Organizational capital in legal departments and a rating system

Some people argue that productivity gains in companies arise primarily from improved organizational capital: improved management practices and operational processes. That claim rests on the assumption that human capital is roughly equally distributed so a competitive advantage accrues to those who focus on organizational capital. Further, it discounts the benefits to be had from technology (See my post of July 29, 2009: organizational capital in legal departments.) as it subsumes software enhancements in either practices or processes.

An article in Strat.+Bus., Spring 2010 at 88, describes a study of organizational practices. The study asked people at certain companies “a few dozen specific questions” about various practices such as use of incentive pay and investments in training per employee. The researchers found that all the metrics correlated with one another which enabled them to create a single aggregate variable called “organizational capital.” Every company had a rating on organizational capital.

Imagine doing something similar for legal departments. A set of questions about how each legal department handles certain basic practices and processes could generate a rating on organizational capital. Ideally, the rating would correspond statistically to comparative benchmark metrics.

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