Every company needs money, no matter their size or experience. But the means of acquiring the necessary amount is far more complex than just a choice of cash or credit. That’s why internal economic capital is a more encompassing term than money or capital.
Internal economic capital, also known as financial capital or economic capital, is the money, credit, or similar funding structure used to finance a business. Sources of financial capital include traditional investors, government lending, crowdfunding, as well as unique arrangements with third-parties. So a company that crowdfunds its latest product and a company relying on a government loan are both seeking internal economic capital.
Economic capital can be further broken down into three types of capital: debt, equity, and specialty capital. We’ll cover the definitions, purposes, and implications for each of these on a business’s bottom line.
Be sure to check out our guide, Types of Capital to Grow Your Business.
Debt capital refers to money received by companies that they must pay back later with interest. For many budding startups, debt capital will be the most common means of raising funds. This is because debt capital can offer a company much-needed funds, without having to sacrifice a piece of their earnings to their debtors. However, it does place pressure on the company to turn enough of a profit to pay off the debt in a timely manner.
There are also different types of debt capital available besides peer to peer lending, including the sale of bonds to other companies, business loans, and credit card loans.
Benefits of Debt Capital
Retain ownership. Companies that have debt still have to pay their dues, but they don’t need to split their revenue or take orders from their debtors. This is important for building innovation and rapid growth for startups today.
Tax-deductible. Paying off interest can be deducted as an expense on your taxes.
Expense forecasting. Loan payment figures are easily determined and do not fluctuate, unlike stock ownership.
Disadvantages of Debt Capital
Risk. Failure to pay the debt off in time can restrict a company’s ability to grow. In fact, late payments may lead to even greater interest or even bankruptcy. Regardless of whether the company succeeds or fails, the loan will need to be repaid.
Credit rating. To be able to borrow from some lenders, you must have a good standing on your credit bills, loans, and other debts. Low credit could result in a rejection of your debt capital.
Equity capital refers to cash received from investors in exchange for profit share. At the start, entrepreneurs put their own equity into the venture. But as you seek out other sources of equity capital (such as investors, or from an initial public offering (IPO) of stock), other shareholders can gain equity within the company. So by giving up some control to investors, the company can receive enough cash for the business.
Keep in mind that the equity value of a company is not the same as book value. Equity value is calculated by multiplying the company’s share price by outstanding shares, whereas the book value (also known as shareholders’ equity or net worth) is the difference between the company assets and liabilities.
Benefits of Equity Capital
No debt. Equity capital is much less of a burden, in that there is no loan that needs to be repaid. No loan also means no interest. This can be a saving grace for companies that do not turn a profit early in their venture.
No credit check. Since there’s no debt financing involved, it also means you do not need to have a spotless credit score.
Stronger professional network. Equity also brings about less tangible assets, such as relationships with industry experts, exclusive partnerships, or access to unique organizations and events.
Disadvantages of Equity Capital
Profit-sharing. Every time your business turns a profit, you’ll have to split it with your investors. This isn’t inherently bad. At times the tradeoff could be worth it, but other times you may have significantly less for yourself.
Less control. Equity financing means giving up some of the power and decision-making involved with running a business. Such a task can be daunting, particularly for people that see the company as their own baby. And in some cases, the lack of control may even lead to conflict with other stakeholders.
As the name implies, specialty capital is capital with unique conditions. These conditions may remove limits to business growth, or buy additional time for a company. Compared to debt and equity financing, specialty capital has more relaxed expectations.
For example, a business partnered with a particular vendor may agree on a deferred invoice payment, buying the company much needed time to come up with the funds. This is also known as vendor financing.
Other examples of specialty capital include government grants, sweat equity, insurance compensation, and supply chain financing.
Benefits of Specialty Capital
Minimal requirements. Unlike debt or equity financing, you don’t need to pay interest, have good credit, or share profits. There are still requirements but they are far less taxing on the company.
Versatile. Specialty capital takes shape in many different ways, from buying a company time, to less conventional means of financing.
Capital isn’t just about money. It’s about other money-generating activities and assets that your company owns. These can be tangible assets, such as the people within the organization, the land on which your properties are located, or the supplies and equipment used every day.
But these assets can also be intangible. A single brand name and logo carries with it the public’s perception of the company’s reputation and value. This is highly subjective but can make the difference between a few dollars, and a few million dollars in valuation.
Similarly, a company may own a collection of intellectual property or IPs. These are the designs or manuscripts for creative works— such as Disney’s original programming, or Nike’s Air Jordan designs. These can’t be traded on the market, but the fact that no one else can use them lends itself value to the company. Other IPs include patents, trademarks, and copyrights.
Understanding how internal economic capital works is vital to ensuring the longevity and success of a business. There’s simply much more to financing a business than just loans or investments. With a stronger grasp on these concepts and systems, how will you support your business in a sustainable way?
