What is
Structural Capital?
Structural capital is the net
sum of the infrastructure and systems that make up your business. These
are your best-practices, processes, procedures, information systems, and
databases. These are your contracts, your agreements, your contacts and
sales pipelines, your management structures, and knowledge management
systems. This is your operating methodologies and performance agreement
processes.
It is the permanent
information that is inherent in your business. It is what makes your
business continue as employees come and go.
In the same way that the
foundation and framework provides structure to the office buildings that
many companies work in, structural capital is the foundation and
framework for a business. It is the capability of a business to provide
the consistent level of service that it builds its reputation on.
Why is it important?
Companies without structural
capital rely on heroics far more than necessary in order to achieve
success. Think of a building with cardboard walls and a Styrofoam
foundation. How much work is consistently needed in order to keep that
building standing? The right amount, makes a business that not only works better, but is sellable.
And being able to sell a business is something that is very important to many of our clients.
Can there be too much of a good thing
Of course. Having the right
amount of structure is a bit of a balancing act. We have seen
companies with too much rigid structure, or much of the "wrong type" of
structure. Think of a building that has foundations and walls that are
far too thick: the interior space will be reduced. Do this too much and
you will no longer be able to pass through its hallways or through its
doors. There will no longer be any usable space.
This usually happens in
companies where the systems and processes they have in place are ideal
for the number of people that existed when they developed them years ago
rather than the number of people they have now, or want to have 1 year
from now. In essence, they have tried to keep the same methods in place
as they expanded operations, putting the management and owners under
unnecessary stress rather than creating scalability.
But what do
we normally see?
More often than not, we see
companies that do not have enough structure at all. We see companies
that try to make due without processes. We see businesses try to operate
without any set of formal communication channels. We see people try to
interact without any sense of what their priorities are and what they're
accountable for. And while this works exceedingly well for some
companies with 3 to 5 employees, it breaks down dramatically beyond
that.
What if we
like that sense of chaos?
Many people "get off" on what
is created when there is a lack of process and systems. The excitement
of "fire fighting." The thrill of "being a hero." The rush of adrenalin.
The lack of being "forced" to do things they do not want to do. For
smaller businesses, this may still be the best way for them to act. In
certain instances, this is also a powerful mechanism to drive results
and performance. But not for most and definitely not in the long-run.
And surely not for any
business owned by someone that wants to sell that business some day and
have someone else operate it.
Investing in the right amount
of the right kind of structural capital creates goodwill in a business.
From an accounting perspective, goodwill is the amount of money that
someone pays for a business over its book value. Without structural
capital, there is very little reason for anyone to pay more.
From a layman's point of
view, goodwill is what makes it easier (and less risky) for buyer to
make money with your business once you are gone.
If you are the
business, you have nothing to sell. Whether you like the chaos or not.
