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Can Relationship Capital Solve The World

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  • 1. Can Relationship Capital Solve the World's Problems? After reviewing the notes for an article I did back in May’s issue of TNNW on Generation Y (born between 1982 and 2002), otherwise known as the quot;Millennialsquot; (see Networking with the Millennials: The End of the World as We Know It?), I realized that I may have under-emphasized one key point of Millenial behavior: their view on money. From the Millenial point of view, life is much more chaotic and money comes and goes. In documented cases, Millennials will even give up money and security of a job and rough it on principle alone until they find a more ideal situation. This is antithetical to the Baby Boomer point of view: money = security = good. But in a world where more and more Boomers are dying and Gen Xers and Yers are inheriting the earth, less value is placed upon money as it is becoming a symbol of quot;selling outquot; (selling out = mindless automaton = tool = bad) as opposed to quot;wealthquot;. From a Millenial perspective, wealth is a measure of relationships, knowledge and freedom of expression. Financial Capital This got me thinking about the nature of our current economic system: one based upon the concept of quot;financial capitalquot;, profit and the like. Being caught somewhere in the middle of the two points of view as a Gen Xer, if I were to look at the quot;new and emergingquot; mindset of the future of the world’s population I can’t help but see a major shift coming. While several of my fellow Gen Xers may have accepted the old paradigm, the highly principled Millennials, clearly won’t stand for quot;business as usualquot;. Why? The desire in the business world for profit (often at the expense of morals and ethics) only more clearly • emphasizes the concept of quot;selling outquot; or quot;making deals with the devilquot; The current U.S. Dollar has been off the gold standard since 1973, making the value of the Dollar worth • less and less with each passing year Adding insult to injury, financial capital is illusory as it is merely a reflection of what we know and who • we know. What We Know When we look at the things we know and the ways that value is perceived based upon things we know, we think of Intellectual Capital (or Intellectual Property, or quot;IPquot; for short). IP typically refers to the unique and innovative ideas we have for things that do not currently exist, and can (given the proper legal protection through patents, copyrights and trademarks) can lead to monetization. The good news is that people worldwide are able to take advantage of their Intellectual Capital and turn it into Financial Capital, because given the right circumstances, it can be measured. Many wars have been won over it, mergers, acquisitions and buyouts occur because of it and careers have been attained and transformed by it. The downside to Intellectual Capital is that it is often abused, especially in the online world. A perfect case in point has been the recent troubles of the motion picture, record, and software industries to combat piracy opportunities that the internet affords. The other major drawback is that Intellectual Capital ignores quot;soft skillsquot;, which include everything from communications to leadership to negotiation to sales to management to team building. Unlike the technical certifications and diplomas received from companies and universities that train in the quot;hard skillsquot; like computer networking, accounting, engineering, database management and the like, certifications in management and negotiation just don’t carry the same weight. 1
  • 2. Who We Know But while we have made strides in valuating Intellectual Capital, we haven’t done much in the realm of Relationship Capital. Only until recently, paid members of online networking powerhouses LinkedIn and new Disney-acquired Club Penguin were valued at $250-$350/member and $1000/member, respectively. This is great for corporate M&A or buyouts, but what about personal RC? Intuitively we know that personal Relationship Capital exists. After all, when we were young and needed the money for clothing, food and games, our families were there to provide for us – familial relationships determine RC from the start. I use the example of Donald Trump’s dramatic bounces back from bankruptcy (1991-1994 and 2004-2005) as evidence of Relationship Capital being used to gain Financial Capital. eBay and Amazon use rudimentary forms of measurement of Relationship Capital in the form of star ratings. Yet two major questions still remain: quot;What if Relationship Capital could be effectively measured?quot; and quot;If Relationship Capital be tied to a dollar figure, how would our world change?quot; Merging Incentive Systems Currently, there are two major forms of incentive systems that we use. The first, and most obvious one is our current economic system. When we work harder and smarter (and get lucky) we make more money. When we make more money than we spend, we have a surplus called profit. This is the way the human race has more or less operated for centuries. Profit is good; people like it, companies like it. The only problem with profit is when it is earned illegally, immorally, or unethically, people have issues, and despite an organization’s attempts to justify or hide transgressions, today’s hyper-networked world simply won’t stand for it. There is another incentive system that doesn’t get the same level of attention. It is based upon morality, ethics, deeds and/or compliance. It is evident when little Brianna is recognized with a plaque for not missing a single day of school this year. It is evident when Robert gets a gold watch for serving with the firm for 30 years. It is evident when people like Mother Theresa are being considered for Sainthood. It is evident when one receives the Nobel Peace Prize. Proponents of Relationship Capital (and an ensuing Relationship Economy) are not only working to find more effective ways of measuring Relationship Capital but also championing a hybrid-incentive system as a key strategy. In doing so, such an economic system will encourage good behavior as a means to a profit. Those who are rich will be those who live in abundance and do good deeds, while those who are penniless are those who are morally bankrupt. Would people still commit certain crimes if they knew that it would negatively affect their bank accounts? Would pollution be viewed as a liability in corporate valuation? Would teachers, volunteers and social workers be the new billionaires? For the more principled Millennials (as well as other principled individuals), this could just be an economic system they can get behind. The Challenges Ahead The doors to utopia are not quite ready to open just yet. Opponents, criticize the concept of a Relationship Economy for two major reasons: 1.) such a radical idea would not be supported by the current establishment and can be easily defended with the quot;if it ain’t broke don’t fix itquot; mentality and 2.) widespread agreement would be needed for such an economic system to work, which will be nearly impossible. Even with overwhelming, worldwide buy-in, valuation of Relationship Capital will be subjective and would vary depending upon cultural values and norms. Who would determine it? 2
  • 3. Still, the idea is a provocative one and quite attractive. There are rumors that particular individuals as well as some well known corporations have developed some initial rudimentary Relationship Capital systems. Many view a Relationship Economy as the crowning achievement of the Human Race to date – the ultimate synthesis of networking, behavioral science, science, economics, sociology and ethics. Time will surely tell if this is a fad or a human revolution. To learn more about Networking Convergence, Standardized Relationship Networking Education, Networking Accreditation and a Relationship Economy, visit the Relationship Networking Industry Association (RNIA) at www.RNIA.org. The Laws of Relationship Capital, Part I: The First Law Many of our readers may be wondering why this article is not entitled quot;Navigating on the Relationship Economy Sea, Part 2quot;, considering last month’s article was Navigating on the Relationship Economy Sea, Part 1. I have made the executive decision to postpone this worthwhile discussion for a later issue as I have received much positive feedback (and questions) about my previous article Can Relationship Capital Solve the World’s Problems? I have to admit that the topic of Relationship Capital is one on which I spend much of my research and introspective time these days, especially based upon my work with RNIA. Therefore, I have decided to introduce the Laws of Relationship Capital – there are currently ten in all and I plan to discuss a different one each month. It is my hope through this series of articles to encourage discussion and debate amongst business leaders, academia, thought leaders and the socially and environmentally conscious who wish to benefit from networking. It is also my intention to discuss this at the quot;flying at 80,000 feetquot; as there is much more to each law than presented here. Why Relationship Capital? The reason more profits are all too often made at the expense of nature and humankind is the same reason dogs lick their privates…because they can! Relationship Capital (or Social Capital, as it is sometimes referred) has been getting more buzz as it addresses the need to link a profit-based system to personal accountability and integrity as well as corporate responsibility. Proponents of Relationship Capital feel that the current economic system cannot continue to be maintained and must therefore be constrained by mutually agreeable standards as well as personal and cultural value systems. In a truly-networked world, Relationship Capital provides the foundation of a healthy Relationship Economy. The Good News If the idea of Relationship Capital sounds a bit subversive, anti-establishment or even a bit too utopian you’re probably under the impression that an alternate economic system like Relationship Capital doesn’t already exist. The truth is that early forms of Relationship Capital are already here and under your very nose. Consider the frequent flyer mileage programs of every major airline as well as credit card rewards programs. Points = Products and Services = Relationship Capital; they can be exchanged. Still not convinced? Take a look at 3