When most people hear the term “capital”, they think about money or financial capital. While that may be accurate in most cases, capital can mean different things for business owners, including human capital and social capital.
Just as money doesn’t grow on trees, other types of capital are as scarce as they are valuable. In our first guide for 2021, we are covering the importance of these different capital types and how you can leverage them to expand your business.
What is Capital?
Capital refers to any resource that can be converted for the purpose of business expansion or growth. Because of this broad definition, capital can refer to the money used to pay employees and partners, or it could refer to the actual skills and abilities of the employees themselves. Capital can be tangible or intangible, but it always drives a business to perform more efficiently or effectively.
The different types of capital include:
- Internal Economic Capital – encompasses financial capital like debt and equity, as well as non-financial capital, like brand value.
- Human Capital – encompasses everything to do with the people conducting the work, from their overall engagement to their skills training.
- Cultural and Physical Capital – encompasses the societal merits of each worker (such as a C-level executive’s status in the industry), as well as tangible assets like real estate.
- Relationship Capital – encompasses a company’s relationship with its customers, vendors, partners and other third party organizations.
Let’s explore the definition and purpose of each type.
Internal Economic Capital
The most widely known type of capital is internal economic capital, also known as economic capital. Economic capital refers to the capital a company needs to remain solvent, in other words, a measure of a company’s ability to survive any risks.
Economic capital can be further broken down into financial capital and non-financial capital, although it is most commonly associated with financial capital. Covered under this subtype are other more specific examples of capital, including debt, equity, and specialty capital:
- Debt capital – capital raised by taking out a loan, to be repaid by the company at a future date. Roughly 80% of U.S. small businesses rely on some type of debt capital to fund their ventures.
- Equity capital – capital raised by investors in exchange for shares of common or preferred stock. One of the most favored types of capital because it does not need to be paid back.
- Specialty capital – capital acquired with minimal economic costs. Does not need to be exchanged for interest or share equity. Includes government grants, vendor financing, insurance compensation and other funding with special conditions.
Each subtype of capital has its own advantages and disadvantages, but collectively they represent the most common ways of raising money for a business. Economic capital can be handed out by governments, investors, or other firms.
Non-financial capital refers to assets that cannot be traded on the market but have some form of net value. They can also be converted via securitization into financial assets. A company’s brand or intellectual property cannot be sold outright, but it does hold and generate value. For example, Apple holds a patent for many phone technologies— these create value for the company in that competitors cannot copy their new phone ideas.
Examples of Economic Capital
Recently, several companies received special loans to cover losses incurred as a result of COVID-19. Since some of these loans can be paid back without interest, they also fall under specialty capital.
Before Facebook became a worldwide service, venture capitalist Peter Thiel invested $500,000 in exchange for stock ownership. Microsoft was also an early investor, but sought out preferred stocked, which gave them priority over other shareholders if ever Facebook was sold.
How to Build Internal Economic Capital
Economic capital can be raised in a number of ways. The most direct way is to take out a loan through a local bank, ensuring to pay the interest at a later date. Alternatively, you may consider seeking investor support from your spheres of influence, in exchange for stock ownership of the company. Today, crowdfunding has also become a popular means of generating capital for startups and new product ideas.
Money is not the only indispensable resource that businesses rely on— without people, no one would be present to perform the necessary labor. Everyday people around the world are performing tasks that require specific skill sets and experience. As a result, large companies are willing to invest significant portions of their revenue on hiring and training the best employees.
A key ingredient in today’s human capital management is company culture. According to Deloitte, 94% of executives and 88% of employees believe a distinct workplace culture is important to a business’s success. Gen Z (those born between 1996 and early 2000s) list work-life balance as the number one deciding factor in finding the right company.
How to Build Human Capital
Companies that are committed to harnessing their human capital must focus on employee satisfaction and engagement. Evaluate metrics such as turnover and retention rates as well as reviews left by employees online. Conduct surveys on the nature of the work and relationships with leaders. Provide benefits to employees to maintain a reasonable work-life balance, while creating opportunities for them to move up in the company. Give your team the tools to improve and enhance their experience, and they will reward you with hard work and innovation.
Read our previous posts on culture, from the reason why it’s so important, to better describing your own company culture.
Examples of Human Capital
Salesforce has repeatedly been listed as a “Best Workplace” because of its culture and commitment to employees. The company has even dedicated over $8 million to remove compensation differences by gender, race, and ethnicity.
Seattle Genetics, a cancer-research biotechnology company, offers major benefits like tuition reimbursement, onsite training, and access to job-related conferences and seminars.
Cultural and Physical Capital
Not to be confused with company culture or human capital (although they are closely related), individual cultural capital refers to a person’s social aspects, from the education received to their manner of speech, from the way they dress to the car they drive. In short, it’s how a person is perceived by others in society.
