The hidden value of social capital
August 30, 2012 1 Comment
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?
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