The hidden value of social capital

In my last blog I discussed the digital revolution that is bringing wonderful positive change to the information we can access, the networks we can draw on and the concept of openness. My next topic doesn’t stem too far from this subject and it is a concept that I personally find absolutely fascinating. It is something that is not necessary tangible but it is something that could bring enormous value to organisations – only if they know how to create the environment to harness it. This intangible source of competitive advantage is called social capital. I believe grasping the true brilliance of concepts such as social capital will allow organisations to compete, thrive and innovate in the modern world.

What is thing called social capital?

Social capital is a relatively old concept but has only recently been explored to a deeper level. It is most certainly a complex idea and there are numerous sociologists and economists that have attempted to define it. I have therefore included a number of definitions that will hopefully be meaningful to organisation practitioners.

One of the first systematic concepts of social capital was derived from Pierre Bourdieu (1985) who defined concept as “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance or recognition”.  He states ‘economic capital is in people’s bank accounts, human capital is inside their heads and social capital inheres in the structure of their relationships’.

According to Rahmani & Mousavi (2010) social capital is a unique resource that cannot be traded on an open market and it cannot be easily exchanged from one organisation to another, it is these features that make social capital a potential source of firm competitive advantage.

Coleman (1988) suggests just as physical capital is created by changes in materials to form tools that facilitate production, human capital is created by changes in persons that bring about skills and capabilities that make them able to act in new ways. Social capital however, comes about through changes in the relations among persons that facilitate action. Social capital exists in the relations among persons. In more simple language social capital refers to the social relationships between people that enable value and productive outcomes.

Nahapiet and Ghoshals (1998) dimensions of internal social capital are an excellent way to understand the concept further. They break down the concept into three dimensions: each of the three factors affecting internal social capital.

  • Structural – describes the configuration of linkages between people within an organisation
  • Relational – describes the kind of personal relationships people have developed with each other through a history of interactions
  • Cognitive – refers to those resources providing shared representations, interpretations and systems of meaning

Self reflections on social capital in organisations

When I think about internal social capital from an internal organisational perspective I can clearly see the brilliance of it. I recently reflected on the natural relationships that I had at work and exactly what those relationships produced in terms of value. On my reflections I was astonished at how much value could be produced over a coffee with a fellow colleague.

It is human nature for most of us to want to talk and discuss issues and opportunities about our organisational environment, the way things are being done, the processes at work and the direction the organisation is taking. As employees we accumulate and acquire a great amount of inside knowledge. We all interpret things differently, we have different personalities and styles and we have a view on what works in our organisation and what doesn’t work in the organisation. We have a good idea of what is lacking in the organisation, we know where investments should be made and we know who is going to make the next best leaders. Nearly all of us have thought about better and more creative ways of doing things within the organisation. When you meet up with a colleague you have an opportunity to express your thoughts about the organisational environment, the people and the processes. This is the beautiful thing about social capital, it can be captured through naturally formed linkages and relationships. It is up to the organisation to provide an environment where relationships, ideas and knowledge can be openly shared and captured.

What are the benefits of social capital for organisations?

Not a lot of research has been done in this area however I strongly believe managing social capital effectively will become the new source of competitive advantage for organisations. I think we are already seeing organisations wanting to evolve, harness creativity and be at the forefront of innovation. Firms are getting familiar with things like knowledge management, improving organisational effectiveness and harness the ideas of employees. To succeed at this I think it is critical for organisations to understand the value of social capital.

According to F. Sabatini (2006), social capital can benefit enterprise performance by fostering the diffusion of information and knowledge, lower­ing uncertainty and transaction costs and enhancing economic development dependent on the level of trust within networks. Moreover, in literature we can find many different ben­efits of social capital, which help to encourage performance of an enterprise. F. Sabatini (2006) and E. Bueno et al. (2004) in their works state that social capital can:

  • Improve capabilities of consumers and producers
  • Strengthen relations with suppliers, also promote regional network production and inter-organizational learning
  • Stimulate innovation, intellectual capital creation and the efficiency of multidiscipli­nary teams in enterprise
  • Foster better diffusion of information that makes behaviour more foreseeable and reduces uncertainty
  • Stimulate participation opportunities in social environment, which allow people to meet frequently, as fertile ground for nurturing shared values and social norms of trust and reciprocity
  • Increase reputation of enterprise
  • Increased flexibility of a firm
  • Influence professional success
  • Reduce the average cost of transactions due to the increase of trust-based relations, just as an increase in physical capital reduces the average cost of production
  • Facilitate the exchange of resources between units
  • Help workers in the job search process and create a better portfolio of employees for the enterprise

How can organisations enhance, capture and leverage their internal social capital?

I have learnt about social capital through reading many journal articles, blogs and literature. From my discovery of this concept I have come up with a list of business practices below which I think organisations should focus on to capture and harness the internal social capital within the firm. Could these practices be where the future lies for competitive and innovative firms?