  • 4. online social network Second Life, a virtual world where its citizens can earn quot;Linden Dollarsquot; to buy property, start a virtual business, etc. The First Law of Relationship Capital Despite the fact that these alternative economic systems exist and serve as early models, the switch to Relationship Capital, if not done correctly, can be highly disruptive. This switch also requires an understanding of the Laws of Relationship Capital. We will cover the First Law this month: All entities that are alive (or have ever lived) possess Relationship Capital. Some Definitions RNIA has defined Relationship Capital as quot;A measurement index based on RNIA[‘s Common Body of Knowledge (CBOK)] used to value an individual’s or an organization’s networking effectiveness.quot; I define it more as a measurement of capacity, defining the ability to establish a relationship with others. I look at RNIA’s definition as more of the definition of Relationship Capital Value (RCV) in which, like with dollars, can be positive or negative. The Implications The First Law of Relationship Capital starts with biology. In biological taxonomy, the highest grouping of organisms is called a quot;kingdomquot;. According to the First Law, no matter what kingdom you’re from (if you’re reading this, I hope you’re from the animal kingdom), you possess Relationship Capital: animal, plant, fungus, bacteria, etc. For example, I recently shared the First Law with my wife, Wendy, and she asked, quot;Does that mean I have a relationship with my salad?quot; I answered her with an emphatic quot;yesquot; in that we develop relationships with all combinations of living organisms and each one brings value to us through Relationship Capital (in this case, food brings us sustenance, and therefore has value). Another example might include bacteria establishing a relationship with us, either positively as the cultures in yogurt are good for digestion or negatively as certain strains will make us sick. What’s more is that entities can possess Relationship Capital even long after they’ve left this Earth. We’re not just talking the quot;I see dead peoplequot;, esoteric kind of stuff, because it tends to be experiential and there is very little scientific proof of such things, although I suppose it is valid in certain circles. I am referring to the knowledge one can receive from reading up on the history of a particular individual’s mark on society, such as 4
  • 5. with Benjamin Franklin. Without ever having to know him, his works, deeds and actions bring a form of Relationship Capital in that we have gained insight and knowledge. Another example is the value we receive from burning fossil fuels which are the remains of plants and animals long gone so we can have power. If something possesses Relationship Capital, it can be valued. When we look at the countless examples and permutations of human to human, human to animal, plant to animal, bacterial to fungal, etc., we can see many of our current sciences studying these relationship pairs, by setting up an Entity Relationship Matrix. It’s fascinating to me when I see that it’s no wonder we have sciences like sociology, psychology, paleontology, biology, archeology, anthropology, ecology and botany; they help explain our relationships between us and various organisms! Why? Because each brings value to us through the relationships we have with them. So the next time you sit down to lunch with a business colleague, you are not just networking with them, you’re networking with the fruits, vegetables and fungus that made up your salad, the animal(s), vegetables and various grains that make up your sandwich and a hopefully a minimal amount of bacteria (just to add color). Summary To reiterate, the purpose of this article is to give readers a top-level view of The First Law of Relationship Capital. There is, of course much more to this, including potential new research (or at least continuations of old research with a new perspective), new books, countless articles and perhaps a new academic field of study. The First Law of Relationship Capital suggests a world that is currently quite different from ours – one where fools and their money aren’t mutually exclusive and do not have to part, but where having money is about being human. Next month, we will take a look at the Second Law of Relationship Capital and its impact on a Relationship Economy. Stay tuned! The Laws of Relationship Capital, Part 2: The Second Law All organic entities (living or at one time having lived) possess and have the potential to create Relationship Capital Like I’ve stated previously, quot;It is my hope through this series of articles to encourage discussion and debate amongst business leaders, academia, thought leaders and the socially and environmentally conscious who wish to benefit from networking. It is also my intention to discuss this at the quot;flying at 80,000 feetquot; as there is much more to each law than presented here.quot; The Second Law The First Law deals with organisms that follow biological taxonomy, but what about non-organic things? Don’t we have relationships with cars, works of art and computers? The answer is undoubtedly quot;yesquot;, but how does Relationship Capital work with non-organics? This is where the Second Law comes in: 5
  • 6. Non-organic entities do not possess Relationship Capital, but reflect the collective Relationship Capital of those Relationship Capital-possessing entities who have relationships with them. The Theory The idea here is that the First and Second Laws, collectively place organic entities in a higher standing than non- organics in that they are, in effect, Relationship Capital engines whereas non-organic entities depend upon their interactions with organic entities that might quot;imbuequot; them with Relationship Capital. Take for example the famous monument Mount Rushmore, which (at one time) was nothing more than any other mountain donning the South Dakotan Black Hills landscape. Based upon the First and Second Laws, the granite within Mount Rushmore is non-organic and therefore possesses no Relationship Capital, aside from that of the various flora and fauna living on the mountain. But beginning in 1923, a group of Relationship Capital-possessing entities: Doane Robinson, Superintendent of the South Dakota State Historical Society, U.S. Senator Peter Norbeck, Congressman William Williamson began a campaign that would eventually get the approval of President Calvin Coolidge. Between 1927 and 1941, the project declared by Coolidge as a quot;national shrinequot; was brought into existence by world-renowned sculptor Gutzon Borglum, his son, Lincoln and over 400 local workers. Today the world’s largest work of art possesses considerable Relationship Capital that comes from the following sources: The people responsible for its vision and construction • Those within the National Park Service as well as a myriad of other societies and associations that • maintain it today The four notable U.S. Presidents that have left a legacy • The aforementioned flora and fauna that add to the natural beauty of the monument, and • The millions who visit it every year and possess interest in Mount Rushmore. • The Practical Application While the theory can spark some interesting debates over whether or not a wooden roller-coaster possesses more Relationship Capital than one of steel, the Second Law does suggest that a value for Relationship Capital can and must be assigned to non-organics if Relationship Capital is to have any practical application. Therefore, such valuations would have to take into account those who have been responsible for its vision, inception and execution, as in the Mount Rushmore example. Questions arise, however, as to material costs. Sure, gold certainly has a higher monetar These are questions that proponents of Relationship Capital will have to answer. RNIA is certainly looking to achieve consensus here, but this can become an extremely controversial subject. The fact remains that like with any system, consensus can eventually occur. When it does, the idea of Relationship Capital valuation in all things changes everything. Stirring the Pot I am happy to report that the articles I have written so far regarding Relationship Capital, have indeed, already sparked discussion, controversy and debate. RNIA’s Metrics Group has begun to further define Relationship 6