The concept was first introduced in an essay by sociologists Pierre Bourdieu and Jean-Claude Passerson, where they described cultural capital as a person’s knowledge and intellectual skills that helped advance the individual towards a higher class or social status. Today, the concept has expanded to include the influence of information technology (such as access to the Internet), and education.
As one might suspect, physical capital tends to refer to the tangible objects or assets of a business. These objects are usually worth something on the market, or can be converted into cash.
Examples of physical capital include real estate (land or buildings), products, and other man made items such as supplies, vehicles, or machinery. Some have a direct impact on the production of the company offerings, such as factories for producing cars, whereas others have indirect impact, like the printers and fax machines in offices.
How to Build Cultural and Physical Capital
Cultural capital is difficult to build— it is something each individual creates for themselves. However, it can be something screened for within the company culture. Instituting a dress code (or prohibiting one), setting a skills requirement, or creating a benchmark for previous work experience will help narrow the pool of potential employees to the ideal candidate.
Physical capital can be built through more traditional means— by buying available land, stocking up on supplies and equipment, and increasing inventories of a sold product. Keep in mind that physical capital doesn’t necessarily translate into value— it’s always possible to have thousands of units of a useless product.
Examples of Cultural and Physical Capital
Few companies exhibit cultural capital as well as LinkedIn. Almost all of its senior level employees have listed their positions with other prestigious companies, awards and honors received, and recommendations from other professionals.
Some contend that McDonald’s isn’t really a restaurant company, but a real-estate company. In 2015, the company owned $28.4 billion in land and buildings, before depreciation. This is a prime example of physical capital.
Relationship capital, also known as relational capital, encompasses every relationship a company has with other firms, institutions, and individuals. This may include partnerships with suppliers or vendors, customer relations, and connections with similar firms within the industry.
These relationships may be vertical or horizontal, cooperative or competitive. The relationship capital may be internal (within the organization) or external. But the importance of relationship capital cannot be understated— it can make all the difference between a positive and negative reputation, between a productive and stifled work environment.
How does one measure relationship capital? Relationships can’t be quantified, but they can be visualized. Imagine every interaction with a customer or vendor to be like a bank account. The more “deposits” of goodwill that you make, the stronger the account and the stronger the relationship. Although you may encounter an issue in the future, the stronger your relationship, the more likely you will be able to overcome it.
How to Build Relationship Capital
It may seem obvious, but the key to building relationship capital is to focus on building relationships. For internal relationships within the company, culture and training is key. Create an environment of collaboration and teamwork, rewarding each person for hard work while ensuring each individual remains accountable.
With vendor and customer relationships, trust and respect means everything. Build trust over time by keeping to promises and delivering actual value. At times, you may have to sacrifice revenues or admit shortcomings, but as long as your overall relationship remains intact, you can continue to build on it over the years.
Examples of Relationship Capital
Patagonia has such a solid belief in its products that it offers a lifetime guarantee, or what they refer to as an “Ironclad Guarantee”. If a Patagonia item does not meet the customer standards, it can be replaced, repaired, or refunded at the store it was purchased.
Spotify has developed several relationships with other vendors, including Starbucks, Hulu, and Uber. You can find special discounts for Spotify plans or exclusive features within the respective apps thanks to their business ties.
No matter which type of capital you’re talking about, all are important to a business’s success. Business leaders should expand their notion of capital beyond the financial or economic type, to consider the capital resources of laborers and land, as well as metaphysical concepts like culture and relationships.
This coming year, consider how your business can stand to benefit by building human, cultural, physical, and relational capital in addition to economic capital. Finding the time to build a more well-rounded business can pay off dividends in the long run.
Anyone bold enough to start a business will tell you: it takes a village to run a business smoothly. Intense competition, limited resources, and lack of brand awareness are just a few of the challenges that owners think about every day. Yet somehow, the best teams work through these obstacles and distractions, tap into something greater, and deliver the products and services we have come to love.
So what can be learned from these titans of business? How have they risen above the crop and found success? Even though we can’t share the secret formula for building successful businesses, we can, however, explore the ingredients that go into one.
Tips for Small Business Success
Each business is built different and walks a unique path, but the essential elements for entrepreneurial success stay the same. Here are a few of the most important tenets to remember.
Prioritize sustainability over hypergrowth – Silicon Valley fables of overnight success and fame have become as cherished as the American dream, but the reality is that only a lucky few will ever see this level of growth. It’s never worth betting your assets on speculative trends and fads. Slow but positive progress will always beat rushed, unstable growth.
Maintain control over finances – No matter the product or service offering, every business has the same goal at the end of the quarter: to produce a profit. That may involve driving up revenue or keeping costs low or both. The companies that spend the time and attention to tracking their finances and not allowing expenses to skyrocket or revenues to fall will have more breathing room within their strategy.