References

Bourdieu, P (1985), “The forms of Capital”, The handbook of theory and research for the Sociology of Education, pp.24-58

Bueno, E. (2002) El Capital Social en el Nuevo Enfoque del Capital Intelectual de las Organizaciones, Revista de Psicologı´a del Trabajo y de las Organizaciones 

Coleman, James.S (1988), “Social Capital in the creation of Human Capital”, The American Journal of Sociology Vol.94

Macerinskiene, Irena (2011), “The evaluation of Social Capital benefits: Enterprise level”, Business, Management & Education Vol. 9

Nahapiet, J & Ghoshal, S (2003), “Social Capital, Intellectual Capital and the Organisation advantage”, Academy of Management Review, V.44

Rahmani, Zeionolabedin & Seyed, Mousavi Ali (2011), “Enhancing the innovation capability in the organisation: A Conceptual framework”, Education and Management Technology V.13

Sabatini, F. 2006. The Empires of Social Capital and Economic Development: A Critical Perspective, in Osborne, M.; Sankey, K.; Wilson, B. (Eds). Social Capital, Lifelong Learning Regions and the Management of Place: an international perspective 

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The digital revolution inspiring my thinking

I have recently had the opportunity to reflect on my learnings as a HR professional and as part of my journey I have become acutely aware in how much information we can now access without doing a professional course or studying at University. I have always loved researching things as a form of learning and developing, and my love for business and new things means that I research anything about organisations, global issues, economics, politics and HR.

In the last few months I have become totally immersed in the digital world. I am finding myself reading journal articles and papers from blogs to up-skill myself in new and progressive concepts whilst I look for my next career opportunity. I am learning about subjects that I knew very little about, things such as workforce planning, social capital and innovation management. Although I am not currently working I feel I am spending my time creatively. I am finding this process incredibly empowering.

Recently LinkedIn has become the topic of conversation for professionals where you can connect with professionals and discuss views with subject matter experts from around the world – this is nothing short of amazing. Another platform driving networking on a professional level is Word press, a simple concept that demonstrates another sub level of this new paradigm. It means anyone can develop his or her own professional webpage; all you need is a laptop, an ability to learn and apply new skills, and some inspiration and ideas.

Part of my regular routine in informing myself about the world, business and organisations includes having a twitter account. I don’t necessarily tweet myself (only when I feel really passionate about something) however I follow people who tweet. And this means that on a regular basis (daily) I have interesting information, on subjects that I enjoy, flowing into the world of Katrina from all over the world, people and organisations. And if someone tweets about an amazing talk or a research paper or a blog, I immediately know about it.

Last week I was scrolling through my tweets when I saw Socialmediatoday mention an inspiring talk via TED Talks. Watching TED Talks is similar to being in a university lecture, only you have no exam or assignment at the end of it! As I gave in to my thirst for information I quietly spent the next 18 minutes with eyes on Don Tapscott listening to the Four Principles for the Open World.

Don’s talk has only deepened my thinking about the new digital age and confirmed my strong sense of awareness that the world is about to change. He describes this change as the digital revolution. I believe I have already seen changes in my behaviour as a direct result of me immersing myself in this new world. Suddenly I am connecting, interacting and networking with professional people all over the world and I am learning and developing as a result. Don brings into focus what this means on a higher global level.

I don’t want to spoil Don’s talk so I won’t go into too much detail however I do want to touch on the insightful points he makes.

  • Basically the world is in great need of change; he refers to this as the burning platform, the economic crisis that so many of us are experiencing. And this is the demand-pull factor for change.
  • Then at the same time there is the new world emerging which comprises of an interactive, hyper-connected, immersive, virtual, digital online eco-system or mega platform where users create and share knowledge, innovate and collaborate together, connect and communicate globally, buy merchandise, write refection blogs, share photo’s and presentations, develop projects and express themselves in the world.
  • Both these factors are driving the push towards a new knowledge sharing digital platform world.

Don discusses a concept called openness. Openness is where organisations embrace flexibility, innovation and have no formal boundaries. It is where people share ideas, embrace true collaboration, innovate and create value. He uses a particular example where a business used this open approach, the power of the story is strong. Believe it or not businesses are going to start opening themselves up to harness the collective intelligence of people outside their organisation boundaries and as the world starts to embrace this openness organisations will need to transform, structurally and culturally. As a person who loves understanding how organisations systematically function and operate I could not think of a more amazing moment to be living in.

As humans start to share their intelligence and ideas across the world, from our bedrooms to our workplaces I believe that we can work towards the world becoming a more sustainable compassionate place, where you can connect with others and contribute in a meaningful way. I believe that organisations and society will benefit greatly from this change. I think the new digital world is a wonderful learning platform that is going to unleash a new sense of networked intelligence, creativity and innovation. I couldn’t be more excited about being part of this positive change in the world.