  • 7. Capital in their Common Body of Knowledge (CBOK), while I have been asked to further expand upon the Laws in the upcoming book The Emergence of a Relationship Economy. In and around this topic of conversation, larger corporations are gearing up for major positioning in this space. Microsoft recently announced its $240 million stock acquisition of an astonishing 1.6% of Facebook while an opposing group led by the new OpenSocial platform developed by Google for their evolving social network: Orkut. Since these announcements, MySpace and other notables like LinkedIn, Oracle, Xing, and Salesforce.com have joined the OpenSocial bandwagon. Where Does This Leave Me? While the corporate giants are preparing for battle, small businesses and the so-called quot;little peoplequot; will be inevitably affected. In light of the formidable Relationship Networking revolution that is about to unfold, I urge all TNNW subscribers to ask themselves these questions: How does this affect me? • How does this affect the organization I work for? • Is my organization truly prepared for what’s about to come? • What opportunities exist to position myself in this new Relationship Economy? • Hang on to your seats…this will certainly be an interesting ride. Next month, the Third Law and how Relationship Capital is derived. Stay tuned! If you would like to place your advance order for The Emergence of the Relationship Economy, due out in ebook December 1, 2007 and in hardcover January 2, 2008, please send notification to our sales department. The Laws of Relationship Capital, Part 3: The Third Law Over the past two months, I have introduced the first two Laws of Relationship Capital, which collectively focus upon the biological implications of Relationship Capital. Long story short: organic entities (following commonly-accepted biological taxonomy) possess Relationship Capital from birth through eternity, whereas non-organic entities only seemingly possess Relationship Capital because organic entities have “imbued” their Relationship Capital within them. Make sense? If not, feel free to check out Part 1 and Part 2. The next set of laws (third through sixth) focuses more upon the mechanics and evaluative side of Relationship Capital. The Third Law Back in the October, 2005 issue of TNNW, I discussed the “Quantity vs. Quality” factors when choosing the right networks. Since that time, this debate has sparked numerous posts on message boards and newsgroups by Relationship Networking thought-leaders worldwide. The Third Law of Relationship Capital takes the quantity side of the argument into account: Relationship Capital is derived from the collective relationships an individual has with other Relationship Capital-possessing entities. 7
  • 8. Therefore the mathematical equivalent states that an individual’s Relationship Capital is equal to the sum of their relationships. Therefore: RCindividual = Σ(Rindividual) Where: RC = Relationship Capital (RNIA measures Relationship Capital using “Relationship Points”), and R = Total Relationships It should be acknowledged here that as stated, this law is incomplete on its own and in itself, implies the need for the Fourth Law, which we will discuss next month. Nonetheless, there are some interesting implications here. The More, the Merrier One immediate conclusion one draws from the Third Law is that Relationship Capital increases (potentially) when the number of relationships one has increases. This is certainly the basis for advertising, sales and marketing, which uses the laws of statistical probability. The more exposure to the market a product, service, person, company or brand has, the more relationships are developed, thereby increasing the attractiveness, credibility, etc., which are all components of Relationship Capital. When this happens, the probability of “closing a sale” is increased. Mo’ Connections, Mo’ Complications Of course, the more relationships one has, the more one must leverage and manage these relationships. This means a few interesting things including, but not limited to the fact that: 1. We must know ourselves – Considering that all of us “little grasshoppers” are continually re-evaluating who we are in any given moment through trial and error, meditation, learning from others, etc., this all becomes relative as we journey through life. The ones who have a better handle on this (i.e., can be more decisive in this area) have a much better advantage. 2. We must be able to effectively communicate our message – The sooner we master this skill (which helps us even more if we have #1 down as well), the more we can rally our relationships around our cause. 3. We must continually develop and improve our interpersonal skills – Sure we might have the connections, but if we don’t know how to help them as they help us, we have to work even harder. 4. We must continually develop better time strategies – As the number of relationships grows, the more we are susceptible to interruptions by our relationships looking for help from us. Sound familiar? How many online networks do you belong to? 5. We must understand our network – Effective retail businesses know how to manage their inventory. Mapping out our own network is the same thing as taking an inventory of our relationships. Just like Judo masters know how to apply the least amount of force to get maximum results using the principle of leverage, we can do the same the more we know our own network. 8
  • 9. Relationships are Forever We stated earlier that according to the Third Law, Relationship Capital (potentially) increases as the number of relationships increase, but can the number of relationships decrease? The answer is that while Relationship Capital can decrease, the number of relationships one has cannot. We often view events such as breaking up with a boyfriend/girlfriend, divorce, business partner split and death as “the end of a relationship”, but is it really gone? The answer is no. While out of sight may just be out of mind, it doesn’t mean that the relationship doesn’t still exist. It might be labeled as a “bad” relationship, but it is nonetheless a relationship. The First Law even states that relationships survive death – think of our relationships with historical figures from our past or relatives who are long gone. This is HUGE. This is why we have sayings like “the past coming back to haunt us”. It also adds much more gravity to the statement “we only have one chance to make a first impression”. It also changes our views of “playing in the same sandbox”, which implies that one can leave the “sandbox”. According to the Third Law, the sandbox only gets bigger and there is no escape! This, of course, sets the stage for discussion of the Fourth Law, in which we talk about the quality side of relationships…stay tuned! The Laws of Relationship Capital, Part 4: The Fourth Law As we continue to discuss the ten Laws of Relationship Capital, it is always good to have a quick review. The first two laws (detailed in Part 1 and Part 2) relate to whom and/or what can possess Relationship Capital. The Third (detailed, so far in Part 3) through Sixth Laws focus on the mechanics of Relationship Capital. Both Third and Fourth Laws deal respectively to the famous “Quantity vs. Quality” debate that most networking strategists ponder when debating in which networks to invest their time as well as deploy their marketing strategies. The Fourth Law If the Third Law is a statement of the effects and implications of quantity and its effect on Relationship Capital, then (by process of elimination) the Fourth Law does the same for quality: Relationship Capital Value increases or decreases proportionally as the perceived quality of relationship increases or decreases. The Fourth Law while simply stated and seemingly intuitive has some major implications. Relationship Capital Value The Fourth Law introduces the concept of Relationship Capital Value. The reason for this is that the first three laws discuss Relationship Capital from a capacity standpoint. The Fourth Law implies that due to perceived quality, the value of Relationship Capital Value (measured in “Relationship Points” or RPs, as per RNIA) can 9
