Structural Capital
Structural capital is the back-end infrastructure of the company such as your processes, your financials, your strategies, your information technology, your patents, and other intellectual property.
When an owner has control and responsibility for many of the business production activities, not only do they create risk in the business, but they likely stunt the growth of the business. By not trusting key team members with processes in the business, owners create a bottleneck in the fow of information, which can slow the day-to-day operations of their organization
The lack of documented processes and Standard Operating Procedures (SOPs) will negatively impact business value and the likelihood of the business selling when put on the market.
If the owner is required to make decisions, you’re back to dependence. Driving decision-making as close to the point of performance as possible is rocket fuel not just for transferability but for a high-performance organization that retains its best talent.
If only one person understands a specifc process, the remaining members must look to them for support. Imagine what impact it would have on the business if one member of the team were to leave. Would the remaining team members be able to complete that employee's tasks? How easy would it be to train that employee’s replacement? Without properly documented standard operating procedures, the business not only struggles in the interim once an employee leaves but also during the onboarding process when a new employee takes their place.
. Without strong structural capital, your business will be unable to function in a repeatable and scalable way. The stronger your organization’s structural capital, the more valuable your business is.\
Christopher Snider writes in Walking to Destiny, “Your knowledge needs to be documented and transferable, such that someone else can learn from you and apply it. Making this knowledge company property ensures that when your talent walks out the door at night, the knowledge doesn’t walk out the door with them.
When the main processes, resources, and infrastructure are well documented and organized, the business value increases as a result. The physical components of your structural capital such as your real estate, equipment, and technology, are some of the most important factors for potential buyers looking to purchase your business.
When determining how to improve the value of an owner’s Structural Capital, work through the following checklist.
- Are your key company processes documented and transferable?
- Do you have standard operating procedures?
- Is your equipment current and functional?
- Are your facilities structurally sound and up to code?
- Is the technology utilized by your team secure and updated?