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Center for Effective Organizations

Working Paper

Relational Capital: How it Matters and Why it's Walking Out the Door

Theresa M. Welbourne, February 2009

If you own a manufacturing company that builds cars, you probably would not throw out the raw steel and aluminum you need to construct the exterior. If you were the president of a software company, you would likely not cut costs by deleting your proprietary code.

So why is it that when times are tough, we walk out the #1 asset that can help companies survive and even grow? That asset is not necessarily the "human? that you are laying off; it is the relationships that this person owns.

Today, more than ever before, as companies downsize and change their organizations to meet the new challenges they face, relational capital is exiting, and no one even sees it strolling past them on the way out. Relationships are significant assets that are unaccounted for in most organizations and the lack of measurement and visibility means when this asset is gone, no one even notices until it's too late.

It's too late when customers fail to renew, when deals in the pipeline are not closed, when upsell efforts fail, when investment starts to dry up, when employees no longer want to go "above and beyond? and put in the needed hours to meet deadlines, and when performance drops.

In this report we want to raise your awareness of the importance of relational capital and how it can help your organization survive and thrive. This one leadership pulse report is only one data point that is part of a bigger story of why and how relationships create value in organizations. The story is not about "touchy feely? HR. We are talking about how organizations get new business, persuade clients to stay with them even when prices increase, how leaders obtain competitive information that may help drive strategy, and basically how great organizations win. In addition to relational capital, in this leadership pulse report we also examined human resource confidence and leader energy. Below are the overall trends:

  • HR department's ability to do tactical work improved
  • Confidence in HR's ability to do strategic work declined, and
  • Leader energy declined

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