  • 10. fluctuate, much like a company’s stock, over time. Therefore, Relationship Capital can exist in three basic states: 1. Positive – the perceived relationship by both parties involved is one that is favorable, pleasurable, enhancing, meaningful, useful and/or supports the sustainability and/or survival of the person, product or business unit in question 2. Negative – the perceived relationship by both parties involved is one that is unfavorable, toxic, diminishing, meaningless, useless and/or leads to eventual destruction of the person, product or business unit in question 3. Neutral (zero) – the relationship is unknown, unrecognized, brand new, irrelevant, inert, forgotten and/or has no effect whatsoever upon a person, product or business unit. The Fifth Law addresses this state in greater detail. Perceived Quality The Effects of Time: Influence and Impact The Fourth Law also implies the element of time as perceptions regarding specific relationships change based upon actions (or lack thereof). In Newtonian physics, any value measured over time can be researched and used for further analysis to gain a better understanding of the world around us. Much in the way, velocity is the rate of distance traversed over time, influence is the rate at which Relationship Capital changes over time: In = ∆RC / ∆t Where: In = Influence (measured in RP/s) RC = Relationship Capital t = Time In the same way that acceleration is the rate of change in velocity over time, relational impact is the rate at which influence changes over time: Im = ∆In / ∆t Where: Im = Impact (measured in RP/s2) In = Influence t = Time Therefore, if we were to graph the Relationship Capital of a person, product or business unit over time, we could look at the rate of change (a steep rise due to the endorsement of a popular figure or a moderate decline due to layoffs) to determine its influence. We could also quantify the level of impact generated (positively or negatively) due to particular events that took place. Imagine doing this for historical figures, identifying areas of psychological trauma, etc. The possibilities are endless when we perform this type of analysis. 10
  • 11. Reputational Mass The longer one’s Relationship Capital remains relatively consistent at a value while the number of connections grows, the more of a reputation (or tendency) it has, and becomes much harder to change due to inertial effects. Last month we stated an equation of the Third Law as: RC = Σ(R) Where: RC = Relationship Capital, and R = Number of relationships As we stated, this was inaccurate, and relied on the Fourth Law, but was useful for purposes of illustration. The more accurate statement is: Rm = Σ(R) Where: Rm = Reputational Mass (measured in connections), and R = Number of relationships Take, for example, an historical figure like Sir Isaac Newton, with whom we all have a relationship even though he has long gone. Because of his deeds, accomplishments and actions, he has earned a reputation based upon the Relationship Capital profile that he developed over the course of his life. If a new historian suddenly shocked the world with evidence “contrary to popular opinion”, information would be suspect and unlikely to change the value of his Relationship Capital too quickly unless considerably substantiated and widely accepted, which actually did happen (to a much lesser extent) upon the discovery of Einstein’s Theory of Relativity. Reputational Momentum As Newton’s First Law states: “Objects at rest, tend to stay at rest and objects in motion tend to stay in motion, unless acted upon by an outside force”, there is a link between Relationship Capital and reputation. If Reputational mass exists, then what happens when we dramatically increase (or decrease) Relationship Capital over a considerably shorter period of time and have a considerable number of relationships? You got it… reputational momentum, which can be calculated as: Rp = Rm * In Where: Rp = Reputational momentum (measured in connectionsRP/s) Rm = Reputational mass In = Influence Reputational Force For Relationship Capital to drastically change amongst all connections there would need to be a considerable amount of reputational force exerted on such a system through action and deed. Again, if one’s network has mass which can build momentum, reputational force must be exerted to positively or negatively influence it or to bring it to rest. Therefore, based upon Newton’s Second Law: 11
  • 12. FReputational = Rm * Im Where: FReputational = Reputational force (measured in connectionsRP/s2) Rm = Reputational mass Im = Impact Over time, reputational force could be quantified and analyzed, based upon individual actions like direct mail, advertising, word-of-mouth, genocide, keeping promises, misdirection, etc. as a means to influence Relationship Capital. Again, the implications are quite substantial. Was this what Isaac Asimov foretold in his groundbreaking Foundation series of books when he introduced the concept of Psychohistory? Time, will indeed tell. Next month we will be taking a break from the ten Laws of Relationship Capital to indulge in what has become a February tradition at The National Networker as we celebrate our third anniversary; my State of the Industry Address. In March, we will resume with Part 5 and the Fifth Law of Relationship Capital…stay tuned! The Laws of Relationship Capital - Part 5 The Fifth Law So far in our series on the Laws of Relationship Capital we have learned who and what may possess Relationship Capital, even long after they’re gone (historical figures, fossil fuels). We have learned how both quantity and quality play into the calculation of Relationship Capital. We have learned that Relationship Capital Value can be both positive, neutral or negative and fluctuate with time, depending upon our actions. Furthermore, we have learned that the implications of the first four laws will allow us someday soon to develop a more complete picture of the world around us; past, present and future. And while all this is fine and good, there are many questions left still unanswered, such as “What is the final resting place of all Relationship Capital?” and “What’s the worst thing that can happen in the world of Relationship Capital?” This is where the Fifth Law comes in… The Fifth Law Based upon the the first four Laws, the Fifth Law states that: Relationship Capital can never be destroyed. Let’s examine the implications... Old Soldiers We have stated before that relationships last forever; whether they are recognized or not, they still exist. We have also stated that Relationship Capital Value can have a neutral state (zero) representing a relationship that is unknown, unrecognized, undiscovered, brand new, irrelevant, inert, forgotten and having no recognizable effect whatsoever upon any other Relationship Capital Entity (people, products, assets, business units, authoritative position). Who would have thought that when General Douglas MacArthur said, “Old soldiers never die; they just fade away,” he was making a prophetic statement about the nature of Relationship Capital! 12
  • 13. The Effects of Fame/Notoriety Of course the mere mention of MacArthur’s quote in this publication shows that this soldier never really did “fade away” and of course his legacy lives on in his own personal Relationship Capital Value. This example, however, gives us insight into the nature of both fame (or notoriety) and Relationship Capital; if we map out Relationship Capital Value (measured in Relationship Capital Points, or “RCPs”) over time there is some boundary (possibly Malcolm Gladwell’s “Tipping Point”?) or “fame/notoriety threshold” by which the nature of Relationship Capital is less likely to be altered with respect to time. Once the fame/notoriety is crossed, the adage “it’s not about who you know, it’s about who knows you” becomes quite relevant because the amount relationships and inter actions drawn to the famous entity is effortless…for better or worse. The above graph indicates three subjects: Subject A, who achieved fame over their lifetime, Subject B, although with considerably positive Relationship Capital never quite “made it” and Subject C, who rose quickly to fame 13
  • 14. only to quickly fall and achieve notoriety. The good news is that we have complete control over our Relationship Capital Value, provided that we have not breached either of the two thresholds and, as stated in Part 4 of this series, can modify it by applying Reputational Force through our own actions. The bad news is that we only have control over our own Relationship Capital as long as we are alive and even if we are alive, we have less control when we are either famous or notorious. The End of the Road? So if fame is Relationship Capital’s best friend, obscurity is its worst nightmare; zero RCPs. Time, of course, also plays its part. While MacArthur’s statement, in context, was about himself (click here for the full quote) and may have backfired for him (at least at this point in time), it is quite valid for the vast majority of soldiers who did, indeed, fade away. But just because we might fade into obscurity and have no Relationship Capital to speak of, does not necessarily mean that it’s the end. The above graph shows a possible Relationship Capital graph for a creature that might have lived millions of years ago; say the dinosaur mummy recently publicized in the news and TV. Over the period of its life, it interacted with other fauna and flora of the day earning and losing Relationship Capital due to its own actions. Upon its death, it quickly went into a dormant obscurity, where it remained so for 65 million years until it was discovered by a North Dakota teen in 1990. Upon discovery, it was excavated and examined by scientists who had discovered that some of their previous theories were dramatically incorrect. Their discoveries have since been publicized and broadcasted thereby bringing a certain amount of fame to this long- gone reptile. The Effects of Relationship Capital Decay But while our own actions can affect our Relationship Capital, there are other effects that would work to reduce our RCPs to zero. We see this happening in business settings all the time…the “what have you done for me lately?” and “out of sight; out of mind” syndrome. Just like radioactive isotopes have their own half lives, so does Relationship Capital…to a degree. The above graph shows the effects of decay upon Relationship Capital by looking at three subjects. Subject A has achieved a fairly high amount of Relationship Capital in their lifetime, close to achieving fame but eventually faded into obscurity (possibly after their death?). The fairly mild decay in RCPs might indicate that 14
