Last month we introduced Intellectual Capital into our ongoing discussion of Relationship Capital. What makes Intellectual Capital so interesting is that when compared to Relationship Capital, there is a considerable amount more study and discussion that have taken place as evidenced by areas of law that concentrate upon Intellectual Property as well as business valuation. Even the Financial Accounting Standards Board (FASB) has begun to address what we have come to know as “intangible assets”. And where the Seventh Law introduces the subject, the Eighth Law ties together the unique relationship between both Intellectual and Relationship Capital.

The Eighth Law

The Eighth Law of Relationship Capital states that:

Intellectual Capital can be used to change an individual’s Relationship Capital Value either positively or negatively.

A Quick Review

The Fourth Law introduced the concept of Relationship Capital Value (measured in “Relationship Points” or RCPs, as per RNIA) which can fluctuate, much like a company’s stock, over time and exists in three basic states:

1. Positive – the perceived relationship by both parties involved is one that is favorable, pleasurable, enhancing, meaningful, useful and/or supports the sustainability and/or survival of the person, product or business unit in question
2. Negative – the perceived relationship by both parties involved is one that is unfavorable, toxic, diminishing, meaningless, useless and/or leads to eventual destruction of the person, product or business unit in question
3. Neutral (zero) – the relationship is unknown, unrecognized, brand new, irrelevant, inert, forgotten and/or has no effect whatsoever upon a person, product or business unit.

We stated, too, that RCV changes over time, and therefore, behaves in a way that is “Newtonian”, allowing us to analyze both Influence and Impact, which are first and second time derivatives of RC.

We also talked about Reputational Force, and how it can be applied to a system to create an Impact:

F_Reputational = Rm * Im

Where:

F_Reputational = Reputational force (measured in connectionsRCP/s²)

Rm = Reputational mass (number of connections)

Im = Impact

Intellectual Capital and Relationship Capital are Interdependent

In our discussion of the Seventh Law, we stated that unlike Relationship Capital, Intellectual Capital tends to be conceived as “static” in that we evaluate it for one particular place in time. The question becomes, “Why static? Doesn’t Intellectual Capital change over time?”

The answer is “yes”. A company’s intangible assets (a.k.a. Intellectual Capital) can be valuated for one particular point in time for the purposes of a hypothetical merger or acquisition and can be re-valuated years later. The only sticking point is that the method of valuation may not always necessarily be the same as organizations like FASB have not come to any agreement on one particular standard.

Be it static or dynamic, intuitively we know that Intellectual Capital affects Relationship Capital. Let’s take a look at a thought experiment from our past. A company comes out with a brand new invention known as a “television”. That company has created significant Intellectual Capital as this new technology is revolutionary. Because of the nature of this new invention and its subsequent distribution into homes (a significant rise in Reputational Mass, Rm), it changes the way we relate to each other (Impact, affecting RC) as well as to the various “personalities” on the television. In this case, the television and its subsequent broadcasts create a Reputational Force.

We can come up with numerous examples from our past; the Winchester Rifle, the internet, the automobile, the atomic bomb, the vaccine for polio, the International Space Station. These have all affected our Relationship Capital for better or for worse, depending upon how the Reputational Force has been applied. The question the becomes “can Relationship Capital affect Intellectual Capital?”

The answer again is “of course”. As we look at the same example as before, for such an item of Intellectual Capital to be created, there had to be an initial thought by a Relationship Capital-possessing entity (or thoughts by a group of such entities). The idea had to be discussed with others RC-possessing entities from a technological standpoint. The idea also had to pass muster with other RC-possessing entities that could approve it from a financial standpoint, to back its development and subsequent production. The company continued its conversations and formed specialized teams to produce it, market it, distribute it and further refine it. Whenever there are conversations, there is Relationship Capital at work and from which, under the right circumstances, Intellectual Capital can and did thrive.

I challenge you to perform such thought experiments on your own to see where this is not so…I have yet to find it, but would love others to try to prove the concept wrong. If it is, indeed true then this gives us insight into the true interconnectivity that exists between us all and how negative impact, no matter how small, affects a much larger system similar to the “butterfly affect”.

Do Superman, Santa, democracy and Buddhism possess Relationship Capital?

We can clearly perform such thought experiments with inventions of all sorts, but what about brands and concepts? Certainly, they are inventions as well. For those who can relate to the movie The Secret and/or the landmark, iconic self-help book, Think and Grow Rich by Napoleon Hill, the “thoughts are things” philosophy is supported here. The idea here is that when thoughts are crystallized into things, the can then have relationships with them and, therefore, build Relationship Capital with them.

Such things as brands, concepts, music and works of art possess both Intellectual Capital as well as Relationship Capital. As they are non-organic entities, it should be noted that the Relationship Capital they possess is merely reflected or imbued upon them by those Relationship Capital-possessing entities that created them. It is for this reason that most people are likely to buy a new computer technology created by Bill Gates, Steve Jobs and Michael Dell as opposed to the very same technology created by Joe Smith and Mary Jones.

Knowing the interplay between Relationship and Intellectual Capital might be just the catalyst needed to further legitimize Relationship Capital since Intellectual Capital is being talked about more and more, mostly due to its perceived impact upon Financial Capital. So if Intellectual Capital impacts Relationship Capital and Intellectual Capital impacts Financial Capital, then by the transitive property of mathematics and logic, Relationship Capital must impact Financial Capital. Next month, we will be talking more about this crucial (and sometimes, controversial) relationship.

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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