Most companies know how to count the return on new investments. Far fewer companies are able to assess how these investments are changing the future productivity of the capital already invested. It is here that one of the main management gaps arises today: a business can successfully invest in modernization, digitalization, import substitution or AI, but at the same time not increase the ability of already created assets to participate in more valuable economic roles and value chains.
Because of this, a repeating cycle occurs. Each new wave of change requires new capital investments of comparable scale. Capital created in the previous cycle remains associated with roles that are gradually losing economic value. The next investment cycle does not so much increase the company’s potential as it amortizes the results of the previous cycle and requires new investments to compensate for this gap.
According to a number of public assessments by analysts of the largest consulting companies, each major wave of transformation, M&A transactions and large-scale changes can depreciate from 30 to 60% of the effect of the previous investment cycle. Not because previous decisions were erroneous, but because the economic roles of assets are changing faster than organizations manage to rebuild coordination mechanisms.
In this context, organizational capital should not be viewed as abstract managerial competence, but as investment leverage. It determines how capable a firm is of maintaining and improving the productivity of already invested capital as technology, products, partnerships and markets change.
Why the problem has become acute right now
Throughout economic history, the development of technology and institutions has reduced coordination costs and opened up new models of governance. The hierarchy was supplemented by process and project management, then service contracts and interfaces, later by platform orchestration, and now by compositional architectures and mechanisms of concerted evolution.
At the same time, the acceleration of markets makes the positions of companies less stable. What used to last for decades can now become obsolete within a few years or even months. The intuition of the founder remains important for choosing a direction, but is no longer a sufficient tool for managing complexity. The ability of a company not only to invest in new assets, but to change the role of existing assets in the system of division of labor, is becoming increasingly important.
It is here that a new task arises for the owner and the board of directors. The question is not only whether the new project will pay off, but also how it will affect the fate of capital already enshrined in resources, functions, value chains, platforms and business models.
Two sides of capital
One key reason for managerial blindness is that two different forms of capital often mix in practice.
The invested capital is the resources already fixed in the assets of the company: equipment, real estate, technology, and people. This is the economic substance of the company, which financiers habitually measure.
Organizational capital is not what a firm directly owns, but how it relates its assets to economic roles in the division of labor. We are talking about coordination mechanisms, interaction architecture, collaboration rules, standards, platforms, management interfaces and organizational logic that allow the same assets to participate in more valuable value creation configurations.
Each capital investment has two sides. The first directly forms assets or affects their productivity, the second simultaneously determines the economic role of the asset and changes the ability of the company to position the capital already invested. Therefore, organizational capital should not be understood as a derivative of «good management» but as the accumulated result of decisions that either enhance the future productivity of the associated capital or leave it stuck in outdated value chains.
From this, there follows an important managerial conclusion. Sometimes upgrading an individual asset requires investments comparable to the value of the asset itself. However, often small, coordinated investments in coordination mechanisms and new operating models can change the economic role of significantly more already tied-up capital. This is precisely the leverage effect that organizational capital gives: small investments in coordination multiply reduce the costs of repositioning large assets.
From resources to roles
As coordination costs decrease, not only the way of managing the business changes, but also the object itself, for which capital is assigned. At the lower level, capital is assigned to material resources. Next – for the functions of resources, then for value chains, platforms and, in the extreme case, directly for targeted economic roles in the system of division of labor.
This means that the firm is gradually rethinking the very concept of an asset as an object of capital consolidation. Previously, the main object of management was resources: materials, infrastructure, and equipment. Then – function, value chain, platform. The next step is to manage not just a set of assets, but their ability to occupy a more valuable role in the economy. In such logic, resources, processes and functions, products and platforms become private incarnations of the target role. The more perfect the coordination mechanisms, the higher the level of capital consolidation that a company can afford, and the easier it is to reposition the invested capital in the developing system of division of labor. In this way, there is an accumulation of organizational capital and an increase in the market premium that it adds to the company.
Accordingly, organizational capital is formed through the development of coordination mechanisms. Hierarchical structures help manage resources. Process and project management help manage functions. Contract networks and standardized interfaces help manage value chains. Platform mechanisms help manage numerous participants and interactions. Models of composition and coherent evolution make it possible to raise the object of control to the level of economic role.
Capital velocity: three questions for investment decisions
When organizational capital becomes the object of management, the investment decision can no longer be evaluated only by the expected profitability. It is important for the owner and the board of directors to look at at least three dimensions at the same time.
1. Direction of capital
The first question is: what future economic role does this investment direct the company to? Any decision implicitly captures the desired asset position in a future division of labor. Even a new plant could mean either a bet on the role of the manufacturer of a particular product, or a step toward the role of an infrastructure platform for the broader industry ecosystem.
