Home Articles BEYOND FINANCIAL CAPITAL PAYING ATTENTION TO RELATIONSHIP CAPITAL

BEYOND FINANCIAL CAPITAL PAYING ATTENTION TO RELATIONSHIP CAPITAL

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A thought leadership issue

It pays to take advantage of knowledge and relationships when building your business – and your bottom line. In the 21st century, everyone has to be wealthy in Relationship Capital, a rich body of associates and contacts that you can bring to bear on any problem. Suddenly, with this asset, you have a vast inventory of capital. Relationships can be evaluated as assets, no less important than physical assets or bank accounts. Companies long ago began forming relationships with customers, suppliers and competitors. Top executives, such as Chief Financial Officers, Chief Information Officers, Board members, etc are now required proactively to create and nurture relationships to help the business uncover the best opportunities. Top executives are in the ideal position to interact with strategic “centres of influence”, such as individuals whose opinions can cause others to buy products or services, increase company visibility, help the company to stay on the cutting edge and so forth.

At first, top executives were hired for their technical and people management skills. But few were involved with strategic and measurable relationship building. Today, it is a common criterion for top executives to demonstrate that they have the ability to establish and build relationships. Today, technical and business management information is important, but the knowledge to maximise relationships is vital. As top executives move further into the “relationship economy”, he or she will need to remain on top of the stakeholder or customer communications, collaboration, consensus-building, teamwork and every other aspect that contribute to the company’s Relationship Capital. For many employees today, collaborative, complex problem solving is the essence of their work. These “tacit” activities – involving the exchange of information, the making of judgments, and a need to draw on multifaceted forms of knowledge in exchanges with co-workers, customers, and suppliers – are increasingly part of the standard model for companies in the developed world.

So what is Relationship Capital? There is a variety of descriptors for Relationship Capital currently under scrutiny. Some perceive it as the ‘value’ attributed to a peer to peer exchange, whilst others aggregate it as an intangible ‘goodwill’ element fostered by sequential exchanges that have positive outcomes. Relationship Capital is distinguished from Social Capital, because it is personal. It can only be derived on a one-to-one basis, because it represents the quality of your behaviours, traits and interactions over a period of time. It is a direct reflection of your character, as experienced by those that know you, and can testify as to your qualities. In essence, your credibility concerning relationship building qualities resides in your audience’s mind rather than in your objective credentials or skills. This means that it is especially fragile and careful consideration must be given to the techniques used to build relationships. The difference between Relationship Capital and Social Capital is perhaps best articulated by another commentator on the topic, Alejandro Portes, who has observed that, ‘Whereas economic capital is in people’s bank accounts and human capital is inside their heads, social capital inheres in the structure of their relationships’. Clearly, Relationship Capital is more as a measurement of capacity, defining the ability to establish a relationship with others. Put more simply, it’s the accumulation of resources developed through personal and professional networks. These resources include ideas, knowledge, information, opportunities, contacts and, of course, referrals.

Trust is a fundamental value driver behind all forms of Relationship Capital. Relationship Capital and trust are both intangible, yet they produce tangible benefits and outcomes. Relationship Capital can be earned, lost or used by people, products and business units. While it has no direct link to money, it may be used to create financial capital based on the perception of its holder’s value in the marketplace; for instance, a person’s Relationship Capital may be taken into account by potential employers, business partners and investors. It may be a factor in a job promotion, pay-for-performance arrangement or retirement bonus. Due to perceived quality, the value of Relationship Capital can fluctuate, much like a company’s stock, over time. Therefore, Relationship Capital can exist in three basic states:

Positive – the perceived relationship by both parties involved is one that is favourable, pleasurable, enhancing, meaningful, useful and/or supports the sustainability and/or survival of the person, product or business unit in question.

Negative – the perceived relationship by both parties involved is one that is unfavourable, toxic, diminishing, meaningless, useless and/or leads to eventual destruction of the person, product or business unit in question. Neutral (zero) – the relationship is unknown, unrecognised, brand new, irrelevant, inert, forgotten and/or has no effect whatsoever upon a person, product or business unit. A task force established by the Arthur W. Page Society produced a white paper that examined the theme called “The Authentic Enterprise”, specifically, the drivers and implications of a rapidly changing context for 21st century business and reported on the results of a survey of chief executive officers on the evolving role of the Chief Communications Officer in the light of dramatic changes. CEOs emphasised, amongst other aspects, personal qualities more than training, in describing what it takes for managers and key personnel to succeed at the highest levels, identifying the following as elements for building credibility:
• Intimate and detailed knowledge of the company
• Strong business knowledge
• Leadership characteristics or experience
• Breadth and depth of internal and external relationships

Never has there been a time when forging Relationship Capital with peers, colleagues and associates has been more relevant or essential. Building your Relationship Capital requires a consistency. Here is a checklist for you:
Earn relationship capital
• Never overlook an opportunity to make a contact.
• Offer help to everyone, even when you’re not asked for help.
• Make sure that every contact you make receives a follow-up action.
• Initiate communication. Don’t ask people to call you, be proactive.
• Try to talk about the contact, not about yourself. Learn what he or she wants.
• Always look for interconnections among people in your network.
• Make personal introductions between contacts with a common interest.
• Create Relationship Capital Interactions that benefit everyone involved.
• Always stay in the loop when there are more than two people involved in a networking interaction.
• Help build the Relationship Capital of others.
• Be known as an adherent of Relationship Capital Ethics.
• Grow your network continuously.
• Keep track of your networking activities.
• Build Relationship Capital with every encounter.
• And, above all else, always remain visible to your network.

What is the best way to resolve a problem to protect your Relationship Capital? Resolve misunderstandings as soon as they become known. Don’t assume that the other person will take the first step. Always be honest and to the point. Before writing someone off, and foregoing potential Relationship Capital, it’s often a good practice to air your differences or listen to other people air theirs. Relationships are based on expectations that sometimes need adjustment. Relationship management is just as important as financial management is to business and success. To be more effective and successful in our challenging business climate means taking a different approach to interacting with your best contacts and relationships.

Karl Smith is a Business Networking and Referral Coach.