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Lecture 1: Reading Relations & Networks of organizationsWhat is Social Capital and why should you care about it? – C. Baker
What is social capital, and why should you care about it?
Introduction
“Social capital” refers to the resources available in and through personal and business networks, like
information ideas, leads, business opportunities, power and influence, emotional support, even goodwill, trust,
and cooperation. The “social” in social capital emphasizes that these resources are not personal assets; no
single person owns them.
Resources live in networks of relationships. What you know depends on Who you know → the size, quality, and
diversity of your personal and business networks. Social capital also depends on who you don’t know, if you are
indirectly connected to them via your networks.
“Capital” emphasizes that social capital, like human capital or financial capital, is productive:
→ enables to achieve our goals. get things done, achieve our goals, fulfill our missions in life, and make our
contributions to the world. But saying that social capital is “productive” is an understatement.
No one can be successful—or even survive—without it.
What does it take to be successful—to achieve career and life goals? When I pose this question to my
consulting clients, audiences, and students, I get a variety of answers. The source of success is natural talent,
intelligence, education, or effort. It might even be sheer luck. This assumption is so powerful that when I
suggest an alternative view—success depends on our relationships with others as much as it does on
ourselves—the usual reaction I get is denial. This reaction gets stronger when I suggest that pay, promotion,
and accomplishments are largely determined by the structure and composition of one’s personal and business
networks. And the last straw is my suggestion that it is our ethical duty to deliberately manage relationships—
and that anyone who doesn’t is unethical.
Myth of individualism: the cultural belief that everyone succeeds or fails on the basis of individual efforts and
abilities. Pretending that we are masters of our own fates, or that relationships really don’t matter. Even
natural talent, intelligence, education, effort, and luck are not individual attributes at all; they are developed,
shaped, and expressed by and through relationships with others.
Social capital is an essential part of achieving success and even a happy and satisfying life. Managing our
networks consciously is an ethical duty— and the prescription for personal and business success.
→ Individualism is a myth
Hard evidence that social capital boosts business performance. Individuals who build and use social capital get
better jobs, better pay, faster promotions, and are more influential and effective, compared with peers who
are unable or unwilling to tap the power of social capital.
Smart companies master knowledge and put it into action by building social capital as an organizational
competence. These organizational cultures promote—indeed, celebrate— learning by doing, teaching and
coaching and mentoring, sharing good ideas and spreading best practices, and cooperating and collaborating
rather than competing with others.
Intelligence: The malleability of intelligence illustrates the difference between the brain and the mind:
Everyone is born with a physical brain; but a human mind develops only through relationships.
Education: Investing in one’s human capital by going to college, earning advanced degrees, and making learning
a lifelong process is a critical element of success. But making this personal investment is possible only through
relationships with others; indeed, social capital facilitates the creation of human capital.
Effort: A person is more likely to work harder in a high-productivity workplace than in a low-productivity
workplace.
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,Luck: Studies show that lucky people increase their chances of being in the right place at the right time by
building a “spiderweb structure” of relationships that catches lots of diff e rent bits and pieces of information.
They increase the chances of beneficial accidental encounters by living in a zigzag, not a straight line.
Getting a job is one of the best-known uses of networks. The practice of networking to find jobs has always
been part of the conventional wisdom promoted by employment counselors and outplacement consultants.
People with rich social capital are paid better, promoted faster, and promoted at younger ages.
In today’s organizations, formal authority and coercion are declining as important and effective sources of
power, while expertise and network position are rising.
Social capital doesn’t stop with the individual benefits discussed in the last few sections—it is critical to the
acquisition of venture capital. The U.S. Small Business Administration sponsored a series of surveys to examine
how start-ups and new businesses get v e n t u re capital.2 5 The findings are startling: Seventy-five perc e n t of
start-ups and new businesses find and secure financing through the “informal investing grapevine”—the social
networks of capital seekers and investors.
Organizational learning and doing
- Word-of-mouth marketing
- Strategic alliances
- Mergers and acquisitions
- Democracy
Link social capital and quality, purpose, and meaning of life
- Happiness: Developing social networks leads to happiness, growth , satisfaction, and a meaningful life.
