What is Social Capital?
Social capital refers to the resources such as information, ideas, leads, business reports, financial capital, power and influence, emotional support, even goodwill, trust, and cooperation available in and through personal and business network relationships.
The term “social” emphasizes that these sources are not personal assets, no single person owns them. Access to social capital depends not only on who you know but also on who you don’t know if you are indirectly connected to them via your networks. The concept of social capital became increasingly popular in a wide range of social science disciplines during the 1990s and 2000s.
- Sociologist Pierre Bourdieu in 1992 defined “Social capital is the sum of resources, actual or virtual, that accrue to an individual or a group by virtue of possessing a durable network of more or less institutionalized relationships of mutual acquaintance and recognition”.
Social capital stresses the importance of these social networks and relationships and aims to use them in the best possible way for achieving organizational goals. It helps improve the performance of diverse groups, the growth of entrepreneurial firms, superior managerial performance, enhanced supply chain relations, and the evolution of communities.
The dynamics of social capital focus on the role (such as economic, political role), influence on well-being, the performance of individuals or groups or government, and forms/structure of social capital (either direct or indirect relationship).
The term ‘Capital’ emphasizes that social capital, like human capital or financial capital, is productive. It enables us to create value, get things done, achieve our goals, fulfill our missions in life, and make our contributions to the world. It is an essential part of achieving personal success, business success, and even a happy and satisfying life.
Over the past decades, social scientists have documented the benefits of social capital for individuals and for organizations. The benefits are:
Benefits of Social Capital in Business and Management
At Individual Level:
Finding a job: The scientific study supports the fact that most people find jobs through personal contacts; they find better paying, more satisfying jobs than one’s available through formal channels, and they stay at these jobs longer.
Better pay and promotions: Many studies have documented the fact that people are paid better, promoted faster, and promoted at younger ages when they create value. That is why it is related to these benefits, people can create value out of their social capital.
At the Organizational Level:
Create influence and effectiveness: In today’s organizations, the expertise and network position is rising over the formal authoritative positions. The managers are more likely to be successful if they are a good “network builder” and attend to take network building responsibilities not just technical tasks. These network builders are more influential and even paid better in an organization.
Get venture capital and financing: The study has shown that the majority of start-ups and new businesses find and secure their venture (startup) capital financing through the social networks of capital seekers and investors. Relationships also play a critical role in financing. Companies that develop personal relationships with their bankers get financing at lower rates.
Organizational learning by doing: The learning in the workplace i.e. organizations take place through informal interactions. The work culture promotes interactions that promote learning by doing, teaching and coaching and mentoring, sharing good ideas and spreading best practices, and cooperating and collaborating rather than competing with others.
Word of mouth marketing: Studies document the prominent role of social networks in the spread of products and services. So, the best marketing company incorporate word-of-mouth programs in their marketing campaigns, tapping the power of social networks to launch new products and services.
Strategic alliances: It influences the use, performance, and success of strategic alliances. For e.g. compatible alliance partners often find each other via social and business networks.
Resisting mergers and takeover attempts: Good social capital enables executives to successfully resist takeover attempts. Members of the top management team who are well connected in elite social and business circles are better able to deter takeover bids, compared with a top team of isolated executives.
Democracy flourishes: Democracy requires social capital. Whether it be an organization or a nation, the quality of government, and its democratic values and principles, all depend upon the richness of social capital i.e. networks of cooperation, norms of civic engagement, and a spirit of trust.
Benefits of Social Capital beyond the Business
Studies have shown the link between social capital and the quality, purpose, and meaning of life.
Happiness: It is based on two factors full work and the quality of relationships with others.
Health: People with good networks enjoy better mental and physical health. The health-enhancing effects of relationships have been documented in a host of studies, as it showed ranging reduced risk of serious illnesses.
Longer Life: Studies show that people with good networks actually live longer one as one is protected, cared and learn healthy practices from others.
- Walker (2004) reported that the negative effects of social capital could include social exclusion as many groups achieve internal cohesion at the expense of outsiders, who can be treated with suspicion, hostility, or outright hatred.
- It can be used for ‘bad’ purposes, perhaps for profit rather than the support of individuals and communities.