  • 15. the person was well liked within their own personal network. Subject B, much like (yet conversely) to Subject A had a similar run of achieving near notoriety, but never quite made it either. In contrast, to the rates of decay of Subjects A and B, subject C, due achieving fame, has had a relatively slower decay, which would be indicative of one of our great historical and influential figures. Discussion Points And while organizations like RNIA work to turn the theory of Relationship Capital into a practicality, there is current discussion of dealing with Relationship Capital Decay by possibly assigning expiration dates to some or all RCPs. What effects this will have as we transition towards the Relationship Economy is too early to tell. Another issue is that if Relationship Capital can never be destroyed, it begs one major question; “Is Relationship Capital created or is it always there, but just undiscovered? Does it act like energy or mass in that it can neither be created, nor destroyed?” While for the purposes of practicality it might not matter in due course of business, the implications of one versus the other would be a complete revolution in understanding. If Relationship Capital can only be created and not destroyed, then it behaves similarly to entropy, or disorder, which would also lend itself to our current scientific understanding of our increasingly-expanding universe. Relationship Capital would stand as a value that is created at inception as an immediate interaction is developed between the individual and both parents. If, on the other hand, Relationship Capital can neither be created nor destroyed, then it begins to raise certain esoteric and controversial issues, but would also conveniently align with a “Law of Conservation of Relationship Capital”. Provided this were true, we would be forced to develop a framework of understanding that Relationship Capital may also be owned by entities that have yet to be discovered or created. If this were true, then RCPs of all entities would exist in obscurity at zero RCPs until created. 15
  • 16. From this discussion, we can see that there is much more to Relationship Capital that just “working a room”. I am of the opinion that there is a link between Relationship Capital and Einstein’s Unified Field Theory. We can begin to see it touch upon all aspects of our lives, and while more questions are answered, more arise. Again, the purpose of these articles is to spark both discussion and thought. Stay tuned next month, for Part 6, when we will focus upon the cumulative and aggregative effects of Relationship Capital as it applies to systems. The Laws of Relationship Capital - Part 7 Up to now in our discussion of the Laws of Relationship Capital, we have looked at the kinds of entities that can or cannot possess Relationship Capital as well as some of the mechanics of Relationship Capital. But if Relationship Capital is the way to quantify the “who we know”, how about the “what we know”? The Seventh Law begins to address this. The Seventh Law The Seventh Law of Relationship Capital states that: Intellectual Capital can only be created by one or more Relationship Capital-possessing entities IP and IC So where does Intellectual Capital come from? One of the most logical places to look is the area of Law known as Intellectual Property (or “IP”) and the subject of corporate “intangible assets”, which are synonymous for the increasingly acceptable term “Intellectual Capital”. Wikipedia’s definition of Intellectual Property is “a legal field that refers to creations of the mind such as musical, at etc. literary, and artistic works; inventions; and symbols, names, images, and designs used in commerce, including copyrights, trademarks, patents, and related rights. Under intellectual property law, the holder of one of these abstract quot;propertiesquot; has certain exclusive rights to the creative work, commercial symbol, or invention which is covered by it.” (see http://en.wikipedia.org/wiki/Intellectual_property). Valuation And while the Relationship Networking Industry Assocation (RNIA) and Google are championing the cause of valuating Relationship Capital, organizations like the Financial Accounting Standards Board (FASB) have been doing the same with Intellectual Capital. The question to ask is: “why?” Quantifying intangible assets has taken on great significance in the past several years as corporations change and undergo mergers & acquisitions. According to a report put out last year on IPFrontline.com, tangible assets twenty years ago accounted for over 60% of a company’s capitalization. Today that number is less than 15% and that the S&P 500 companies are estimated to hold $3 to $4 Billion in Intellectual Capital. Lisa M. Aldisert, in her book Valuing People: How Human Capital Can Be Your Strongest Asset sums it up; “The differential between a company's book value and market value largely reflects the value of its intangible assets.” 16
  • 17. Implications In many ways, the study of Intellectual Property and Intellectual Capital serves as a template for Relationship Capital in that there is general agreement that there is value and Financial Capital to be found in those things unseen within an organization. Of course there are challenges as well such as producing widely-accepted standards of measurement, determining how to lend based upon intangible assets as well as how to use them to minimize risk. Nonetheless, discussion in and around Intellectual Capital and the Seventh Law only goes to further bolster the previous Six Laws of Relationship Capital. The First Law states that entities under biological taxonomy can possess Relationship Capital. The same holds true for Intellectual Capital as well. The Second Law states that non-organic entities only possess Relationship Capital in that it is imbued upon them by the Relationship Capital-possessing entities that create them. Could not the “non-organic” entities spoken of here fall under the container of Intellectual Capital? This would mean that conceptual entities like corporate brands would not only have an Intellectual Capital component but a Relationship Capital component as well. After all, don’t we have relationships with brands, inventions and other entities of Intellectual Capital? And don’t we still have relationships with those entities long after they’re gone? You never forget your first car and there are plenty of folks who “wax nostalgic” when they see the old Sinclair Dinosaur logo. This also puts perspective on the group of people known as “early adopters”, who tend to be the first to develop relationships with non-organic and/or conceptual entities. Where Intellectual and Relationship Capital diverge, however, is in the mechanics of computation and inherent behavior. Intellectual Capital is typically calculated for a particular point in a company’s lifespan and therefore, tends to be “static”. As we have stated in Laws Three through Six, Relationship Capital does, indeed, change over time as relationships change, mature and/or develop. If Intellectual Capital “appears” to change over time, it is due to the effects of the relationships with those Intellectual Capital-possessing that change. Thusly, Intellectual Capital changes as Relationship Capital changes. What is of major significance is the rising trend of determining value based upon intangibles. The impact of this is how potentially human-centric value becomes. Sure, we’ve heard that any organization’s biggest asset is its people, but how do you compare an individual to a block of gold and how do you pay your mortgage with Intellectual and/or Relationship Capital? There are only three Laws of Relationship Capital left to discuss and each of them attempt to address the issues of what is “true value” and what is the real capital? Next month, in Part 8 of The Laws of Relationship Capital, we will continue our discussion on the link between Relationship Capital and Intellectual Capital…see you then. Last month we introduced Intellectual Capital into our ongoing discussion of Relationship Capital. What makes Intellectual Capital so interesting is that when compared to Relationship Capital, there is a considerable amount more study and discussion that have taken place as evidenced by areas of law that concentrate upon Intellectual Property as well as business valuation. Even the Financial Accounting Standards Board (FASB) has begun to address what we have come to know as “intangible assets”. And where the Seventh Law introduces the subject, the Eighth Law ties together the unique relationship between both Intellectual and Relationship Capital. 17
