The Expanding Concept of Capital
The concept of capital may be undergoing a quiet though important expansion, one that changes the way companies view their resources, human and otherwise. In the future, this expansion might influence strategic decision-making and the allocation of corporate assets.
Capital usually refers to resources that are expected to generate returns in the future. Traditionally, most business people thought of capital in terms of either financial or manufactured resources. But capital can be "so broadly defined as to include all possible material, nonmaterial, and human inputs into a productive system," notes Encyclopaedia Britannica. This broader definition is key to a number of works from authors who, writing in different disciplines, have put forth innovative ideas about capital.
A scan of the recent business and social-science literature reveals five concepts that have come to the fore: human capital, intellectual capital, social capital, natural capital and, most recently, digital capital. The underlying notion is that a wide variety of factors -- from ideas to social networks to ecosystems -- represent assets that generate economic wealth.
For HR professionals, the most familiar of these is human capital, defined by the Human Resources Glossary as "the assets or wealth of an organization embodied in or represented by the hands, minds and talents of its employees." Jac Fitz-enz, author of The ROI of Human Capital, writes that "most managers and financial analysts have finally acknowledged that human capital has great leverage potential." As an example, he notes that the market value of Goldman Sachs' initial public offering was four times the book value of hard assets, and he ascribes the difference to the market's appreciation for human capital leverage.
Similar claims have been made about the value of other forms of capital. In his book Intellectual Capital, for instance, Thomas Stewart cites the research of Columbia University professor Frank Lichtenberg, who looked at the return on investment for spending on new plant and equipment (i.e., physical capital) versus spending on research and development (i.e., investments in intellectual capital). His findings suggest that a dollar spent on R&D returned eight times more than a dollar spent on new machinery.
In a third example, some experts have estimated that the biological services flowing directly into society from the stock of "natural capital" are worth at least $36 trillion annually, a figure close to the annual gross world product. "If natural capital stocks were given a monetary value, assuming the assets yielded 'interest' of $36 trillion annually, the world's natural capital would be valued at somewhere between $400 and $500 trillion -- tens of thousands of dollars for every person on the planet," write Paul Hawken, Amory Lovins and L. Hunter Lovins, the authors of Natural Capitalism. Among other things, their book is a treatise on how companies can manage natural capital more effectively, often while generating more traditional capital.
These three books -- as well as others focused on social and digital capital -- are interesting not only in themselves but in that they point to a larger, encompassing idea: that a great and perhaps growing share of economic value resides outside the realm of traditional capital and that the most successful organizations of the future will be those that can best tap into these pools of value.
If this turns out to be true, then leaders of all stripes, both in the private and public sectors, would become increasingly responsible for effectively managing these assets in order to maximize corporate and social wealth. Such leaders would also need to see the interrelationships among these types of capital in order to make the best possible strategic decisions. These relationships and their implications are more thoroughly discussed and delineated in HRI's new white paper, "Virtuous Cycles: Toward an Expanded Model of Capital."
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For more information on the ROI of human capital, please see
http://www.mfg-net.com/tooling/archives/0800/0800how.asp.
To see how digital capital relates to human capital, please see
http://www.acm.org/ubiquity/book/d_tapscott_1.html.
For more information on Stewart's book, please see
http://members.aol.com/thosstew/about.html.
For more information on the state of U.S. social capital, see
http://muse.jhu.edu/demo/journal_of_democracy/v006/putnam.html.
To learn more about natural capital, see
http://www.naturalcapitalism.org/sitepages/pid5.asp.
Capital usually refers to resources that are expected to generate returns in the future. Traditionally, most business people thought of capital in terms of either financial or manufactured resources. But capital can be "so broadly defined as to include all possible material, nonmaterial, and human inputs into a productive system," notes Encyclopaedia Britannica. This broader definition is key to a number of works from authors who, writing in different disciplines, have put forth innovative ideas about capital.
A scan of the recent business and social-science literature reveals five concepts that have come to the fore: human capital, intellectual capital, social capital, natural capital and, most recently, digital capital. The underlying notion is that a wide variety of factors -- from ideas to social networks to ecosystems -- represent assets that generate economic wealth.
For HR professionals, the most familiar of these is human capital, defined by the Human Resources Glossary as "the assets or wealth of an organization embodied in or represented by the hands, minds and talents of its employees." Jac Fitz-enz, author of The ROI of Human Capital, writes that "most managers and financial analysts have finally acknowledged that human capital has great leverage potential." As an example, he notes that the market value of Goldman Sachs' initial public offering was four times the book value of hard assets, and he ascribes the difference to the market's appreciation for human capital leverage.
Similar claims have been made about the value of other forms of capital. In his book Intellectual Capital, for instance, Thomas Stewart cites the research of Columbia University professor Frank Lichtenberg, who looked at the return on investment for spending on new plant and equipment (i.e., physical capital) versus spending on research and development (i.e., investments in intellectual capital). His findings suggest that a dollar spent on R&D returned eight times more than a dollar spent on new machinery.
In a third example, some experts have estimated that the biological services flowing directly into society from the stock of "natural capital" are worth at least $36 trillion annually, a figure close to the annual gross world product. "If natural capital stocks were given a monetary value, assuming the assets yielded 'interest' of $36 trillion annually, the world's natural capital would be valued at somewhere between $400 and $500 trillion -- tens of thousands of dollars for every person on the planet," write Paul Hawken, Amory Lovins and L. Hunter Lovins, the authors of Natural Capitalism. Among other things, their book is a treatise on how companies can manage natural capital more effectively, often while generating more traditional capital.
These three books -- as well as others focused on social and digital capital -- are interesting not only in themselves but in that they point to a larger, encompassing idea: that a great and perhaps growing share of economic value resides outside the realm of traditional capital and that the most successful organizations of the future will be those that can best tap into these pools of value.
If this turns out to be true, then leaders of all stripes, both in the private and public sectors, would become increasingly responsible for effectively managing these assets in order to maximize corporate and social wealth. Such leaders would also need to see the interrelationships among these types of capital in order to make the best possible strategic decisions. These relationships and their implications are more thoroughly discussed and delineated in HRI's new white paper, "Virtuous Cycles: Toward an Expanded Model of Capital."
====================================================
For more information on the ROI of human capital, please see
http://www.mfg-net.com/tooling/archives/0800/0800how.asp.
To see how digital capital relates to human capital, please see
http://www.acm.org/ubiquity/book/d_tapscott_1.html.
For more information on Stewart's book, please see
http://members.aol.com/thosstew/about.html.
For more information on the state of U.S. social capital, see
http://muse.jhu.edu/demo/journal_of_democracy/v006/putnam.html.
To learn more about natural capital, see
http://www.naturalcapitalism.org/sitepages/pid5.asp.