When this dimension is not understood, the investment remains local. When it is made explicit, the company gets to see the gap between the current role of assets and the role it wants to come to.
2. Structural optionality
The second question: at what level is capital fixed and what exactly does the company consider an asset? The higher the level of capital consolidation, the less additional investment in coordination mechanisms is required to achieve targeted economic roles for assets. If a business thinks of assets only as a set of resources, the potential for adaptation is lower than if it considers the value chain, platform or the target role itself as an asset.
Structural optionality means the ability of an organization to change the configuration of the use of existing capital without proportionally increasing the volume of assets. In this sense, it is directly related to the quality of organizational capital.
3. Investment coherence
The third question is: does a new investment increase the productivity of previously invested capital or create a new, unrelated development trajectory? Coherent investments reinforce each other and expand the synergy space. Incoherent ones require new resources, but do not improve the fate of already created assets.
This is one of the most important issues for big business. A company can simultaneously demonstrate an increase in investment and a decrease in long-term capital productivity if each new program lives as a separate circuit, and not as part of an overall coordination architecture.
How it works in practice
The practical meaning of the methodology is manifested in cases when a company moves from local improvements to a systemic change in the role of its assets.
International retail group. The group, which developed many brands in different countries, initially built logistics infrastructure and digital platforms to serve individual businesses. Then these platforms were combined into a single architecture and extended to related segments and partner services. Therefore, investments made for one business began to increase systematically the productivity of capital invested in other assets and countries of presence. Organizational capital here arose as a result of a holistic model of abilities that ensure international expansion.
Telecommunications group. As we move beyond the core business – into finance, media, clouds and digital services – traditional coordination mechanisms have ceased to cope with the complexity of managing a corporation. The transition to the orchestration of autonomous areas on single platforms made it possible not only to manage the growing product portfolio, but to direct new investments to the development of a single ecosystem instead of fragmented support for isolated businesses.
Production holding. The shift from a functional structure to value streams for strategic markets and customer segments has changed the very logic of decision-making. Investments began to work not to maintain isolated divisions, but on priority business lines common to several factories and regions. As a result, the ability to recombine existing resources and channel previously invested capital into more valuable market roles has increased.
In all three cases, the essence is the same: value is created not only by a new asset, but also by how relatively small coherent investments change the fate of a large array of already invested capital. These are the requirements of a dynamic and highly competitive market.
Why it’s especially important after M&A
Post-deal integration is one of the most visible tests of organizational capital quality. After the transaction, several sets of assets are in the same hands, each with its own history, its own coordination logic and development trajectory. The traditional approach here is usually focused on financial valuation, finding points of operational synergy and total capitalization.
However, the very fact of asset pooling does not yet create a more valuable business. On the contrary, some of the assets can turn into actual liabilities if the company does not build common coordination mechanisms. That is why after the transaction, investments not in new physical resources, but in organizational capital often become the most priority: synchronization of policies, platforms, interfaces, standards, forming an agreed architecture of target roles for a set of assets.
An example of a possible combination of port terminals, marine fleet, railway and container infrastructure is indicative. Without designing a target system of roles for a multimodal transport and logistics operator, such a set of assets remains an expensive set of disparate resources. However, if investments are aimed at harmonizing their structural optionality and ensuring a consistent, coherent evolution in the system of division of labor, a single business arises that can claim a more valuable position in the national and global economies.
The novelty and significance of the proposed approach is not that it replaces DCF, due dilligence, strategic maps or forecasting. It comes into force where these instruments cease to give answers, namely, on the question of the further economic trajectory of the capital already invested.
The standard financial model can show whether a new project will pay off. However, it does not show how many assets created in the previous cycle will remain or lose productivity. Strategic planning can indicate the direction of development. Nevertheless, it rarely systematically answers the question of which role system the company will assemble and how much existing capital will be involved in new roles, and how much will remain aside.
Therefore, the central question for the owner and the board of directors today sounds wider than simply «Will a particular investment pay off?», but rather «What share of the already invested capital will the agreed investment portfolio make more productive, more coherent and more resistant to the next wave of changes?»
It is in this sense that organizational capital is more than just the sum of knowledge and practices that give a premium to market value. This is a new facility for direct engineering and management. It allows to look at the company not as a set of assets, but as a system that either knows how to transfer its capital to more valuable economic roles, or over and over again is forced to buy out its own future with a new wave of investments.
By Pyotr Podymov, expert at the Higher School of Business of Moscow State University, head of the Digital Education Department of the federal project «Choose Your Own»