How Owning and Allocating Management Capital Correctly Improves Organizations’ Ability For Change

Have you ever been involved in or even led a change effort and were discouraged by the lack of real change that occurred? 

There was no lack of energy or resources poured into the change effort.  But, really, nothing changed. One likely reason is that leaders did not understand the value of its capital and how to spend it. When understanding of management capital is absent, so, most often, are the desired results. Owning and allocating management capital correctly improves the organization’s ability to effectively and successfully implement change.

First, it is important to understand that systemic organizational change develops and matures over time. This requires a continuity of leadership action providing a stable direction that comes from consistent goals and objectives reinforced by how management capital is spent.

During a strategy and leadership conference in the 1990s, I first heard the concept of Management Capital. The organization’s leadership demonstrates what is valued by how it spends its time, money, personal energy and enthusiasm. This is analogous to the everyday activities that one sees in any store. A customer shows the store owner what items are valuable by taking time to go to the store, walk the aisles, pick an item, hand the cashier money in trade for the item and leave the store with it. This is how consumers demonstrate what they value.

Similarly, leadership demonstrates what it values by how it spends its personal energy and enthusiasm, time and resources. What the leader values can be seen in daily appointments, budgets, and personal excitement. If any of the elements of management capital is missing, the people in the organization know the activity is not that important. The result is minimal effort. The trappings of support for the change may be there, but the real work that people do is directed towards other things that are “really important”.  Spending management capital is hard work for leadership because similar to personal spending, the capital that a manager has to spend is finite. There are only so many hours in the day, only so much money to be spent on the myriad competing priorities, and only a limited amount of personal energy and enthusiasm to devote to any single initiative.

Management capital is allocated based on priorities. A leader cannot spend more capital than it has available. Overspending works against the success of both the change effort and other priorities. Therefore, how the leader decides to spend their management capital will have a direct impact on what the people of the organization do. They will watch what leadership does and doesn’t do. People will tend to work and focus where management is seen spending its scarce capital. The organization’s employees will look at the following:

• The areas where the leader is spending time planning, helping, and reviewing the work.
• The areas where the leader is allocating funds, budgeting for work to be done, and monitoring how effectively the money is being spent. Of equal importance, employees will notice the areas where money is being taken away for the funding of other priorities.
• The areas where the leader is enthusiastically engaged and excited about the work. What the leader is communicating about via e-mail, blogs, quarterly newsletters, annual meetings, etc.

The spending of management capital is one of the key ingredients for successfully implementing organizational change.

— Used with permission from “Making Change in Complex Organizations” by George Strodtbeck