  • 18. The Eighth Law The Eighth Law of Relationship Capital states that: A Quick Review The Fourth Law introduced the concept of Relationship Capital Value (measured in “Relationship Points” or RCPs, as per RNIA) which can fluctuate, much like a company’s stock, over time and exists in three basic states: 1. Positive – the perceived relationship by both parties involved is one that is favorable, pleasurable, enhancing, meaningful, useful and/or supports the sustainability and/or survival of the person, product or business unit in question 2. Negative – the perceived relationship by both parties involved is one that is unfavorable, toxic, diminishing, meaningless, useless and/or leads to eventual destruction of the person, product or business unit in question 3. Neutral (zero) – the relationship is unknown, unrecognized, brand new, irrelevant, inert, forgotten and/or has no effect whatsoever upon a person, product or business unit. 18
  • 19. 19
  • 20. We stated, too, that RCV changes over time, and therefore, behaves in a way that is “Newtonian”, allowing us to analyze both Influence and Impact, which are first and second time derivatives of RC. We also talked about Reputational Force, and how it can be applied to a system to create an Impact: FReputational = Rm * Im Where: FReputational = Reputational force (measured in connectionsRCP/s2) Rm = Reputational mass (number of connections) Im = Impact 20
  • 21. Intellectual Capital and Relationship Capital are Interdependent In our discussion of the Seventh Law, we stated that unlike Relationship Capital, Intellectual Capital tends to be conceived as “static” in that we evaluate it for one particular place in time. The question becomes, “Why static? Doesn’t Intellectual Capital change over time?” The answer is “yes”. A company’s intangible assets (a.k.a. Intellectual Capital) can be valuated for one particular point in time for the purposes of a hypothetical merger or acquisition and can be re-valuated years later. The only sticking point is that the method of valuation may not always necessarily be the same as organizations like FASB have not come to any agreement on one particular standard. Be it static or dynamic, intuitively we know that Intellectual Capital affects Relationship Capital. Let’s take a look at a thought experiment from our past. A company comes out with a brand new invention known as a “television”. That company has created significant Intellectual Capital as this new technology is revolutionary. Because of the nature of this new invention and its subsequent distribution into homes (a significant rise in Reputational Mass, Rm), it changes the way we relate to each other (Impact, affecting RC) as well as to the various “personalities” on the television. In this case, the television and its subsequent broadcasts create a Reputational Force. We can come up with numerous examples from our past; the Winchester Rifle, the internet, the automobile, the atomic bomb, the vaccine for polio, the International Space Station. These have all affected our Relationship Capital for better or for worse, depending upon how the Reputational Force has been applied. The question the becomes “can Relationship Capital affect Intellectual Capital?” The answer again is “of course”. As we look at the same example as before, for such an item of Intellectual Capital to be created, there had to be an initial thought by a Relationship Capital-possessing entity (or thoughts by a group of such entities). The idea had to be discussed with others RC-possessing entities from a technological standpoint. The idea also had to pass muster with other RC-possessing entities that could approve it from a financial standpoint, to back its development and subsequent production. The company continued its conversations and formed specialized teams to produce it, market it, distribute it and further refine it. Whenever there are conversations, there is Relationship Capital at work and from which, under the right circumstances, Intellectual Capital can and did thrive. I challenge you to perform such thought experiments on your own to see where this is not so…I have yet to find it, but would love others to try to prove the concept wrong. If it is, indeed true then this gives us insight into the true interconnectivity that exists between us all and how negative impact, no matter how small, affects a much larger system similar to the “butterfly affect”. Do Superman, Santa, democracy and Buddhism possess Relationship Capital? We can clearly perform such thought experiments with inventions of all sorts, but what about brands and concepts? Certainly, they are inventions as well. For those who can relate to the movie The Secret and/or the landmark, iconic self-help book, Think and Grow Rich by Napoleon Hill, the “thoughts are things” philosophy is supported here. The idea here is that when thoughts are crystallized into things, the can then have relationships with them and, therefore, build Relationship Capital with them. Such things as brands, concepts, music and works of art possess both Intellectual Capital as well as Relationship Capital. As they are non-organic entities, it should be noted that the Relationship Capital they possess is merely reflected or imbued upon them by those Relationship Capital-possessing entities that created them. It is for this 21
  • 22. reason that most people are likely to buy a new computer technology created by Bill Gates, Steve Jobs and Michael Dell as opposed to the very same technology created by Joe Smith and Mary Jones. Knowing the interplay between Relationship and Intellectual Capital might be just the catalyst needed to further legitimize Relationship Capital since Intellectual Capital is being talked about more and more, mostly due to its perceived impact upon Financial Capital. So if Intellectual Capital impacts Relationship Capital and Intellectual Capital impacts Financial Capital, then by the transitive property of mathematics and logic, Relationship Capital must impact Financial Capital. Next month, we will be talking more about this crucial (and sometimes, controversial) relationship. Sunday, July 06, 2008 The Laws of Relationship Capital, Part 9: The Ninth Law by Adam J. Kovitz, CEO, Founder & Publisher Adam's section is brought to you by Salesconx.com So far in our discussion of Relationship Capital, we looked at who can and cannot possess Relationship Capital, some of the mathematical theory behind Relationship Capital and its relationship to Intellectual Capital. But what about the kind of capital we all know and love -Financial Capital? Hang on to your seats because the last two Laws of Relationship Capital do just that. If you’re intrigued by money and controversy, then you’re in for quite a treat. The Ninth Law The Laws of Relationship Capital, Part 9: The Ninth Law by Adam J. Kovitz, CEO, Founder & Publisher So far in our discussion of Relationship Capital, we looked at who can and cannot possess Relationship Capital, some of the mathematical theory behind Relationship Capital and its relationship to Intellectual Capital. But what about the kind of capital we all know and love -Financial Capital? Hang on to your seats because the last two Laws of Relationship Capital do just that. If you’re intrigued by money and controversy, then you’re in for quite a treat. The Ninth Law The Ninth Law of Relationship Capital states that: Financial Capital is merely a reflection of and cannot exist without some combination of Relationship and Intellectual Capital. The implications of this are staggering and, if indeed true, changes the way we might perceive Financial Capital in the future. The Ninth Law suggests that Financial Capital is illusory at best! 22
