Is relational capital more important than human capital?

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Permalink Reply by David Zinger on July 2, 2008 at 11:32pm

Theresa:

I own this as my own view but I think when you combine the words human or relationship with capital we are missing the point.

Don't get me wrong, I think relationships and humans can make a huge difference in results and outcomes for organizations yet I think it is disheartening to refer to people or their relationships as capital (okay what can I say I grew up in the 70's reading the Journal of Humanistic Psychology and it has always stayed with me).

I just think capital depersonalizes such a strong human element that if we try to capitalize on people we may be sewing the seeds of disengagement.

So my response is that humans or relationships are more important than capital.

David

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Permalink Reply by Mark Newsome on July 3, 2008 at 7:48am

I am fully convinced that it is the effectiveness of the relationships we develop in life that truly make a difference. A non-business example: one of my sons could not understand why, as he said in his vernacular, his friend "... always 'brown-nosed' with the professor?" I suggested to him that maybe it was not 'brown-nosing' that his friend was doing, but rather developing effective relationships that would have a long-term impact on his own success. Of course, the initial response was not received with open arms. However, I did notice when he received his undergraduate degree, he hugged and shook hands with a number of his professors. Hmmm. Maybe he got it.

I believe it is important to measure both the human capital and the relational capital, as best we can. But I do think there is a significant difference when an individual begins to develop and work within the network of effective relationships. I have to say, it is the strong relationships that I have developed on all levels within my workplace that causes me to reject overtures from other companies and the constant barrage from headhunters.

Finally, if you want to have an impact on your organization, you have to improve and build on the relationships of the key decision-makers in your business. Without that you are going to struggle getting anything done.

One other note: I do agree a little with what David Zinger said. People are more than capital; you can have all the capital in the world, but if you don't have people to drive that capital, then you aren't going to be able to do much with it. If you are on a deserted island in the Pacific and you have a ton of capital, it's not going to do you much good without other people to share and invest and market that capital.

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Permalink Reply by Lori Silverman on July 3, 2008 at 11:30am

Perhaps I'm missing something here. Relationships don't happen without people. So why is this an either/or conversation about assets? You need people in order to have the opportunity to access the relationships that they have. And these individuals bring more than relational capital to the table. For example, they also bring knowledge capital. Just my two cents!

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Permalink Reply by Theresa M. Welbourne, Ph.D. on July 5, 2008 at 12:31pm

It is perhaps a bit of a sad state of affairs that we study humans and relationships as capital, but the reason for doing so is to help the world of business understand the consequences of how we treat people at work. If it were so simple, we would be making key business decisions based on something other than the quarterly financials and tomorrow's stock price.

At least for me, I have found that quantifying some of the key people factors has led senior executives to understand the consequences of their 'people actions' better. For example, the research stream that the relational capital work is part of started in 1996. One of my earliest findings was that investing in people for new IPOs has a short-term negative effect on their 'going out' stock price, but even after one year, the firms with higher investments in people had much higher stock price growth, which then continued out for the 5 years post IPO that I studied. So, if we illuminate the importance of the people factor, and the impact of people on not just short-term performance but long-term growth and success, maybe then better decisions will be made about our people 'resources or capital.'

The relational 'asset' brings even more unique challenges. I am living in Michigan, where the large autos and the suppliers of the autos are all giving out "packages." They are enticing people to leave. I am 100% certain that as they lay off employees and give employees 'packages' they have absolutely no idea of the number of, quality of, or type of relationships that are walking about the door with these employees. If they could measure this thing called 'relational capital' (maybe we need to rename it), then I am pretty convinced they may alter their decision making strategy.

Then .. lastly .. I have to look at the data from the last study. Should temporary workers, outsourced employees and suppliers have scores that are so low?

My bias is that we have to measure and put values on the "things" we want senior executives to understand. We have to do this when we teach MBAs, and HR executives, and all of us in the 'touchy feely' fields somehow should embrace the same kind of language that we see our colleagues use in the C-suite.

I know that it has its downside. Can we have numbers and values on people and relationships and then tailor the process so that we do not lose our humanity? What have you seen work in the organizations that you all are in?

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Permalink Reply by Jon Ingham on July 22, 2008 at 5:29pm

Firstly, just a few words on the capital thing. I think human and relationship capital are important concepts. However, I always describe human and relational capital as capabilities that are provided by people rather than the people themselves.

So, just focussing on human capital for a moment, a particular person may have some skills. A team or the whole organisation will then have the sum of its people skills. But this doesn't equate to the organisation's human capital which is a smaller group of skills or other things which somehow relate in an important way to the organisation's competitiveness - and are therefore things an investor would pay for a business to have.

This valuation aspect of human capital is, as you point out, Theresa, an important concept, and doesn't stop people being treated as people in the way that David emphasises is important.

But then, 'll admit that I'm biased - my book, blog (http://strategic-hcm.blogspot.com) and lots of my work all focus on human capital - I guess I'd just say that I, and my clients, find doing this more useful than just thinking about people.


Secondly, I agree that relational as well as human capital is important. They're also both very different. And they need different types of activity to develop them. This is why I think focussing on both types of capital is important.

And picking up on your point about layoffs, Theresa, we've known for a long time that the point of performance in most organsations is the team rather than the individual. If this is so, then it makes sense that the relational capital developed between team members, never mind with the other various stakeholders, is more central to business performance than the human capital provided by the individuals themselves.

So, yes, I suspect that relational capital is more important than human capital. Infact, I've recently started a second blog just to explore this very theme (http://social-business.blogspot.com).

And your findings presented in Portugal (p9 of your slides) seem to confirm your research also supports this.

I'm not sure, however, about the need for a Chief Relational Officer. Yes, different people supporting different stakeholder groups need to support each other, particularly as stakeholder often crop up in different groups, eg employees as investors, suppliers as customers etc. But I think the bigger need is to support each of these stakeholder groups independently more effectively (eg raising the level of relationship supported with high potential employees closer to that of key customers - p4).

So I'm more concerned about the breakdown of ownership for relationships within each stakeholder group. You suggest that HRM "owns" employees (p8) but infact, there is often quite a bit of turf war between HR, internal communication, learning & development as well as new functions such as diversity for ths audience.

This really is a barrier to developing relational capital effectively.

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