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:

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 "properties" 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.”

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.

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.

Kovitz Enterprises, LLC
Connecting, Educating and Inspiring Business
18 Rockwood Road
Levittown, PA 19056
(215) 945-3411

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