Every day, businesses lose money by not understanding or leveraging their investments. When one considers the financials of organizations, it is clear that a significant portion of those investments are not captured in financial statements. Why? Because these are the people-side or soft-side intangible investments the accounting industry has yet to value. We know, intuitively, that these investments have major impact on the success or failure of businesses.
The seven capital investments available in every organization include two that are strictly on tasks or tangible work side and five focused on people and what they produce. This means that five of the seven or 71% of all capital investments are on the people, or the soft (intangible) side of the equation. Not surprisingly, there is hidden wealth and power buried in these people-side investments. When people work together, such as in teams, there is powerful leveraging such that 1+1 is no longer 2, but is more like 1+1=7.
The general characteristics of each capital investment are summarized in the following table.
Power of Intangibles in People. In the 1980 winter Olympics in Lake Placid, the U.S. Men’s Ice Hockey team won the gold medal. In order for them to win gold, they had to beat the Soviet Union team ranked #1 in the world. They beat the Soviets on their way to winning the gold in a game that was called the Miracle on Ice. The odds of them winning were the same as if the University of California football team beat the Philadelphia Eagles Super Bowl champions. Impossible!
How did this happen? One can assume that it was NOT because they skated better than the Soviets. The U.S. team was composed of college students and the Soviets were semi-professionals. Instead, it was some intangible force. There is a clue. The U.S. coach invested heavily on the intangible side into the team members. He instilled in the team aspects of Human, Relationship, and Spiritual capitals. The team took to heart what they heard. They believed. The result of this infusion of capitals was a powerful Return on Investment (ROI) of some psychic power that allowed the team to rise above expectations to beat the ‘unbeatable’ Soviet team. The effort by the U.S. team was considered by the International Ice Hockey Federation as the most incredible international ice hockey story in the last 100 years! There is power investing in intangibles.
Intangible Investments and Wealth. Recently, I had the opportunity to visit the Google campus in Mountain View, California. Google is a prime example of a business that deliberately builds value and wealth by investing in their people. It was clear to me that Google did not want its employees to go home! Breakfast, lunch, and dinner are served in three cafeterias. Eat too much and don’t feel good? Go to the infirmary. Clothes need washing? Use the laundry service. Staying late? No problem as there are great cookies, snacks and drinks in each building 24/7. Need a break? Go to the gym for a workout with a trainer or to the game room to chat with others or play games. Just get your work done as no one is watching you.
Google’s company culture has been summed up in two words -- fun (quality of work life) and freedom (openness, democracy, no micromanagement). Of Google’s ten core values, I like the following three: great just isn’t good enough; you can be serious without a suit; and it’s best to do one thing really, really well. It is no wonder that Google continues to excel in creativity and innovation generating valuable products for its customers and wealth for its business.
Intangibles Control Business Success. As a means to discern which of the seven investments were most critical in a merger or acquisition, the corporate, healthcare, and the accounting industries were studied. In every case success or failure all hinged on alignment or misalignment of culture between the merging entities. Culture is facilitated with the collective investments of Human, Relationship, and Spiritual capitals. These clearly people-focused intangible investments reinforce the idea that soft-side investments have significant impact in generating success or failure of a business.
How do you discover and leverage hidden wealth? Here are the steps:
Inventory your investments: Identify the investment areas you are focused on.
List investments: Match any task side investment with a people side one. Thus, if you invest in new technology, be sure to invest in training for personnel.
Set goals for each investment: Determine goals and completion dates for each investment.
Determine where you are now: Track the success of reaching investment goals.
Monitor progress toward goals: Evaluate the investments and how you are doing in achieving goals. Make corrections or change course as needed.
Celebrate success: Reinforce success to encourage new efforts.
Repeat steps 1-6
There is no doubt that judicious investing on the people side components yields significant ROI. Leveraging the intangibles yields power, creativity, innovation and thereby new products, services, and thus value generation and wealth in organizations!
By Baldwin H. Tom ©2018 GeoDimensional Decision Group LLC