Imagine you run a bakery that sells all kinds of cakes and cookies. At any given point in time, you have at least 12 dozen cupcakes baking and kilos of cookie dough and cake batter mixing. Those aren’t home-baker levels of baked goods; you’re creating or manufacturing on a large scale.
You need eggs, flour, butter and sugar to get your batter and dough ready. But you also need commercial ovens and stand-mixers to get the work done. So, your ingredients serve as your raw material. And your tools and machines serve as the capital equipment. And both are equally important for the success of your business.
Whether you manufacture a product or run a service, there will always be some kind of capital equipment involved. For a freelance photographer, for example, the capital equipment would probably be their lenses, cameras and editing software.
Here’s a closer look at the capital equipment definition in the spheres of business, entrepreneurship and innovation.
What is Capital Equipment?
Here’s a simple capital equipment definition.
Capital equipment is any equipment used to:
Manufacture a product,
Provide a service,
Sell, store and deliver merchandise.
This sort of equipment usually has an extended life and is not something that is replaced regularly, so it can be considered a fixed asset. This is (rather) textbook definition.
What is capital equipment in simpler terms? They are man-made, durable tools that businesses use to produce goods and services. Capital equipment is a primary factor in the production process, because without it, you can’t get your product or service into the market.
The Function of Capital Equipment
A piece of capital equipment in and of itself doesn’t actually make it into the finished product or service. Those are the raw materials (as illustrated in the example above about running a bakery).
Capital equipment aids the process of making other goods or providing services. Comm0n examples of capital equipment include:
- Buildings and factories
- Machinery and gear
- Construction vehicles
- Transport and logistics vehicles
- Warehouses and storage facilities
- Furniture
- Technology, etc
All of these tools and assets help drive the process of production and therefore, drive economic growth.
Like we mentioned, capital equipment is not something you switch up every few years. These are equipment that have an extended life and can run for a long time. However, innovations within capital goods (tweaks, modifications and inventions) that can better their output often drive overall business growth. If you have a piece of equipment — but make some changes so it works better, and gives you better output — why not adopt that change?
The development and improvement of capital equipment leads to the creation of new kinds of manufacturing jobs — roles for people who can operate those new and improved pieces of capital equipment.
The Relationship Between Capital Equipment and Innovation
We’ve said many times that true innovation only occurs when you create something entirely new, transform an existing product or service, enhance an existing product or service, and monetise it. That means, if you’re not making a profit and improving business performance and the lives of your customers, then it’s not really an innovation.
So how are innovation and capital equipment related? Because you require capital equipment to innovate.
When you embark on an innovation project, you are working with new knowledge and ideas. To turn those ideas into a tangible and profitable innovation, you might need to invest in new capital equipment, or improve upon what you already have. So, you can innovate on capital equipment to create your innovation! After all, these tools are what will help you build, scale and distribute your product or service. Capital equipment includes both plant and tangible equipment like
- Computers
- Machinery
- Instruments
- Transport equipment
- Other equipment
These can be easily removed from the property and serve as inputs in the innovation process.
Certain kinds of innovations, when applied, will extend the usage of your company’s existing capital equipment. On the other hand, your project may require you to replace your existing capital with entirely new types of capital equipment.
Use the Customer Problem Statement template to uncover the customer’s unique problem.
Enhancing capital equipment:
If your innovation has enhancing effects, then you may extend the use of existing capital and recommend how to run capital-light models, outsource and plug in to external production platforms, so you can focus on core competencies to carry out primary business more effectively.
Using new technologies for capital equipment:
You can work to identify specific new technologies that can help you produce the product faster, better and / or cheaper. This kind of capital equipment can help you effectively implement the solution, improve performance and increase solution value.
Making new connections:
You can also look for ways to connect and use existing and new technologies as capital equipment to make your innovation come to life. This requires de-linking certain technologies and technology-related capabilities from products and recombining them into new solutions that offer better value and outcomes.
Understanding the value of capital equipment in the innovation process is something we cover in great deal in the NewLedge for STEM course in business, entrepreneurship and innovation. We equip you with industry-relevant skills that can help you take your innovation or idea from on-paper to on-the-market.
We’ll show you how to make best use of your capital equipment, when to invest in new technologies, and how to build on your existing capabilities to create an innovation that offers the best value for your and your customers.
If you’d like to learn more about the course, visit www.newledge.io