Experiment often – It’s easy for a business to become stuck in its ways, but experimentation is key to innovation. Some of the best inventions have come out of the research and development sectors of a company. For example, the modern PC, laser printing, and Ethernet were all invented in Xerox’s Palo Alto Research Center (PARC). Develop experiments within your own business and niche. What business theories do you want to put to the test?
Understand your customer – A business is just an idea until you have your first customer. Reinvest your revenue in marketing efforts that truly understand, reach and engage your ideal audience. As Walmart founder Sam Walton puts it, “ There is only one boss. The customer. And he can fire everybody in the company from the chairman on down simply by spending his money somewhere else.” The more you prioritize your customer, the more it will pay dividends for your business down the line.
Characteristics of Successful Business Owners
Drive to succeed – Think of any modern-day business owner and you’ll see that they all have something in common: tenacity. Despite the odds stacked against them, they continue to persevere. The belief in something greater than themselves pushes them to do bold things and chase after their dreams.
Open to change – From handling accounting to selling customers on a new product, business owners wear so many different hats in a day that it can quickly become overwhelming. If a business owner is rigid in his ways, then he can become stuck, focusing too much on a single task. Being fluid and open to change allows one to more easily navigate the challenges of running a business.
Budget-conscious – Business owners are seldom spendthrifts. Even when they may be wealthy, they think deeply about how they invest their money. It makes sense— after all, business owners are their own accountants and financiers during the start of the business. Saving money and cutting costs is how businesses survive early on.
Risk-taker – It can take a particularly daring person to start a business. No assurance of steady income, volatile markets, perishable goods… any rational person would see that starting a business is in many ways a gamble. But business owners also see that the potential rewards from the hard work make the risks well worth it.
Resilient – Business owners are no stranger to adversity: whether it comes in the form of a recession or a failed product launch. Either way, they don’t wallow in self-pity, instead they pick up the pieces and soldier on. Failure becomes less of a concern, and more of a momentary learning opportunity worth embracing.
Authentic – Customers can be perceptive, and they can tell an authentic story from a phony one. The same can be said with the leaders of these companies. If a business owner tries to fake his way through business partnerships and major projects, it affects the mentality of everyone involved.
Confident – In such a competitive field, confidence can be like battle armor. It guards one against the pitfalls of self-doubt and overthinking. It can also empower teams to finish grand undertakings like finishing a product or releasing a new version of software. It was confidence that inspired Ford and his team to accomplish the first V8 engine, something that was previously thought impossible.
Goal-oriented – Having goals and objectives ensures that a business’s actions are always grounded with purpose. Business owners and leaders should ask themselves, “what are we working towards?” Even for a big project like a new website or a new product offering, leaders will break up the project in terms of milestones and goals. Using the SMART system will ensure more relevant and consistently-completed goals.
Self-motivated – Finally, business owners are able to harness energy from deep within themselves to accomplish their goals. Sales may be down, the competition may be fierce, but when things get tough, business owners will always find their own sense of encouragement to carry on towards success.
Small Business Branding
With so much competition in every industry, business owners must focus on effective marketing strategies to stand out, including relevant and consistent branding.
Branding begins with the value proposition, a unique selling point. Ask your team and yourself: “why should anybody buy from us?” Analyze other brands and what makes them effective. People buy from Amazon because it is fast and convenient, and from Whole Foods because they offer healthy food options. Identify the quality (or qualities) that separate your business from the competition.
Build relationships with suppliers and vendors. After all, these two parties are responsible for providing and distributing your offerings. Cultivate these relationships and you may see an advantage in how your product stacks up against competitors.
Ask for genuine customer feedback. Send out surveys or ask questions through social media to gauge how your customers feel about your offerings. It may be painful to read or hear, but they will inform you about what to focus on and help you learn from your mistakes.
What Not to Do When Running a Small Business
We’ve covered at length the practices and qualities that lead to success. But what about the practices worth avoiding?
For starters, business owners and their teams should get comfortable with being uncomfortable. If you want to play it safe, no one is stopping you— in fact, your competitors would love for you to play it safe! Take risky experiments (without betting too much). Explore potential verticals and collaborations. Your business will only benefit from thinking outside the box.
Another point to consider is your own business relationships. Never treat a genuine relationship like a business transaction. Rushing a business partnership is a surefire way to ruin your business’s potential. Take the time to get to know other experts within your niche. Create trades of information, nurture business relationships for the long-term, and the resulting collaboration will end up serving everyone.
One of the most important things to remember: never ignore customer feedback. These are the people patronizing your business and ensuring your livelihood! Whether it’s a small complaint about the website or a much larger issue within the business, customers will determine your business’s future, so it’s a good idea to acknowledge each and every customer’s feelings and pass it along to the teams who are most empowered to do something about their concerns.
