Does Technology Increase Organizational Capital?

by Jay Deragon on 03/26/2013

Collaboration-inforecoOrganizational capital are the intangible assets used to produce economic value. Organizational capital was first defined by Prescott and Visscher (1980) to be the accumulation and use of private information to enhance production efficiency within a firm. This capital can be a significant source of a firms value.

Organizational capital also consist of human, relationship, strategic and structural capital used to create tangible economic results (Adams 2010).  Organizational capital compromises the intangibles that most organizations don’t measure, monitor or manage effectively yet most of the value of organizations lie within the intangibles.

As social technology advances and the human network becomes more and more connected the intangibles become more and more visible and transparent. This advancement can significantly increase or decrease a firms organizational capital.

Using Technology To Increase The Use of Minds

Technology is the process of turning inputs into effective outputs. Technology is another one of those intangible things that we take for granted. While we might consider technology as a machine in reality it is an intangible  process of transferring, sharing and storing knowledge created from shared information.

In the industrial era we used labor to produce economic output in conjunction with machines. In the Social Era we use minds in conjunctions with technology to produce economic output.  Thus in order to increase organizational capital you have to increase the organizations intangible capital to improve the organizations capital that creates economic output, money.  This means everything must change.

In Erik Brynjolfsson and  Andrew McAfee’s new book “Race Against The Machine” they write:

“The most productive firms reinvented and reorganized decision rights, incentives systems, information flows, hiring systems, and other aspects of organizational capital to get the most from the technology. This, in turn, required radically different and, generally, higher skill levels in the workforce. It was not so much that those directly working with computers had to be more skilled, but rather that whole production processes, and even industries, were re-engineered to exploit powerful new information technologies. What’s more, each dollar of computer hardware was often the catalyst for more than $10 of investment in complementary organizational capital. The intangible organizational assets are typically much harder to change, but they are also much more important to the success of the organization.”

In the end all this means is that technology by itself doesn’t increase organizational capital. However, when intangible capital is enabled by the right technology the economic output from the organizational capital is unlimited. Get it?

 

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