: Warmly welcome new employees and create a diverse and inclusive workforce that reflects the communities you serve. This can be achieved by implementing policies and practices that promote diversity and inclusion, such as recruiting from a wide pool of candidates and ensuring your onboarding process is inclusive and supportive.
Enboarder’s Human Connection Platform can help to support the development and growth of organizational capital across your company — facilitating critical connections, supporting your processes, and sparking the behaviors that will drive your success.
To learn more, download this e-book on “How Enboarder Creates Connection and Belonging at Work.”