What is Relationship Capital?
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One of the most (if not the most) valuable assets an organization has are its relationships. The network of people and organizations that represent its customers, partners, suppliers, employees etc, constitute its Relationship Capital.

However, unlike other forms of Capital (Financial, Intellectual etc) it has been impossible to effectively measure, let alone manage this resource, like other assets.  

In 2004, Wharton professor, David Reibstein claimed in ‘Connecting Marketing Metrics to Financial Consequences’ that more than 50% of the value of the Fortune 500 was made up of intangible assets. Undoubtedly one of the most (if not the most) valuable of those is relationships, as they effectively underpin all the others e.g. reputation, brand and intellectual property

Relationship Capital defined

We define Relationship Capital as the sum of all of the relationships of all people within an organization.

These can be relationships with suppliers, partners, ex-employees, nodes (people with high influence not necessarily associated with any organization), or other functions within your organization. Factors to consider in calculating Relationship Capital include:

  • position (role-based) power and personal influence
  • type of relationship
  • strength of relationship
  • number of touch points on both sides

In accounting terms, Relationship Capital constitutes a key element of 'goodwill' or intangibles.  Goodwill reflects the difference in the valuation of organizations between say, their share price, and the value of their physical assets and current revenue streams. 

This difference in values is often explained by intangibles such as the value of the brand name; copyrights and patents; knowledge, skills and proprietary systems and processes. Terms such as intellectual capital and human capital  have become a part of the corporate lexicon;  Relationship Capital will surely follow.


Benefits of high Relationship Capital

Building Relationship Capital delivers a host of benefits; here's just a few:

  • Relationships e.g. with customers, are key to business sustainability.
  • Identify threats early. Low Relationship Security indicates an account may be under threat.
  • Reduce cost of sale; studies show that the cost of winning business from a new customer is 4-7 times greater than winning more business from an existing customer.
  • Better margins; business happens more quickly...at the ‘Speed of Trust’ as Stephen Covey jnr says in his book of the same name. There is less haggling as Buyers trust you are charging a fair price, which means you can charge a fair price, not a cheap one.
  • Better matching of people to people e.g. matching salespeople to buyers on the basis of those best able to relate effectively, which increases the chances of customers buying from you.
  • Increased word of mouth promotion and referrals.
  • Increased customer retention. Less likelihood of customers switching to competitors, as there is no motivation to do so.
  • Happier customers lead to happier employees; improving staff retention and reducing hiring and training costs.