- Health: People with good networks enjoy better mental and physical health.
- Longer life: Probably the most surprising finding is that people with good networks actually live longer.
The ethics of social capital re q u i res that we all recognize our moral duty to consciously manage relationships.
No one can evade this duty—n o t managing relationships i s managing them. The only choice is how to manage
networks of relationships.
Advertising increases awareness of products and services, but personal referrals and recommendations lead to
actual decisions to purchase them. The word-of-mouth effect offers a virtual “free ride.” So, the best marketers
incorporate systematic word-of-mouth programs in their marketing campaigns, tapping the power of social
networks to launch new products and services, and to ensure the saturation of the market for existing ones.
Compatible alliance partners often find each other via their social and business contacts.
Members of a top management team who are well connected in elite social and business circles—serving on
other corporate boards and on non pro fit boards, having held high political offices, or serving as officers or
trustees of trade associations — a re better able to deter or fend off hostile takeover bids, compared with a top
team of isolated executives. Indeed, new takeover defenses such as the poison pill diffuse through the network
of interlocked corporate boards; central firms in the director interlock network learn about and adopt new
defenses earlier than peripheral firms.
Without social capital democracy withers or never takes root.
Organizations with rich social capital enjoy access to venture capital and financing, improved organizational
learning, the power of word-of-mouth marketing, the ability to create strategic alliances, and the resources to
defend against hostile takeovers. And social capital is a bulwark of democracy
A network of good relationships leads to happiness, satisfaction, and a meaningful, healthier and longer life.
Building networks is a major mode of participation and involvement in the world and enables us to contribute
to others.
2
,Lecture 1: slides
Main aim: To recognize, describe, analyze, explain and assess relations between organizations and of
organizational networks
Social capital: the networks of relationships among people who live and work in a particular society →
resources available through these relations + networks = social capital = feature of a relationship, not an
organization. Do not own your social capital.
Social capital: Why does it matter?
- “Social”: resources available in and through personal and business networks. “Capital”: it is
productive, it creates value
e.g., information, business opportunities, financial resources, power, emotional support, trust,
cooperation, and so on,
- Social capital is not a feature of an entity (attribute variable → exist even there are no relationships:
age, gender), but it is a feature of a relationship (relational variable → characteristics of relations:
trust) (Jij bent geen social capital, maar je relatie is dat)
- Relational variables often have an equal/higher explanatory power than attribute variables.
- “The friction is that society consists of a set of independent individuals, each of whom acts to achieve
goals that are independently arrived at, and that the functioning of the social system consists of the
combination of these actions of independent individuals.” (James Coleman)
Social capital and IORs and IONs (Baker, 2000)
- Interorganizational networks (definition) are “relatively enduring transactions, flows, and linkages that
occur among and between an organization and one or more organizations in its environment” (Oliver
1990: 241)
- Relationships and networks of organizations are about the exchange and flow of resources between
organizations. (RANO)
- For an individual organization, relations and networks mean access to and dependency on resources
(e.g., information, ideas, reputation, trust).
- The notion of ‘social capital’ captures the resources available through relationships and networks, i.e.,
relational view of organizations.
Social capital land success: Multi-level effect
Individual success and performance:
- Talent: nature or nurture (opvoeding)
- Relations are important for developing talents
- Intelligence: genetically determined but also developed and strengthened by relations (social
interactions, quality of education)
- Education: writing and reading skills are a result of social interaction
- Dedication: supportive settings/environments (e.g., friends and family)
- Chance: the importance of ‘spider web networks’ (vangnet)
Social capital and individual’s quality of life
- Well-being: sensemaking work and social relations are important predictors of well-being
- Health: networkers are often healthier
- Life expectancy: networkers live longer
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, Social capital in the economy
- Payment and career development: people who are strongly embedded tend to earn higher salaries
and experience faster career development (“structural holes”, Ronald Burt)
- Raising financial capital: informal financial capital market.
- Learning in organizations: informal relations and learning.
- Marketing: verbal advertising, importance of social networks for diffusion of new products
- Strategic alliances: importance of relationships between organizations (learning and reputation
effects)
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