Playing the game
My friend Brian Donovan advocates that leaders need to change the game to maintain competitiveness.
What is the game, how do you play it, and what is the modern style of play?
- The game is capital creation
- The game is played by creating systems to transform capital from one form to another
- The modern style of the game is digital networking
This newsletter focuses on capital creation, and the other two questions will be covered in future editions. If you can’t wait, read Capital, Systems, and Objects.
Key thoughts
- Leaders orchestrate the capital creation game
- Leaders need a recipe for selecting and mixing the six capital ingredients to raise Cʹ (capital productivity)
- This recipe needs to be explicit and communicated throughout the organisation
The game is capital creation
The purpose of an organization is to create capital. Typically, such a statement fires the neuron that equates capital with financial assets, but there are six major types of capital (see the following table). Capital creation occurs when one or more forms of capital are converted to other forms of capital or there is an enhancement of the same capital.
| Capital | Description |
|---|---|
| Economic | Financial, physical, and manufactured resources |
| Human | Skills, knowledge, and abilities of a workforce |
| Natural | Rights to use or extract natural resources, such as farming and mining |
| Organisational | Digitised knowledge (databases) and standardised procedures (software), routines, patents, manuals, and structures |
| Social | The ability of an organisation to benefit from its social connections |
While many organisations, and probably yours, focus on creating economic capital by producing a product or service they can sell, this is not universally true. Universities, for instance, concentrate on creating human (graduates) and organisational (knowledge and intellectual property) capital. Religions produce social (the community of believers) and symbolic (prestige and authority) capital. Government agencies fashion economic (e.g., highways) and organisational (e.g., regulation of electronic communication) capital creation, which in turn provides critical capital for other organisations to incorporate into their capital creation processes.
All organisations are in the business of creating capital and most need to continually transform their capital creation model to retain a compelling value proposition. Effective leaders implicitly envision how to create and continually revise their recipe for creating capital to maintain or grow their Cʹ (capital productivity).
A capital creation model
A consulting firm creates capital by hiring highly skilled personnel with domain knowledge (human capital), such as a cybersecurity professional with extensive experience in the banking industry. The firm’s partners use their network of connections (social capital) to engage clients. The firm develops tools and processes (organisational capital) to raise its human capital’s productivity (e.g., an effective reproducible procedure to identify a client’s digital cybersecurity weaknesses). The resulting recipe generates revenue (economic capital) when proficiently implemented and managed.
Critical reflections
- Can you draw your organisation’s capital creation model
- Can you describe it in a paragraph or two?
- Do your employees know and understand your capital creation model?