Similarly, never ignore the business competition. If you’re not careful, others may try to steal your ideas, or come out with vastly superior alternatives. Study your competition as if your life depended on it. Even though you have competing interests, you always have something to learn from your industry peers.
We’ve still only scratched the surface of what makes a business successful. It’s no wonder that there’s a whole subgenre of books and college courses dedicated to the topic. Yet even with all the theory and studying in the world, nothing will quite prepare you for running a business quite like real, hands-on experience. The best way to build a successful business is to simply build it and learn from failure. Success then becomes something subjective. In other words, only you can really know for your own business what success looks like.
Creativity is more than just artistry— it means taking unique approaches to problem-solving, developing bold and original ideas, and looking at the world from a different perspective. In a working environment, a creative team is priceless. Yet in so many organizations, creativity can be stigmatized, perceived as irrelevant, unproductive, or reserved for “creatives”. Such a mindset can hinder a company’s true potential.
In this post, we want to provide some guiding lessons for bringing the creativity out of each of your team members, ultimately leading to a bolder, more innovative business.
Developing a Creative Culture
Any company has the ability to build a creative culture, but it will require widespread buy-in and coordination. It starts with the hiring process— ask yourself: who represents the spirit of your company? Skills and qualifications are traditionally reliable metrics to judge candidates, but consider hiring instead based on character and passion. While you can always train people to build industry skills, it’s a lot harder to teach core values like curiosity or tenacity.
As for building on the existing team, leaders should promote and celebrate moments of individuality. Encouraging creativity and encouraging people to be their authentic selves go hand in hand. From allowing people to dress how they want to allowing people to express their minds however they want, encouragement in the workplace can take shape in many ways.
Ultimately, leaders that seek creativity must embrace risk-taking. Creativity is about thinking unconventionally, and that requires going past the limits or even bending certain rules. For instance, consider the invention of the Apple iPhone or the Netflix streaming service. For these products to truly innovate, both Apple and Netflix had to break the mold, and risk alienating their intended market completely. The impact, however, was well worth the struggle.
Strategies for Creativity at Work
Assuming your team is already creative or is in the process of becoming more creative, how can they better implement that mindset within the workplace? Here are a few strategies that may assist you.
The beauty of brainstorming is in its lack of structure— everyone on the team is given an equal opportunity to voice their idea or opinions, leading to a kaleidoscope of potential solutions. Its greatest strength can also be its greatest weakness, however, since brainstorming can go long without any direction or overarching strategy.
One solution around this is the brainwriting method, which is an evolution of the standard brainstorming process. The practice has several variants but generally involves taking ideas brainstormed by others and iterating on them. Consider brainwriting in your meetings for more structured brainstorming.
Learn from setbacks
The business world has a particular aversion to failure: often it is seen as inexcusable and unforgivable. But reflect on how you have grown in your own life— did you get to where you are by always winning? On the contrary, when you allow for failure, new opportunities and lessons emerge. Although it may seem like a low point, these setbacks can teach us the most.
Before streaming became the preferred means of watching movies and television, Sony and JVC battled over videotape dominance. Sony had the Betamax, which was in many regards the superior format (at least technically), while JVC had the VHS, a more popular and affordable option. Sony eventually lost that format war, with VHS capturing 90% of the total US VCR market. But Sony learned a lot about the ordeal, eventually winning the newer format wars with their Blu-Ray technology, now a video standard around the world.
Opposite to brainstorming, splitting off, and thinking about problems alone can lead to a different kind of problem-solving. Although many find it useful to talk through their problems and collaborate with others, there are a few people who would rather reflect on a solution themselves. Allow individuals to schedule a time to be on their own, trusting them with the goodwill of being independent and autonomous.
Last but not least, recognize and celebrate success where you see it! Creativity can take courage since not everyone is comfortable with breaking the norm. Whenever you see creativity help others or move the company forward, make sure you congratulate the individual and encourage others to learn by their example.
Resources for Creativity
Looking to research tools that will cultivate a more creative culture? Below you will find a compilation of collaboration tools, apps, and websites that will help you in communication and idea generation.
There are a lot of instant messaging apps out there, but few as widely accepted and easy to use like Slack. Used by even large companies such as Target, Uber, TD Ameritrade, and more, Slack has a clean interface for messaging but is more efficient and more secure than traditional email. Create channels that encourage creativity or celebrate success, and you’ll find a new way of collaborating with the team.
These days you’ll find a project management app almost everywhere, but Trello remains the most visually intuitive option. The genius lies in its boards and cards system, which can be modified to suit all sorts of needs: from brainstorming product ideas to tracking progress in a pipeline. It’s almost like having several online whiteboards. Similar to Slack, Trello offers support for dozens of different integrations.
