Capital is anything one can use to generate income. In the past, it was easy to attach monetary value to most forms of capital. This is no longer the case as other ambiguous forms of capital started to play significantly larger role in organization’s capability to compete. And they are more unique to the organization and less interchangeable. Let us try to attach PAEI codes to different forms of capital.
We can argue that financial capital is what the company attracts from outside in order to grow. We can call it P-capital.
Technological capital is comprised of know-how, process excellence, quality standards and anything that can be used to increase efficiency of the organization. We can call it A-Capital. Intellectual capital is that part of organizational capabilities, that can be traced to bright individuals oriented towards innovation and change. Note that once this capability is organized, it becomes technological capital. It is not the knowledge that forms intellectual capital, it is ability to create something new out of this knowledge. We can call it E-Capital. Social capital is what sometimes described as organizational culture and we can call it I-Capital.
In finance and economics, there is a principle of segregation of capital from business. That is why accountants prepare Balance Sheet. One of the basic principles of the Balance Sheet is to present where capital was employed from and which assets it funded, hence the equation Capital Used = Capital Employed.
If we say that Capital Employed consists of PAEI forms of capital, then Capital Used could consist of PAEI forms of usage:
P: what is used (company’s net assets)
A: how it is used (company’s processes)
E: why/when it is used (company’s strategy)
I: who is the organization, it’s character, i.e. what is left of the organization if we take away the (P), (A) and (E) capital).
The above suggests why traditional managerial reporting has lost its value as most of it was oriented towards easily measurable and transferable P-capital.