Wealth may come in many ways. Sometimes by accident or serendipity. But that happy circumstance is an outlier, beyond any reasonable probabilities. On the other hand, if we analyze the causes and components of true wealth, not merely the acquisition of money, we may find a pattern. In my observation that patterns is holistic. It is an on-going process, a turning of the wheel, of five forms of capital.
To the degree that an organization can enable, support, or encourage a depth of personal values and dedication to a worthy purpose, it possesses spiritual capital. As individuals, it is the starting point, the soil out of which grows every other form of wealth. It will interact and support every other form of capital and ultimately will have its effect on the financial bottom line. In many ways it is the first cause. There are two components of Spiritual Capital: Purpose and values.
The pursuit of worthy purpose is the primary means of achieving energy in an organization. Human beings are energized by, and will sacrifice for, that which they believe to be noble and therefore ennobling of them. Leaders create energy that may later be directed by managers, but absent the energy that comes from a worthy purpose, there is little motion. Any manager who believes that only technical processes, skills, or financial capital are required for competitive success is much like the racing team that spends a million dollars for the latest racecar but then hires a driver who doesn’t care about winning. Purpose matters. Ennobling purpose matters most.
Shared values are the basis for trustworthy relationships and sociability. Belief systems have enormous impact on the culture of organizations, and it is the function of leaders to exert efforts to intentionally shape these beliefs. A common set of values is the lubricant of fluid associations. It is the basis of unified action and trustworthy behavior.
Social Capital is the value of trust. The degree of trust you engender in others will determine the likelihood of being hired, customers purchasing your products or services, or, employees working, even sacrificing for your company. It defines the likelihood that others will engage you in solving problems. It is a key to the effectiveness of all teams, families or communities. It determines brand equity and market capital. Entrepreneurs often begin their business within a small circle of trust and gradually expand the radius of trust, increasing the scope of their network and their business.
Internal social capital is the level of trust within the organization. Trust operates both horizontally and vertically within the organization and is critical to the ability to solve problems, innovate, and satisfy customers.
Internal sociability may have the most significant impact on the ability to solve problems. All organizations are a continual stew of problem solving. Whether it is solving the problems presented by a customer, a new technology, or a competitor, business is a game of constant adaptation to a changing environment. The apparently small act of walking down the hall to an associate’s office and sharing a problem, casually brainstorming without regard to who gets credit, or who bears what responsibility, is the most frequent, and probably the most effective way to solve problems. This is an act of trust and a demonstration of social capital.
External brand equity is the recognition and respect given to your firm by the market place. Just as the quality of an individual’s life is largely determined by the quality of their social relationships, the same may be said of a company. The value of a company is directly related to its brand equity.
Human capital is the sum of all of the competencies and motivation of the people within the organization. Human capital has always been a critical component of the performance of any business, but today’s entrepreneur is likely to bring with him, not money, but competency and motivation, the two key ingredients of human capital.
Motivation has been the subject of hundreds, if not thousands of books for managers. When all is said and done, the keys to motivation are relatively simple: work that is interesting and ennobling; sincere recognition by peers and superiors: opportunities for career advancement, positive feedback that can guide performance, strong and supportive social interaction by a team, and, oh, did I forget? – fair and attractive financial rewards. The job of designing an organizational system is to optimize all of the various forms of motivation. Over-reliance on any one form is a prescription for poor performance.
Human competence is the only modern parallel to production technology of the past century. Modern production most often occurs in the mind, or the collective mind of a small work group. If you have highly trained marketing professionals, skilled sales men and women, great engineers and brilliant financial managers, you have an important form of capital. These competencies are a foundation of performance. Investment in these assets is likely to pay off in the creation of other classes of assets.
Innovation grows in the soil of spiritual, social, and human capital. To the degree to which there is commitment to a worthy purpose, spiritual capital, members of the organization will engage in the discretionary effort of thinking, exercising their brain on a problem or opportunity. Many creative ideas occur on the weekend or in the evenings, when a member of your team is choosing, even unconsciously, to think about a problem at work or a customer’s needs. This is discretionary effort, effort that cannot be forced, measured, or required. It only occurs when employees genuinely care about the success of the organization.
The success of Honda and Toyota over U.S. automobile companies was the result of their fanatic dedication to process, manufacturing and product or technology innovation. The success of Wal-Mart, Home Depot, L. L. Bean or McDonald’s is all about process innovation in their industries. Processes either create or minimize cost. They assure either consistency and reliability or the unfortunate alternative. Like other forms of capital, the quality of the work process and technological innovations that create an advantage for customers is a significant asset.
Financial wealth is the natural result of the pursuit of the previous four forms of capital. Most people who make a great deal of money do so, not because they were pursuing money, but because they were passionate about their innovation and their service to their customers.
Financial capital is in two forms: Positive Cash Flow and a Positive Financial Balance Sheet. In your personal life you may feel wealthy if your income exceeds your expenses, at almost any level. If you make one million dollars a year, yet you are spending one point two million, you will feel poor. Part of the “trick” of wealth is to manage the relationship between income, expectations and expenditures.
Amazing and to the point. I love it.This is one of the best courses on Udemy. Lawrence M. Miller is one of my real role models, if you are in business or will start a business you have to listen with care to what Lawrence M. Miller says, he knows a lot about life and business. Nabil El Hady
A Great course from the Lawrence M. Miller, and as always: elegant, practical and straight to the point. Anton Walter
I would recommend people to consider taking this course, it is such a great knowledge in our day to day life. Oscar Cuthbert Swai