The beauty of the cloud is that teams today can work together in realtime, without having to download applications or files to get started. Start a presentation on your laptop and finish it on your desktop, or review a document on your tablet or phone. Google and Apple offer two highly-competitive options, but they will accomplish the same goals. Google is more ubiquitous, offering support for Windows and Apple devices, while Apple iWork has a more visually appealing design.
Creative Work Environments
So far we have covered the various elements of creative teams— from the culture to the tools required. But there is another element we haven’t discussed: the actual environment for breeding creativity.
It sounds so obvious, but if you want creative teams, you need to have creative office spaces. Hang up art or decorations. Bring more plants into the room. Move office equipment around. You would be surprised how much the mood of a room can change just by organizing, cleaning, and furnishing it a certain way. Don’t forget about the importance of color in an environment too— consider painting the walls a different shade or letting more light into a room.
Complement your workstation with quiet areas or spaces for deep focus. Whether it’s a dining area or a private nook within the same floor, these spaces can help provide a much-needed respite from long periods of work.
Cultivating creative workplaces is not something that happens overnight— it requires planning, coordination, and teamwork. But the impact will reverberate throughout the entire company, from the top leadership all the way to the newest hire. Creativity has the potential to transform lives and create a brighter future for everyone.
The year 2020 has forced change on nearly everything we know, but perhaps the most common change we’ve all experienced this year had something to do with our work routine and culture. As the world recovers and adapts to a new normal, companies must revisit their policies, from embracing remote work to refocusing on core values.
Should You Change Your Corporate Culture?
Corporate culture is best described by how employees interact and behave beyond work-related affairs. Corporate culture develops over time and is influenced by multiple factors. This includes the type of people you hire, the rules you enforce, and even the kind of business you have.
So why is corporate culture important? Although this concept is not directly connected to business transactions, corporate culture does have some financial and brand impacts for the company.
In order to be successful, the culture within a company must reflect their desired results. A study from 2013 concludes that a healthy culture in the workplace enhances coordination and collaboration among employees. This leads to improved efficiency when it comes to sharing information and brainstorming ideas. Researchers have illustrated that a strong corporate culture augments financial performance in the long run. It’s not hard to believe that employees that enjoy working with each other naturally perform better, which in turn leads to better financial results for the company.
Aside from financial impacts, corporate culture also reflects on the brand of the company. A common example of this is Google (and parent company Alphabet Inc). The tech giant has promoted a vibrant culture within the company, demonstrated by its colorful offices and gaming rooms. Aside from the workplace, employees are also encouraged to work when and how they like. Through these workspaces and values, Google has cultivated a fun and relaxed workplace that employees enjoy working in. Although not all businesses will be compatible with a similar corporate culture (i.e. Banks, Hospitals, Law Firms), it is important to keep in mind how the public views your brand through your employees and offices.
Rethinking Corporate Culture
Considering the changes occurring in the way we work, this is a great time for leaders within the company to rethink their corporate culture. We’ll go over several concepts to keep in mind when deciding to promote a certain culture in your business.
1. Transcendent Values
As businesses grow and teams expand, you’ll soon find generational differences amongst your employees. Certain values might not be shared between the younger and older members of the workforce. Even then, researchers have noted that different subcultures would emerge within members of the same age group. These subcultures may have different goals and beliefs that may affect performance when they are tasked to collaborate.
It is paramount to the success of your company to promote values that transcend generations and culture. An example of this is when employees are willing to learn from one another. By promoting a collaborative culture, teamwork between employees will strengthen.
These values have been acknowledged by researchers as important aspects in the ecosystem of a business. They indirectly affect business results as employees strive to exemplify them on a day to day basis.
Good examples of values to promote would include collaborating with peers, learning from failures, and always innovating or challenging the norm.
2. Alignment Between Leadership and Employees
The goals of those in management may differ from the goals of each employee. It is important to align these goals for each member of the company. Leaders may leverage the promoted culture to optimize the efficiency and profitability of the business.
Leaders must have a clear goal for the business. By setting an end goal for the company, employees are given an idea of what is expected of them as well as what they can expect from the company. For long term success, companies must be team-oriented to optimize performance and promote a competitive disposition against rival brands.
3. Measure Impact and Feedback Tools
As you begin to develop and cultivate a culture within the company, it would be a good idea to provide a channel for communication between leaders and employees. Different businesses attract different kinds of people. What works for one group may not work for another.
By performing tests and gathering data, management will have an easier time figuring out what works and what doesn’t. Though the general rule is to promote a healthy and efficient workplace, the same rules and values may not work for all businesses.
