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Relationship Capital is one of the four cornerstones of intangible capital. It can be both an asset and/or a liability depending on how stakeholders view the performance of your relationship capital.

This includes all kinds of relationships with customers, partners, suppliers, community, government, media, institutions, groups and people who have an interest in the success of your organization. All these interactions involve the sharing of knowledge, the solving of problems and the creation of connections--and the creation of brand and reputation. If it works, you’re creating value. If it doesn’t work, you’re destroying value. Here are some examples:

• If you have poor customer service you are hurting your relationship capital
• If your marketing message is unclear and not attracting the right audience you are not building relationship capital
• If your suppliers are irresponsible, you are harming your relationship capital with your community and customers
• If you treat your suppliers as “low price” providers rather than long-term partners, you are hurting your relationship capital
• If you violate the trust of your stakeholders, your reputation suffers and decreases your reserve of relationship capital.

None of this is particularly new. Businesses have always existed to serve customers (Drucker said that is the main purpose of a business). But the stakes are higher now. And the connections are faster and, many times, tighter than they used to be. Real-time communications mean that customers are often directly wired into your business. So are suppliers with just-in-time inventory fulfillment. And the ability to connect directly with suppliers makes it easier to outsource elements of your business that, in the past, might have stayed inside your own operation. This trend brings with it great flexibility and access to expertise. But it has big management challenges.

Indeed, real-time communications have another implication. Since the exponential uptake of social networking, the ability to assess the quality and trustworthiness of an organization has become transparent. Bad behavior is harder to hide. And companies don’t just get blamed for their own behavior, they are (rightly) held accountable for the behavior of their partners. This means that external relationship management is as important as the management of internal operations.

External relationships are one of the key drivers of wealth creation. Relationships can be evaluated as assets, no less important than physical assets or bank accounts. In ICounting, we measure the strength of relationship capital as an asset. And we also see external stakeholders as key partners (along with internal stakeholders) in performing those measurements. After all, who knows better than your stakeholders how you are doing?

This is a different perspective from traditional financial-based systems. Your Accountant can tell you whether you have profited in the past from your relationships. Intangible capital measurement can help you see whether you will be able to sustainably profit in the future.

Words matter.

They shape our thinking and shape our conversations.

Here are some really common conversations I have with new business acquaintances:

I ask what they do. They ask what I do. I say (of course!) that I work with intangible capital. Some people ask what I mean by that. Most immediately add their own mental interpretation of what I mean by “intangible capital:”

…If they work mostly with the law (and sometime technology), they say, “Oh, like intellectual property!”

…If they are accountants or financial types, they say skeptically, “Oh, like Goodwill…”

…If they are bankers, they might say, “Oh, like intangible assets? We don’t lend on them.”

…If they are in marketing, they say, “Oh, you mean brand and reputation!”

…Many business people say, “Oh intellectual capital, that’s tied closely to people…”

And so on. The point is that it can be hard to talk about intangible capital when people bring so many preconceptions to the conversation. That’s why we often use the Blind Men and the Elephant example. In this poem, each blind man feels a part of the elephant and makes an assumption about what the whole elephant looks like. That’s what happens with intangibles. Most people are trained to just look at one part and they miss the significant of the whole.

And the whole is really important. 80% of the value of the average business today is intangible and yet mainstream business continues to dismiss intangibles as soft and/or unknowable. I guess I really don’t care what word people use but I do hope that people will develop a holistic understanding of intangible capital.

...It’s not just IP. It’s not just people. It’s not just knowledge or data. It’s not just brands or relationships. It’s not just culture.

...It’s all these things working together in a dynamic, social system. Intangible capital requires holistic thinking and holistic management. And it works best when there is a shared understanding of collaborative advantage.

Good intangible capital management fuels growth, innovation and performance. Don’t be a blind man (or woman). Start looking at the big picture before the elephant stomps all over you.

This drawing was done by Collective Next in Boston.