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What Is Organizational Capital?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 November 2016
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Organizational capital is a term used to describe the efficiency with which a business or other type of organization can utilize resources in a manner that makes it possible to implement and sustain some type of strategy. Since this process often involves identifying ways to use existing resources in new ways, or to allocate a portion of those resources to a new project without creating hardship for other strategies that must continue to function, the ability to properly assess and use organizational capital can be important to the ongoing growth of the organizations.

One of the easiest ways to understand the concept of organizational capital is to consider a situation in which resources must be employed to enhance some part of the overall operation. For example, if the goal of the project is to enhance the efficiency of the accounting process, this may involve restructuring the current process by reassigning roles within the accounting department, implementing some new standards, and even investing in a new accounting software system that is capable of automatically managing some activities that are currently managed manually. Assuming the changes result in saving money for the organization, this can be viewed as a wise use of resources that helps to position the operation for future growth.

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Typically, it is possible to measure the efficiency of how organizational capital is used by considering either the additional revenue that is generated by the strategy, or by the savings that the organizations sustains by the implementation of the initiative. Both outcomes are desirable, as more revenue coming in means the organization has more resources to work with. At the same time, strategies that trim operational costs also improve the bottom line, a situation that results in significant benefits for all concerned.

The process of assessing organizational capital is ongoing. With each proposed strategy, the details of how to make the best use of resources will be crucial. This is especially important when the strategy involves activities above and beyond the core function of the organization. When this is the case, careful planning will aid in ensuring that enough resources are allocated to that core function, while still making it possible to divert other resources to the proposed strategy. By taking the time to create a viable structure for the allocation of resources and then projecting how well that allocation works for the organization as a whole, it is possible to determine if a given strategy is in fact in the best interests of the organization, or if a different approach would be more advantageous in the long run.

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