Perhaps the easiest and most impactful way to figure this out is to listen to your employees. Your goal as a leader is to maximize results. To do that, leaders must ensure that those working towards that goal are happy and highly motivated. Leaders can help reduce problems experienced by employees by providing a space that works for them. This not only refers to the tools found in the space but the different implemented processes as well (e.g. promotions, conflict resolution)
How People Work During Change
As more companies transition to the remote worklife, we are experiencing changes in the way we work. Although there are advantages to this arrangement, there are numerous issues that will need to be addressed as well.
Working from home naturally translates to more flexible work hours. Most people will suddenly gain a couple more hours of free time in the day. These hours used to be reserved for getting dressed and commuting to and from work. Staying at home provides a more flexible work schedule as employees no longer need to dedicate an hour or two in transit.
As businesses head into online workspaces, fostering an online community for your employees may be a challenge. Human moments at work like having a quick chat while grabbing coffee are replaced with message prompts and notifications. Though this may seem negative, keep in mind that we are integrating technology into our lives faster than ever. Newer hires are more tech-savvy and will be used to chatting online instead of small talk in the hallway.
Where People Work During Change
As technology aims to help adapt to the changes happening, it’s no surprise that tech companies are the first to embrace working remotely. In July, Google announced that roughly 200,000 of its employees will be working from home until the next year. Facebook is transitioning half of its workforce to work remotely in the next 10 years.
The goal of these changes is to ensure that the workforce is in safe work environments. It is important for companies to realize that the health and safety of their employees are critical to surviving the challenges ahead.
Hiring During Change
A possible first step in ensuring a successful business in this time of change is updating the hiring process. With working from home being an option, new skills and prerequisites must be taken into account.
Normally, hiring managers would ask an employee where they live and how long would their commute be. Now, those in charge of screening new hires must consider remote work skills. Employees working remotely should be self-motivated to ensure timely results. Most people tend to be motivated by being in the office and around coworkers. As employees would now spend their workday away from coworkers, being self-motivated is important. Critical thinking is also a valuable skill to have. This allows an individual to work independently and find solutions themselves. Other skills to keep in mind are computer literacy, communication skills, and time management.
To avoid headaches down the line make sure to provide clear job offers to potential hires. People looking for work may now be on the lookout for certain benefits that would not have made sense in a traditional office setting. Employees may now expect more flexible schedules. It is also critical to clarify how long the employment contract will be. Due to the massive layoffs that happened in the middle of the year, it is understandable that employees are looking for full-time work, rather than a 6-month contract. Other things to clarify and set expectations are salary increases and promotions.
The onboarding process also needs to be updated. Companies must alter their onboarding process to fit the online landscape. Instead of face to face orientations, onboarding may now occur over a Zoom or a phone call. Make sure the general essence of your onboarding process is not lost as you transition to online communication.
Keep in mind that everyone is still in the middle of adapting to our new normal. For companies that have been used to the traditional work setting, this is the perfect time to test out new policies that would help boost productivity. The traditional corporate culture is changing rapidly and from all angles. Expect new challenges and corporate norms to develop in the online workspace, fit for the tech-enabled workforce.
Over the past few years, many businesses in different sectors have begun allocating significant amounts of time and resources to incorporate technology into their business. This strategy to transform businesses in the digital age has been going on for a while now, but the pandemic simply accelerated (some would even say “forced”) this evolution. For example, several companies are only now learning the various communication challenges involved when face-to-face interactions are limited.
In this post, we’ll cover some of the best practices involved in updating your organization to modern-day technological standards.
Roadmaps to Digital Transformation
To remain competitive in this new age of consumer behavior, businesses must update their business model with a clear digital strategy. Each business has its own quirks and will require different degrees of digital transformation in order to remain successful. Creating a roadmap provides a structured approach to digital transformation. It’s best to start by simply looking at your business in its current state. Here are a few things to keep in mind:
Perhaps the most important aspect of any business is the people running it. As you transform your business, it is imperative to identify key persons that directly impact success. It might also be a wise decision to bring in new talent to help transform your business and gain a competitive edge in the digital space. It’s not uncommon for large enterprises to recruit digital transformation agents from other successful companies.
This aspect of the business is all about maintaining or improving efficiency. A company’s process should include a future-proof plan for scaling the business and updating the business model to compete in the digital age. How will you maintain growth and earnings? What bottlenecks can be improved? Which innovations can take place? Take a deep dive into your internal processes to understand how to better serve both your own team and your customers.
Tools and infrastructure are needed to empower people and enhance processes. Prior to the pandemic, businesses have already been utilizing different platforms to facilitate communication between team members. A few examples of these platforms include Slack, Microsoft Teams, and Zoom. These company group chats help integrate members of the business together, and helps facilitate communication and collaboration over the internet, without the need for face to face meetings. But technology can also influence sales, marketing, customer support, finance, and various other functions of the business.
