Use Capital More Effectively – Reason 14

Use Capital More Effectively – Reason 14

What is capital?  It is defined as “any form of wealth employed or capable of being employed in the production of more wealth.”  We know that there is monetary capital, human capital, political capital, and knowledge capital.  All of these can and should be used in the running and growing of your business.  When you utilize a leadership style based upon mutual benefit, you’ll be able to use all of these various types of capital more effectively than by using any other management style by itself.

Let’s look at how this can work within your company:

  • Monetary capital – There are many companies that are in constant search of money.  The stock market has made the stockholder the key purpose of a public companies existence.  It’s all about providing shareholder value, or they won’t be able to borrow more money.  Many small and mid-sized businesses have brought in investors that are primarily looking for a return on their investment (ROI).  Most startup businesses are underfunded, and they are looking for money to stay in business.  When the owner embraces a mutual benefit philosophy, everyone involved with their business understands the situation and wants to use the capital so everyone can benefit.  The investors & stockholders have been told and understand the long term payoff; the vendors will extend credit because they understand how they are able to sell more and make more profit, and the employees are cognizant of the need for the company to stay on a path of profitability, and how that helps them.
  • Human Capital – Talk to any successful business person, and they will tell you that human capital is critically important to their business.  Hiring, training and keeping staff is one of the most costly aspects of running and growing a business.  In large corporations and businesses, it is a major expense consisting of human resource departments, recruitment agency fees, training, benefits, ramp-up time, etc.  With small businesses, it can be the difference between success and failure.  In a company with 1-10 employees, the amount of time to train someone is what is costly.  Usually the owner or executive must do the training or they will lose productivity.  When a company utilizes a mutual benefit strategy, all the employees see the value in a well trained addition to the company, and will spend time to work with the new hire to help them ramp up faster.  Based upon our research…about 2-4 times faster.  Another facet of human capital is keeping employees.  See our post on employee retention for more information.
  • Political Capital – This is not what you’re thinking; it is not about government politics.  This political capital is about the wealth you accumulate within your company.  It is the attitude and support that you can expect from your management team, your line employees, your vendors and your customers.  This capital is what you’ll need when you’re going through a situation where you need these groups of people to “cut you some slack” or to step outside their box and trust you a little more than normal.  Whatever the reason, when you have been leading your company with a mutual benefit style, you will have enough political capital to survive.
  • Knowledge Capital – This is one you probably never heard of.  In Corporate America in the late 80’s through the mid 2000’s, there was a lot of buzz about knowledge management.  This is the collection and storage of knowledge that normally resides within the company, as well as knowledge that is known by an individual.  It was such a massive undertaking, that today we don’t hear much about it.  Knowledge capital is the wealth of specific, customized, and unique knowledge that employees value as their “job security.”  Companies that have a culture of mutual benefit will not have a need for job security, and will understand how their knowledge will help their company.  Employees, customers, and vendors will happily share their knowledge because they will know how it will benefit them as well.

When everyone knows how and why capital of all kinds are used to benefit them, they will help you use it in the most effective way possible.

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