Another look at working capital

Working capital is more than a financial measure

17 November 2022
Most people associate capital with financial wealth. When economists use this term, they are referring to assets that help increase productivity. But if working capital is defined only in terms of financial assets, market capitalization or turnover, it is at the expense of other, more important long-term goals. So says Sridhar Iyengar, managing director of Europe at Zoho.

Iyengar: “Corporate capital is more than a financial measure. It is also about developing knowledge, anchoring in markets, fostering a culture of belonging, improving people’s well-being and creating impact locally, regionally and nationally. The financial numbers are certainly important, but they are not the core component of working capital that contributes to a long-lived business.

Thinking of working capital as more than just financial support helps businesses see themselves as more than just a place to make money. We need to look at the wider picture. Because there are several ways organizations can increase their working capital that are different from increasing their financial wealth.”

Invest in people and innovation
Iyengar: “Companies wishing to take such a holistic approach would do well to continually invest in R&D and the development of new skills.
The development of intellectual capital should take precedence over bringing new products to market as quickly as possible. This may initially mean sacrificing part of the budget for marketing and other secondary business functions. In the longer term, however, the benefits of this approach will become more and more apparent.
Building intellectual capital shows a long-term vision. This is beneficial for your brand’s credibility and customer loyalty. Investing in a strong knowledge base goes hand in hand with acquiring talent. Most companies still limit their recruitment to a very limited pool of talent based on degrees and other formal qualifications. Unfortunately, they don’t always reflect people’s true potential or their skills. When you look beyond people’s formal educational background, you gain access to a huge pool of untapped talent. This talent is eager for the opportunity to receive training and gain the skills your organization needs. By bringing in potential talent and providing opportunities to acquire new skills and industry-specific knowledge, you can increase your intellectual capital.”

Enrich the lives of your employees
Iyengar: “It is important to remember that employees are more than the output they deliver during working hours. Organizations must create a sense of belonging that contributes to material and psychological well-being.
A good salary, attractive benefits, promotions and office recreation areas look nice on paper, but mean little if they are not accompanied by a sense of freedom, trust, patience and acceptance.
Companies should ask themselves the question: ‘What have we done to earn the loyalty and commitment of our employees?’. In this way, the focus is turned from ‘Why do people leave our organisation?’ in ‘Why should they stay with us?’. This contributes to a sense of gratitude and appreciation for employees who choose to stay with us year after year.”

Develop a culture of cohesion
Iyengar: “Corporate culture represents the unique personality of an organization. This is reflected in strong values, solid business ethics and a sense of working towards a common goal. Corporate culture gives meaning to what people do in the organization and determines the way they do it.
The corporate culture thus provides a clear collective goal to pursue. But that cannot be achieved with strategies that focus solely on profit maximization or quick wins. To create a culture of cohesion, you need to make it clear that your company does not operate in a vacuum. You must show how the business activities fit into the wider picture. In this way, employees will understand the role they play in society and how their organization can contribute to it.”

Put your focus on the long term
Iyengar: “Instead of focusing on direct returns, organizations must see the value of building sustainable working capital, where all the above aspects are united.
Business leaders who recognize the business continuity and value they can achieve by developing new skills, intellectual capital and a corporate culture of togetherness will make building such a solid foundation a top priority. This will allow their organization to build a positive legacy that promotes community and boosts socio-economic well-being.”

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