Reassessing Road Maps Due to Covid-19
Now, and for the foreseeable future, the majority of consumers are limiting their time spent outside of the home. This has brought about a surge of online traffic, with companies ramping up infrastructure to accommodate the load.
With this change in consumer behavior, companies must reassess their strategies in order to maintain growth. For example, as people now stay online longer on average due to being stuck at home, social media, and entertainment platforms (Facebook, YouTube, Instagram, etc.) are now viable investments to incorporate into your marketing campaigns. Understand where your target market is spending their time online. Analyzing new consumer groups is important in answering this question.
As a general rule, newer platforms tend to attract the younger generation. The rise of TikTok is no doubt thanks to Gen Z or “Zoomers”. It’s been a powerful tool to introduce products to Gen Z consumers due to the easily digestible content. Youtube, Twitter, and Facebook tend to be frequented by Millenials (Gen X) as well as Baby Boomers as these are the platforms they grew up with. Facebook and Twitter in particular boast the highest user count among all platforms.
Keep in mind this is only one aspect of digital transformation: online marketing. Digital transformation can also have a profound impact on one’s business by automating repetitive processes, offering more robust technical or customer support, or creating a more vivid and insightful report for your efforts. All of these changes will become even more essential in this post-pandemic world.
Advantages of Digital Transformation
As the need for digital transformation grows for each sector of the market, the benefits are also becoming clearer. The first, most obvious advantage is the opportunity to improve processes and innovate within the business. Using online tools and technology, each process or task can be made easier to improve efficiency across the board. Consider how tools like Asana or Basecamp have simplified project management to the point that people from different countries can continue to work and track their progress with increased agility.
Adopting certain technology will also serve to enhance customer experiences. Platforms such as Salesforce or HubSpot have become highly effective at analyzing customer journeys, which in turn can lead marketers to create more valuable experiences from the moment they are hooked, to the moment they return for a purchase. For example, receiving an email notification about an abandoned cart, or an upcoming booking can help increase engagement while providing customers with the information they may have ordinarily forgotten about.
Other tools can also help yield new consumer insights. Collecting information on how users navigate a website, interact with social media, or engage with email campaigns can open a treasure trove of information that you can then use to deliver better products or services. Location data is one such example. On many platforms, you can now learn where the bulk of your audiences come from, which in turn can help inform your advertising strategy both online and offline. More advanced enterprises even use machine learning and artificial intelligence to seek out patterns that the human eye cannot detect.
Jobs to be Done
So what are the jobs to be done in theory? What are some unmet customer needs that can be addressed? When creating your roadmap for digital transformation, you’ll notice that new tasks and processes will develop. This could mean expanding your team or training an existing team member. Use the data gathered from consumer behavior to determine what jobs are needed.
One example is finding out how your customers engage with your brand. Do customers head directly to your social media account? Then you need a Social Media Manager to handle your brand’s social media presence. Do they go directly to your website instead? Perhaps expanding your web development team to optimize your website would be better instead. Does creating a phone application make more sense for your business? Then you’d want to hire an Android or iOS software developer. Figuring what works best will greatly improve the customer experience.
Keeping up with the competition allows for some accurate competitive analysis. As brands become more public, one can determine the more popular brand based on user engagement online or follower count. Figuring out what works and what to improve is made easier with information on competitors being publicly available.
Examples of Digital Transformation
Back in 2017, Home Depot decided to update its brand strategy by creating a more seamless online experience, across all channels. Over three years, the company invested $11 billion into hiring over 1,000 professionals, updating their back-end and distribution channels, and completely revamping their IT department. The result: more actionable customer insights, better local trend tracking, and more accurate inventory levels. Their revenue has since grown over $17 billion.
With governments urging social distancing, countless companies with physical stores that usually rely on foot traffic need to come up with a way to get their goods to consumers without heading into a large group of people. Grocery stores have begun promoting curbside pickups to get goods to customers to help avoid large gatherings. Companies such as DSW and Michael’s are also adopting curbside pickups for customers. This new practice relies on an effective online scheduling and notification system, as well as a robust back-end that can handle all these requests.
Fitness companies such as 24 Hour Fitness have begun offering online workout classes in response to gyms closing due to the pandemic. Other fitness brands such as Orange Theory and Planet Fitness are now also promoting At-Home workouts by creating both free and premium content for their customers to use at home. These apps must be carefully developed and designed, as they are effectively acting as the online equivalents for their facilities.
The year of the pandemic has been a wake-up call for companies to accelerate their digital transformation efforts. Companies need not reinvent the wheel: while these examples have involved larger companies with significant budgets, smaller-scale organizations can begin (or continue) their digital transformation with modest yet impactful initiatives, such as updating a CRM platform or migrating to the cloud. As we look forward to future advancements in tech, these organizations that have already begun their transformation will have a unique advantage over competitors that fall behind.