  • 23. Money Talks We use money (Financial Capital) to pay our debtors, buy goods and services, invest in education for our children, save for retirement and fund projects and causes that we believe are worthwhile. We also use it to determine associated risk of an investment, which is a way by which we establish a ranking system to make a more informed decision as to whether or not an investment is worthwhile. Financial Capital also allows us to establish a ranking system to determine status; those with more Financial Capital are considered “rich” in the eyes of others and can afford more conveniences and luxuries. But where does this money come from? When we think about all the ways one can earn Financial Capital, we come up with the following list: 1.) Working– the traditional job and/or career path 2.) Saving/Investing – utilization of a financial vehicle 3.) Inheriting – family and/or really good friends leaving it to you 4.) Winning – gambling, lotteries, contests 5.) Discovering – inventions, new revenue streams from brand new opportunities 6.) Gifting – donations or handouts I have looked at each of these scenarios via thought experiments, ran these by several colleagues and have been able to reduce each of these down to Relationship and/or Intellectual Capital as the true source of wealth. In each case, I have not been able to prove the Ninth Law wrong, and I welcome anyone to try! In the meantime, let’s take a look at the following examples: Working Having a job is having an agreement to exchange your hard work and devotion to completing pre-defined (at least, usually pre-defined) tasks given by your employer in return for financial compensation usually paid out in salaries, wages, commissions and/or bonuses. But how do we get the job in the first place? If we were the “best candidate” for the position, it is because our resume clearly demonstrated our knowledge and experience. If we happened to have prior experience with the particular company or a few individuals within it from a prior job, our previous relationship with them has worked in our favor. The same holds true if we are in sales – often times the decision to select one sales professional over another is because of who they know. Of course in a family-owned business that is passed from generation to generation, preference (and job security) is given to those with last names the same as the owners (or those married in). How about bonuses and commissions? They come from doing our jobs more effectively. How do we do our jobs more effectively? By building our own networks and increasing our own Relationship Capital or by applying our knowledge (building Intellectual Capital) in ways that go above and beyond traditional thinking that lead to higher profitability, lowered costs and/or improved efficiency. Getting a pay raise or even a better position is often attained the same way – it never hurts to have an exceptional working relationship with someone in a position of authority. 23
  • 24. Conclusion: Financial Capital attained through employment is accomplished through other peoples’ assessments of your RC and IC. Saving/Investing Utilizing financial vehicles as a means if wealth is quite popular, with a bit of knowledge (IC) of time value of money and compounding interest rates, one can put their money in a savings account, money market, etc. When it comes to evaluating which is the right vehicle from which to choose, we use our IC to evaluate rates, return on investment, percent yield, expected time frame of the investment, etc. In the case of real estate transactions, we must know the above plus have a sufficient amount of IC when it comes to location, local economy, benefits/consequences of other nearby development projects or land preservation initiatives. We also need to apply our RC to build our IC in this particular area as well. We need to build and further develop relationships with potential buyers, sellers, partners, local authorities and property managers as well. Their degree of helpfulness will be based upon your RC with them. When investing in any major financial vehicle such as a bond fund, mutual fund, hedge fund, REIT or business venture, our decision whether or not to invest is often based upon the resumes of the management team. Are they competent enough to see this investment through fruition? Are they experienced enough to handle unforeseen issues that may threaten the stability of the project? Conclusion: Financial Capital attained through investments is accomplished though investors’ assessments of RC and IC. Inheriting Leaving a legacy is important to many people. While the example of traditional inheritance is easy to see that Financial Capital is typically attained due to a prior relationship, there is another example we can explore as well. Life insurance, although it might also be seen as an investment, is also a form of inheritance in that our beneficiaries receive Financial Capital in the event of our own demise. Choosing such beneficiaries are, too, the result of prior relationships with others. Conclusion: Financial Capital attained through inheritance is accomplished through others’ assessments of RC. Winning Winning Financial Capital may seem like sheer “luck”, but is it? Games of chance, require IC in their design. Intimate knowledge of such games and the odds require even more so. Those gamblers and gamers who seem to make a career out of it tend to have systems (IC) or have read or have been told about others’ systems (IC & RC). Even the act of willingly engaging in a game, lottery or contest means engaging in an inadvertent relationship with those who created it, worked on it, run it, etc. Conclusion: Financial Capital attained though winning is accomplished via a hidden and often complex series of interactions involving RC and IC Discovering 24
  • 25. What about a person who discovers a sum of money (bill or note) left on the ground with no one else in sight? Simply put, as the money did not get there by itself, it must have been left there by someone, inadvertently or otherwise. Therefore, the finder now has an inadvertent connection with the loser of the money and therefore an interaction of RC. Another example would be the classic case of inventors who discover something that has not yet been seen by others; new technology, new concepts. Based upon these discoveries, new revenue streams can be realized thanks to the building of IC as well as interactions with others (RC) who can help take the invention or concepts to market. Conclusion: Financial Capital attained through discover is accomplished by inadvertent interactions of RC as well as the sharing of concepts (IC) and connections (RC) to achieve a common goal. Gifting Similar to inheritance, when we choose to give money to a friend, family member, house of worship or other cause in which we believe. It is because we share a bond of friendship, a feeling of love and/or respect or we simply relate to the cause. Because the RC and/or IC is so strong, we feel responsible, passionate and compelled to show our support via Financial Capital. Conclusion: Financial Capital attained through gifting is accomplished via others’ assessments of the RC of the individual and/or the IC of the concept or cause. The True Currency So if all financial transactions can be “boiled down” to the complex interactions of RC & IC-possessing entities and their own relative assessments of other RC & IC-possessing entities, why do we need Financial Capital? The simplest answer is that we need to pay our bills! Unfortunately, my mortgage company does not yet accept RC or IC. Looking deeper, however, we, as the human race, must have some means to properly understand, measure and valuate such complex interactions, and so far our current economic system of Financial Capital, which got their start in post-feudal Europe of the 1600s, has been the best model to follow. But is it still the best model? As we look at our current economic issues in the U.S. as well as other parts of the world, one has to wonder. Fortunately, the Tenth and final Law of Relationship Capital discusses the advantage RC & IC have and their key role further development of both might play in the dramatic improvement in the way Financial Capital is viewed. Stay tuned for our last and final chapter in this series. The Tenth Law The Tenth Law of Relationship Capital states that: Relationship and Intellectual Capital always conform to the laws of nature and humankind. Financial Capital does not…necessarily. 2nd Generation Capital 25
  • 26. The Ninth Law states that “Financial Capital is merely a reflection of and cannot exist without some combination of Relationship and Intellectual Capital.” Financial Capital has been our best way of recording (so far) who we know (Relationship Capital) and what we know (Intellectual Capital) by valuating it and subsequently transacting it. What we might not have noticed is that the end product of Financial Capital has been filtered and processed. And while filtering and processing works with diamonds and crude oil… Would you rather listen to a 2nd or 3rd generation recording of your favorite music or the Master Copy? Would you rather eat highly-processed foods with preservatives and artificial colorings or the healthier food in its purest state? In this regard, the filtering and processing of Financial Capital is what’s questioned in the Tenth Law. The 2nd Generation Problem In an ideal world of Financial Capital, those who worked hard would be incentivised by profit, would be ranked higher and would appear as a less risky investment and life would be all around “good”. Unfortunately, this does not necessarily happen (or might have at one time), due to some major factors of the filtering and processing process: 1. “Healthy” Competition – in its initial phases, competition is used to incentivize people to work. The downside is that it is not sustainable over time – there can only be one winner while everyone else loses. In a world of 6 billion people, the odds aren’t that good that you or I will win when competition needs an advantage/disadvantage scenario to be effective. Equality does not work in a competitive environment, and over time, gets squashed as competitive advantage can often be attained by crossing the line of morality and ethics. 