With a global economy gyrating with sweeping political changes, technological breakthroughs and new emerging global markets, an entrepreneur must think and act strategically. One of the most overlooked assets small businesses fail to capitalize on is intellectual Capital. In his prophetic article “Shocking Truths About the Future” (Business Strategy July/August 1996) Futurist Alvin Toffler talks about the shift in the world economy from a base of financial to intellectual capital. Toffler states “Knowledge is no longer just a factor of production. It is the critical factor of production”. Lets take this relatively esoteric concept of Intellectual Capital and break down the components:
Thomas Stewart in an article entitled “So you Think You’re Company is so Smart” (Fortune April 30, 2001) delineated three crucial elements:
1. Human Capital is the talent, creativity, skill and ability of a company’s workforce. This shows up in innovative strategies, plans and processes that the people in an organization develop and then passionately pursue.
2. Structural capital is the accumulated knowledge and experience that a company possesses. It can take many forms including processes, software, patents but most importantly, the knowledge and experience of employee strengths, abilities and challenges. Essentially the entrepreneur will have a strong understanding of the feasibility of opportunities based on the capability of her staff.
3. Customer Capital includes the established customer base, positive reputation, ongoing relationships and goodwill the company has built up overtime with its customers.
Given these three components how has Whole Foods used Intellectual Capital as a competitive advantage to carve out a strong customer base in the grocery business where mega chains such as Wal-mart and Kroger previously dominated?
Whole Foods invests heavily in Human Capital. They spend time and money selecting Team Members (note they are not called employees implying a much more important role in the company’s success) by carefully screening job applicants to find those that love and have a passion for both customer service and natural food. Each Team Member is carefully trained so they can demonstrate and explain the benefits of the company’s organic and natural food. (Remember if you want to sell more, help educate customers and they will choose to buy more). As a result, Whole Foods routinely lands on Fortune’s “100 Best Places to Work”
The Structural Capital component for Whole Foods comes from its increased knowledge of “local sourcing”. As we become more connected globally, there is increasing concern by many consumers on how and where their food is produced. Whole Foods has transferred this into a competitive advantage strategy of acquiring locally grown products.
Finally, with an immense amount of Customer Capital, Whole foods knows that its customers do not shop at the store searching for the lowest prices. Rather store managers and team members have the autonomy to recognize and stock their store with regional food preferences that local customers demand. The ability to quickly react and mix locally demanded products has created in the words of Matthew Mell “Disney for foodies”.
As we enter the Spring here in North America lets re-energize the Bank of Social Capital because no matter what the Federal Reserve may dictate, Ben Bernanke can’t diminish the value the relationships and goodwill you create.
Until next time, be good and cultivate your community of friends