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August 12th, 2016

Utilizing Your Social Capital

Social capital is all around us, we use it every day. But despite this, it is often underutilized in, or absent from a conscious strategy in the workplace.

While most of the literature that I read for this post focused on social capital’s impact on politics, law, and general sociological studies, looking at the lessons learned through a business lens can be quite beneficial to organizations.

Overall, it was found that no matter which lens social capital is examined through, the creation of it should be encouraged. However from a business perspective, networking and the sharing of ideas promotes positive developments in innovation and bottom-line performance.

If it is so important, what exactly is it, and how to you get more of it?

 

What is social capital?

Of the various definitions that I came across, all of them seem to agree that what constitutes as “social capital” is pretty abstract. Coleman (1988) described social capital as,

“If physical capital is wholly tangible, being embodied in observable material form, and human capital is less tangible, being embodied in the skills, and knowledge acquired by an individual, social capital is less tangible yet, for it exists in the relationships among persons.” (Pp.100-101)

An individual’s network, social engagement, and the trust that has been built through coordination with others, all qualify as components of the the broad notion of social capital. It can also be described in plainer language as the utilization of your resources to take your physical and human capital to the next level. Putnam (1993) quotes Albert O. Hirschman’s description of social capital, “…a ‘moral resource,’ that is, a resource whose supply increases rather than decreases through use and which (unlike physical capital) becomes depleted if not used.” (PP. 4)

 

Social capital in business and management

Developing these social networks can be hugely beneficial to an organization’s effectiveness. They can be used to initiate and support product development and innovation, as well as integrating said products into new markets.

An example of a company that is successful in this, is Google through its Google X branch. The highlight reel of this initiative is that it is used by inventors and entrepreneurs from a dizzying array of backgrounds to create new technologies. To get these projects from idea, to prototype, to viable market product, they collaborate with industry and commercial experts from around the world throughout the entire process. Nurturing a solid relationship with these people is essential for each new technology's – and ultimately Google’s – success.

It is important to note that not all networks are created equally. There is a significant distinction made in the literature between what are called homogenous and heterogeneous networks. While both are important, members of homogeneous networks may be individuals and firms in the same social circles and industry, and they will have similar outlooks and thought frameworks. And while still useful, they do not challenge the status quo. Heterogeneous networks on the other hand, have members with (predictably) differing perspectives and will be from all walks of life and business area. These networks are more capable of challenging the status quo and creating new ideas by thinking outside of the proverbial box.

With globalization creating more and more international networks, cultural differences need to be taken into consideration. Western versus Eastern cultures have opposite mindsets in the way they view the world. Namely, individually versus collectively respectively. The term “Network capitalism” has been applied to those economies that are growing rapidly in East Asia. These economies have social networks that are much more solid and interconnected than those in the West. Putnam (1993) argues that “China’s extraordinary economic growth over the last decade has depended less on formal institutions than on guanxi (personal connections)…” (PP. 5)

There is however, a major downside to taking collaboration too far, is that if everyone has the same knowledge, it limits the advantage one firm has over their competitors.

 

How to generate more

Creating genuine social capital takes effort. It is based on trust, integrity and how involved you are with your network.

The following concepts are seen as being the key ingredients to successful social capital generation:

  1. Embeddedness: How integrated you or your firm is with others, and with the surrounding community
  2. Autonomy: Having the ability to develop heterogeneous networks outside of the embedded community. Done by either branching out to other industries, or expanding physically to another area
  3. Synergy: Having a viable working relationship with governing bodies

The most practical of the policy recommendations for creating social capital in the workplac that I read about in the articles for this post was, providing subsidies for programs that align firm employees with education institutions, and/or community associations. An example of such a program that many companies in Calgary participate in is the Corporate Challenge. Programs like this bring together local partnerships, encourage new relationships, and foster healthy competition.

To be beneficial and successful in the long-run, these programs need to combine individual choice with collective engagement. In other words, they can’t be forced upon employees.

“While the formation of social capital therefore takes the individual as its starting point, the volume of social capital possessed by an organization is dependent on the size and structure of its individual actors’ network ties.” (Lee, 2009 pp. 252)

 

While social capital may be an abstract concept that is often overlooked as something cultivated on the individual level, harnessing its power for the gain of the organization is becoming more and more essential to the way we do business. Maintaining the connections individuals have with other individuals, those that firms have with other firms, as well as their clients and customers, is especially necessary in this day and age where technology allows for constant connectedness.

How communication is changing (Namely face-to-face and traditional marketing, versus electronic communication and social media) and how this is impacting social capital strategies in business was brought up in the literature but left for future study to tackle. It is an interesting question though, and should be at the forefront of any business leader's mind when looking to the future of their company.

 

 

 

Sources used in this post:

Bosma, N., Van Praag, M., Thurik, R., & De Wit, G. (2004). The value of human and social capital investments for the business performance of startups. Small Business Economics23(3), 227-236.

Coleman, J. S. (1988). Social capital in the creation of human capital.American journal of sociology, S95-S120.

Cooke, P., & Wills, D. (1999). Small firms, social capital and the enhancement of business performance through innovation programmes. Small business economics13(3), 219-234.

Lee, R. (2009). Social capital and business and management: Setting a research agenda. International Journal of Management Reviews11(3).

Putnam, R. D. (1993). The prosperous community. The american prospect,4(13),