14 Nov Seven capitals that add value to a brandReading Time: 3 minutes
When organisations think about capital, two dominate. Financial and human. Both are crucial, and abusing them will collapse value and drive you out of business.
Yet, you accumulate value across more than those two. But don’t necessarily consider those things as capitals when making decisions. As a result, choices erode rather than collect what should be robust stores of value held in a brand.
Peter Tunjic is a Commercial Lawyer who writes and thinks deeply about the nature and definition of value. He lists seven capitalsorganisations’ trade. His work draws value broadly; however, his thinking helps demonstrate how they can play a material role in generating those stores (or not).
The seven capitals* are:
In every activity, you’re trading one for another. For example, when you pay people, you transform financial capital into human capital. Their work transforms human capital into intellectual capital. Intellectual capital becomes manufactured capital. Back and forth. Around and around. The goal is to transform each capital into something worth more.
Tunjic calls trading one for another worth less ‘decapitalisation’. He says, “The paradox of decapitalism is that it produces more money but less value and less energy to support the growth of society.”
Say downsizing staff to pad the bottom line or paying dividends to shareholders who benefited from higher share prices. Do that too often, and you’re out of value to trade and out of business.
Okay. Let’s work through how capitals work when looking through a brand lens. It’s about choices and activity, not functions and departments, a shift you must make to achieve a brand that sticks.
Clients often ask me how to measure the brand or track progress. It’s a valid query, but it misunderstands what a brand is. One way I define it is as ‘a store of value’. So, the measure is how much you have on hand for things the organisation needs to do.
Here are a few examples.
Human capital is a horrible way to describe people. There is something unseemly about reducing someone’s humanity to headcount. But, their contribution to value is undeniable and wide-ranging. Hiring people willing to stand alongside what you care about and how you do things amplifies those things for others to see and hear. Their efforts contribute to intellectual property and social standing. Their activities generate products and revenue.
Most organisations define people as ‘their most valuable asset’. Yet, few (any?) place their salaries and benefits in the asset column on the balance sheet. Using a brand lens more fully recognises their contribution and goes partway to correcting the mismatch. How people interact with others, the way they see their work or the choices they make is the pathway value most often travels.
No brand reliably stores value when people are treated poorly by the organisations they work for. On the flip side, nothing will mint value faster than motivated people committed to your cause.
Social is a big daddy capital for accumulating value. As reputation, it walks into any activity before you and keeps working after you leave. It expands through use (good and bad), rippling beyond a specific activity to make everything easier or harder.
There’s a reason it should be on every risk register as something to watch. Think of recent hits to PwC when people shared confidential client data with others. The collateral damage cascaded into their social capital, and they may never wholly shake off the shadow of their actions.
Think of any high-profile blow-up or closer-to-home screw-ups, and social capital likely played some part in how far it rippled and on your future trades.
Promissory capital is held in every part of an organisation and involved in every exchange. Breaking a promise always erodes value. Always. Even if the cost isn’t immediately visible. Back to PwC. Their breach of confidentiality happened years before it hit other capitals. The actions may have seemed like a financial win initially, until they weren’t.
Whether you agree with Tunjic’s seven capitals is irrelevant. The idea is more about thinking of a brand as horizontal, not vertical. Every aspect of what you’re doing has an impact on its value.
Sometimes, it’s short-term boost or unravelling. For example, Who Gives a Crap using the windfall of people’s pandemic toilet paper purchases to increase their giving back to global sanitation projects by 750%—or Kanye West’s (Ye) bigoted comments torpedoing Adidas’ bottom line and years of investment.
Other times, it’s a long burn, adding or eroding over thousands of incremental acts. Such as Warren Buffet’s disciplined investment approach or Patagonia weaving the earth deep into their choices.
A brand is not a monolith built to withstand what happens around it. It’s more like a forest where actions are nurtured and find shelter to flourish with less effort.
See you next time.
* Description are on page 19 in the International Integrated Reporting Framework
** Tunjic has added ‘Promissory’ capital