The Sigma Principles : “The five capital”
Fundamental :
SIGMA guideline highlights the need for a manager to cross the TBL of Business with its production methods. In fact 5 capitals must be considered.
The natural capital : environment,
The Social capital : Social relationship,
The human capital : People,
The manufactured capital : Fixed assets,
The financial capital : Profit, shares, sales ...
Natural capital
Definition : Natural capital
‘Natural capital' means the natural resources and processes needed by organizations to produce their products and deliver their services.
They include:
neutralise or recycle wastes; resources, some of which are renewable, others are not;
Processes, such as climate regulation and the carbon cycle.
Example : Why it is important to organizations?
Organizations rely on natural capital to some degree and have an environmental impact,
Organizations currently consume energy and create waste (although some organizations have adopted zero waste or zero emissions strategies),
Organizations need to be aware of the limits to our use of the natural environment and the impact that they can have on it now and in the future, and operate within them.
Advice : Ways organizations can maintain and enhance natural capital
Limit and reduce the use of substances extracted from the Earth's crust.
Substitute abundant minerals for those that are scarce in nature.
Ensure that all mined materials are used efficiently within cyclic systems. Systematically reduce dependence on fossil fuels and use renewable resources instead.
Substitute all persistent and unnatural compounds with substances that can be easily assimilated by natural systems. Eliminate waste, re-use, recycle or re-manufacture where possible.
Prevent the physical degradation of nature and protect and enhance biodiversity and eco-system functions.
Draw renewable resources only from well-managed and restorative eco-systems.
Adopt the precautionary principle in any situation that may result in the modification of nature.
Human capital
Definition :
‘Human capital' incorporates the health, knowledge, skills, intellectual outputs, motivation and capacity for relationships of the individual.
In an organizational context it includes the elements needed for people to engage in productive work and the creation of wealth, thereby achieving a better quality of life.
Human capital is also about dignity, joy, passion, empathy and spirituality.
Example : Why it is important to organizations?
Organizations depend on individuals to function – for instance, they need a healthy, motivated and skilled workforce.
Intellectual capital and knowledge management are increasingly recognized as key intangible assets that an organization can use to create wealth.
Health epidemics, such as HIV and AIDS, can damage organizational viability.
Damaging human capital by abuse of human or labor rights or compromising health and safety has direct as well as reputational costs. Poverty prevents many people from achieving their full potential.
Advice : Ways organizations can enhance human capital
Implement diversity policies that enable an organization to access the variety of human talent and eliminate discrimination.
Ensure health and safety, incorporating physical and mental well-being.
Provide a reasonable living wage and fair remuneration for employees and business partners.
Create opportunities for varied and satisfying work.
Adopt fair labor standards, including avoidance of slave, forced or child labor.
Social capital
Definition :
‘Social capital' is any value added to the activities and economic outputs of an organization by human relationships, partnerships and co-operation.
Social capital includes, networks, communication channels, families, communities, businesses, trade unions, schools and voluntary organizations as well as cultural and social norms, values and trust.
Example :
Why it is important to organizations?
Organizations rely on social relationships and interactions to help them to achieve their objectives.
Internally: social capital takes the form of shared values, trust, and communications and shared cultural norms.
Externally:
Social structures help create a climate of consent and understanding, in which trade and the wider functions of society are possible,
Organizations also rely on wider socio-political structures to create a stable society in which to operate, e.g. government and public services, effective legal systems and security arrangements, trade unions, schools and other organizations.
Advice : Ways organizations can enhance human capital
Ensure that it is contributing positively towards meeting human needs such as subsistence, freedom and security, but also identity, empathy, creativity and leisure.
Give employees access to training, development and lifelong learning.
Create an enabling environment for learning, innovation and sharing of knowledge.
Respect human rights throughout its operations and geographical regions.
Understand and respect human values and their different cultural contexts.
Advice : Ways organizations can enhance social capital
Ensure that it is contributing positively towards meeting human needs such as subsistence, freedom and security, but also identity, empathy, creativity and leisure.
Give employees access to training, development and lifelong learning.
Create an enabling environment for learning, innovation and sharing of knowledge.
Respect human rights throughout its operations and geographical regions.
Understand and respect human values and their different cultural contexts.
Support the development of the community in which the organization operates, including economic opportunities.
Provide safe, supportive living and working conditions, including family-friendly policies.
Ensure ethical sourcing of materials and fair treatment of suppliers, customers and citizens.
Respect and comply with local, national and international law.
Pay taxes and be supportive of the social infrastructure.
Implement effective communication systems throughout the organization, reflecting shared values and objectives.
Promote a culture where corruption and the payment of bribes are unacceptable.
Contribute to open, transparent and fair governance systems.
Manufactured capital
Definition : Manufactured capital
‘Manufactured capital' refers to material goods and infrastructure owned, leased or controlled by an organization that contribute to production or service provision, but do not become embodied in its output.
Examples include: tools, technology, machines, buildings and all forms of infrastructure.
Example : Why it is important to organizations?
The efficient use of manufactured capital enables an organization to be flexible, responsive to market or societal needs, innovative and faster in getting its products and services to market.
Manufactured capital and technology can reduce resource use and focus more on human creativity, thus enhancing both efficiency and sustainable development.
Advice : Ways organizations can enhance manufactured capital
Use infrastructure, technologies and processes in a way that uses resources most efficiently.
Develop flexible or customized production techniques that reduce resource use.
Implement modular or closed loop manufacturing systems that reflect the whole lifecycle of products and services.
Utilize system innovations – leasing products on a continual service contract rather than a ‘fire and forget' sales approach.
Utilize reverse logistics to get ‘used' products back from the market and develop re-use and re-manufacturing systems.
Work towards zero-waste and zero-emissions production systems.
Use industrial ecology – looking at synergistic production systems where one organization's waste streams are another's raw materials.
Form partnerships within the supply chain and customer base to make more efficient use of resources and develop or improve products and services.
Improve product systems through eco-efficiency and eco-innovation.
Apply sustainable construction techniques when looking at new infrastructure or offices.
Ensure adequate levels of investment, research and maintenance of infrastructure.
Financial capital
Definition : Financial capital
‘Financial capital' reflects the productive power and value of the other four types of capital and covers those assets of an organization that exist in a form of currency that can be owned or traded, including (but not limited to) shares, bonds and banknotes.
Example : Why it is important to organizations?
Financial capital is the traditional primary measure of business performance and success (the ‘single bottom line') in terms of reporting performance to shareholders, investors, regulators and government.
Sustainable organizations need a clear understanding of how financial value is created, in particular the dependence on other forms of capital.
For measures of financial capital to truly reflect the value of other forms of capital, organizations must understand the importance of a number of other factors and how to ascribe financial importance to them.
Advice : Ways organizations can enhance financial capital
Ensure that the organization's financial measures reflect the value of the other four capitals.
Internalize environmental and social costs and benefits and assign an economic value to them.
Manage opportunities, risks and corporate governance issues.
Ensure equitable use of the wealth created.
Demonstrate a positive stance on, and management of, sustainability issues to improve access to financial capital or reduce financial costs for example by emonstrating that the organization meets Socially Responsible Investment (SRI) criteria.
Honor relationships with suppliers and customers/citizens.
Assess the wider economic impacts of the organization's activities, products and services on society, e.g. creating wealth in the communities in which the organization operates.