2. The “Bigger is Better” Mentality – in our current Financial Capital-driven economy, we show favoritism to the big and punish the small. We continue to over pad compensation for the CEOs of the largest companies in the world while other workers in the same companies are paid significantly less and often struggle to survive. We also punish those who cannot pay their bills on time, have overdrawn their accounts and have poor credit scores – how? We charge them more. 3. The Push for Constant Growth - Even to survive in our current economy, the pressure is on for us to continue upward growth at all costs, for the benefit of our shareholders, employees, etc. Again, this is not sustainable as nature is cyclical, yet our economy depends upon building sandcastles that can never be destroyed. 4. Short Term Incentive – Or current Financial Capital-driven economy is run off the concept of time value of money – we would rather have $100 today than tomorrow because it “looks better on the books”. This can lead to a myopic view of the world and can spell disaster for a company that is looking for sustainability, and while patience may just be a virtue, it often gets swept aside. 5. Underdeveloped, inconsistent and/or unrecognized valuation of Relationship and Intellectual Capital – While profit growth is easily valuated, growth can also occur in understanding, skills and education, brand recognition and goodwill and trust, yet these intangibles are a much harder business case to make. Without consistency and a deeper understanding of the root cause of Financial Capital, the filtering and processing thereof lead to Capital that is “less pure”. 6. The Dehumanizing Effects of Financial Darwinism – The over-reliance and over-skewed emphasis on Financial Capital as a metric of determining one’s worth and the resulting rewards or punishment leads to dehumanization and de-sensitivity. And while Darwinism might describe how we got here, it does not necessarily dictate the way humanity needs to exist from here on out. There is a considerable difference 26
  • 27. between those who cannot pay their bills and those who refuse to pay their bills. Our current evaluation systems do not account for this and still regard them as equal. 7. Over Exceeding our Means – When we find unethical ways to overvalue, prey upon the unsuspecting and buy on credit, we are simply acting in a way that is both fiscally irresponsible and considerably unsustainable. The sandcastle metaphor holds true here as well. The Sustainability of “Raw” Capital I am no economist or lawyer so I will not go any further in discussing what’s wrong or right with our current economic system. But just because I don’t have a degree doesn’t mean I can’t weigh in with the observation that things are considerably unbalanced economically at this time – it doesn’t take a rocket scientist to see this. And even though I am a recovering engineer and rocket scientist, I do know one of the fundamental concepts of engineering: K.I.S.S., or “keep it simple, stupid”. The more complexity we add to any system, the more room there is for “human error”. Logically speaking, there are two ways to bring about a more sustainable economy or what I (and others) call “The Relationship Economy”: 1. Redo our entire economic system from the beginning based upon principles of cooperation, sustainability, long-term planning (the “seven generation” approach might even be considered) and of course, Intellectual and Relationship Capital, or 2. Re-tool our current economic system, implementing and integrating the principles above and fund research and development into Intellectual and Relationship Capital as well as the education thereof at all levels. Certainly option 1 does indeed lend itself to the K.I.S.S. approach, but the most likely (and perhaps realistic) approach if any is option 2. For us to first “dip our feet into the water”, laws supporting the filtering and processing of “Raw” Capital (Relationship and Intellectual) into Financial Capital should be biased towards incentives for profit, but not at the expense of the innocent, the environment, the unsuspecting or uneducated and overall sustainability. Strong accountability measures must be taken at all levels and true equality must reign supreme. Further incentives must be given to grant authority to more individuals as we must all become the watchdogs to safely guard and protect our delicate new Relationship Economy. The Journey Has Already Begun While this certainly seems like a tall order and even “utopian”, is there really any other option that we have other than to simply do nothing? Is doing nothing even an option? In my mind, not if further generations are to have the opportunities we’ve had. The good news is that we have already to begun to take certain steps towards the Relationship Economy. Networking is certainly a start. Thanks to networking, we are building relationships and trust, which in turn, lead to the Financial Capital that puts food on our families’ tables. We must be careful, however, to build temporary trust and alliances to overthrow or gain competitive advantage over others. This is not networking for sustainability. The internet is further exacerbating our abilities to connect with one another in a more meaningful fashion thanks to the “Web 2.0” explosion of free media and content available to the masses. Networking and the internet provide fertile soil for the seeds of populism. We are beginning to see more examples of the meek inheriting the earth when Democratic Presidential hopeful Barack Obama raised more money through such means by asking for smaller donations from many versus his opponents during the primaries who relied upon traditional larger sums via special interest groups, lobbyists and corporations. 27
  • 28. The World of Tomorrow The future can be bright, should we choose to make it so. In the world of the Relationship Economy, Big Brother will rule the day; not the one we think of from Orwell’s 1984, but one where we are all “Big Brother” and watch over the system to hold others accountable – either our actions lead us to trust or away from it. No longer do we abdicate our authority and personal power to a select privileged few. Secrets do not exist in a true Relationship Economy as well all know each other’s business. Since this is the case, we all must work together in teams to find ways of moving forward and profiting. Profit, itself, is achieved through the populistic views on the morality of the day and sustainable models. Even the ways by which we make a living change. We will no longer require that we work standard jobs, rather we work on projects for specified periods of time. When we’re done, we move on to others. Choosing to work on anything pertaining to sustainability would reward us with the Capital we need to live, including volunteer work. Of course the concept of “volunteering” and “work” will have new meaning as all projects (formerly known as jobs) will require volunteers who will be compensated for their time and efforts. Others will make a living by inventing and creating new projects. Traditional roles will still need to be filled. The Relationship Economy will still need folks to interpret and enforce laws (although crime rates and terrorism will dramatically decline – when everyone is working and making a living – there is relatively no incentive to short circuit, rebel against or “game “ the system. Healthcare professionals will continue to be needed as well. If everyone is able to earn a decent living in a Relationship Economy, they can afford suitable housing for their families and hunger and malnutrition will be an option, rather than a reality with no escape. Humanity 2.0 can be achieved. Utopian?…definitely. Impossible/improbable?...not by a long shot. The End? The Ten Laws of Relationship Capital are intriguing in the sense that they combine so many disciplines of our understanding. They show a deeper insight into many things we take for granted, and can provide keys to better understanding our past, present and future. They point to our humanity as the key to either destroying everything we hold dear or making this world a better place for generations to come. What’s past with this series on Relationship Capital is just the prologue. I thank you for reading this and urge any and all who see the sense in it to test these ideas out for themselves, teach it to others and use it to develop more sustainability in your lives and those of your family and friends. The Emergence of the Relationship Economy Relationship Capital is the cornerstone of the Relationship Economy, which RNIA defines as an “economic system in which Relationship Capital influences the production, distribution, exchange, and consumption of goods and services.” I am proud to have contributed discussion of the Ten Laws of Relationships Capital to the upcoming book The Emergence of the Relationship Economy, now out as an eBook and in hardcopy. With a forward written by Doc Searls (of Cluetrain Manifesto fame), it is being considered a “must read” for anyone responsible for the strategic direction of their business. If you would like to purchase your own copy of The Emergence of the Relationship Economy, please click here. 28
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