How To Invest in

Social Capital
Authored by:
Laurence Prusak
Don Cohen

Presented by:
Group 4
 OUTLINE

What is Social Capital

Enemies of Social Capital

How to Invest in Social Capital

Demerits of too much Social Capital

Conclusion
 WHAT IS SOCIAL CAPITAL

Business runs better when people within an

organization know and trust one another

Trust is a very important factor to move faster and

be productive

Social Capital: the relationships that make

organizations work effectively

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 SOCIAL CAPITAL
UNDER ASSAULT

Reasons

Rising Volatility Lack of Knowledge

and on how to invest
Overreliance Virtuality on it
-There is a
-Building relationships in difference between
turbulent times is tough theory and practical
All managers are aware that business runs better whenimplementation
people within
an organization know and trust one another. The relationship that make
organizations work effectively is the social capital.
Enemies
Rising volatility of Social
is making Capital:
building Volatility
sustaining and Virtuality
relationships
increasingly difficult.
 Works Capital Making Connectio Enabling Free Fostering Authenticity Conclusio
Intro Connectio n& Agent Cooperatio in Criticism
pace Offence ns Retention Trust Nation n Management n

With the advancement of technology, disruptive innovations has become

very familiar. Hence companies are changing their structure faster than
they previously used to.
Mergers and Acquisitions to meet the industry demands and expectations
is in trend.
Today, work happens in every imaginable configuration of time and space.
Volatility gives rise to opportunity and flexibility, there by increasing the
competitive strength of the organization.
But if not handled carefully, they have the potential to erode relationships
as well.
 CAPITAL OFFENCES

Companies thrive when they have dense social networks, high levels
of trust and norms of cooperation but management theory and
practices undercut them
Its a typical one person one desk approach
(eg : Job that involves traveling)
Hoteling Drastically reduces employees opportunities for
people to communicate their identity

Reengineering Efficiency is important but not at the cost

of breathing space and time for human
and its progeny connections

The leader as a Emphasis on larger than life leaders

detracts from trust, collaboration and
super star perceived fairness

Example: praising cooperation and

Hypocrisy knowledge sharing while promoting the
wheeler dealers
 CAPITAL OFFENCES

A number of companies whose employees travel frequently have

done away with the traditional one person, one desk approach.
They assign office locations day-to-day to the employees who
happen to be on-site.
It drastically reduces employees opportunities to form personal
networks, develop trust, and learn the behaviours and values of
the organization by observing people in action over time.
 INVESTMENT IN SOCIAL CAPITAL

Making
Connections

Practices

Fostering Enabling
Innovation Trust
 MAKING CONNECTION

What is Connection?

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 Making Connections
The companies that valued social capital demonstrated a real commitment to RETENTION i.e they
limited volatility
Relationships can only happen, and trust can only flourish, when people know one another.
Many companies have invested heavily in technologies that enable telecommuting, virtual
teamwork, and heightened productivity on the road.

But we would argue that giving people time and space to bond in person is also a form of
investment. Social capital grows when team members meet face-to-face and work side-by-side.

Intranets and electronic meeting rooms can certainly help to maintain connections and foster
knowledge sharing.
But dont expect them to create a sense of community where one does not already exist.
In fact, research has shown that most communities wither unless theyre given the chance to meet
periodically.

When it comes to social capital, allowing people to meet face-to-face is only half the battle if they
talk only about work.
Managers also need to facilitate Personal conversations
 HOW CONNECTION IS
FACILITATED

Workplace that spills over in a positive sense to non-work areas of

employees life by availability of fringe benefits. (ex- SAS, food coupon
of M&M, child care centers, health care centers and rich
conversations)

By promoting from within (ex- UPS, Majority of its senior managers

have worked their way up just through performance)

Giving people time and space to bond in person

(telecommuting, virtual teams, face-to-face interaction)

Fostering Knowledge Sharing

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 HOW CONNECTION IS
FACILITATED

Providing Ice-breakers by open and attractive environment (ex-

Grand Rapids, walls containing pictures of all the employees from
the CEO on down)

Fostering Durable Networks (ex-UPS, employees across

various locations regularly meet to share information)

Investment in community-building activities

But investment should not be heavy-handed

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Making Connections
UPS
WHILE THE COMPANY MUST RECRUIT A NUMBER OF
EXPERIENCED TECHNOLOGISTS AND OTHER
SPECIALISTS FROM OUTSIDE, THE OVERWHELMING
MAJORITY OF ITS SENIOR MANAGERS HAVE WORKED
THEIR WAY UP THROUGH THE RANKS, AND MANY HAVE
CONSIDERABLE EXPERIENCE IN PACKAGE SORTING AND
DELIVERY.

SAS
Turnover rate is below 4%low for any industry and remarkable in a
software company
SAS doesnt rely on high pay to keep its people
What evidently does draw people to SAS and keep them there is a
Workplace that spills over, in a Positive Sense, into nonwork areas of their
lives.
As employees make use of the companys sports and recreation facility, its
health care centre (staffed with two full-time physicians), and its two on-site
child care canters, they interact with one another in ways that deepen their
collegial relationships and create a strong sense of community
These perks signal the companys acknowledgment that its people are
human beings, not just workers.
An even more important relationship builder than these social benefits is the
opportunitybacked by the resourcesto do meaningful work, including
the opportunity to stick with a project as long as it remains meaningful.
SAS invests in ties that bind people more deeply and positively.
 MERGER OF BRITISH
TELECOM
An examination by British Telecom showed thatWITH MCI and interactions, not
human dynamics
flawed business models, caused the failure of its merger with MCI.

Trust, understanding, and equity are as important as strategic, technical, and financial
issues in successfully bringing together two organizations with distinct cultures
 ENABLING TRUST

Trust is important in work teams and

organizations
Leaders should make investments in Trust

No one can manufacture trust or mandate it

into existence

Trust building can backfire if management is

too heavy-handed

Conditions and connection people experience

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 HOW MANAGERS BUILD TRUST

Give Employees No Reasons to Distrust

Transparency
Rule of the Law

Show Trust
Trust is self-reinforcing
Trust employees judgment
(Nordstoms two rule: 1. Use you judgement, 2. There is no second rule)

Trust Responds to Rewards

To promote trust-Send clear signals
 FOSTERING COOPERATION

Organizations live by their norms and values, which define their identity and
functioning.
High social capital translates to strong norms of cooperation in the firms
culture.
How do firms promote cooperation?
Imperative to give people a common sense of purpose.
Needs:
Good strategic communication
Inspirational leadership
 FOSTERING COOPERATION - RUSSELL REYNOLDS

Recruiters need to make five phone calls internally seeking candidates

suggestion before calling outside, while searching for new employees.
Benefits:
Increases efficiency of recruiters efforts
Forces consultants to engage with each other
Hiring at Russell Reynolds is done keeping in mind the culture of
collaborative peer relationships.
Similar is the case of Southwest Airlines, which looks for a particular type of
person, regardless of the job category.
Some firms enforce rules which promote collegial learning, e.g. reimbursing
trip expenses only if knowledge sharing session is conducted.
 FOSTERING COOPERATION - JOHNSON & JOHNSON

J&Js credo states that their first responsibility is to doctors, nurses, fathers
and mothers.
In 1982 Tylenol capsules, laced with cyanide - killed seven people. J&J
immediately pulled all Tylenol from store shelves at tremendous expense.
In times of adversity, such inspirational leadership can bring meaning to
work.
Employees feel All in this together when they have a financial stake in the
outcome.
In IBM, bonuses are disbursed based on group performance rather than
individual performance.
 FOSTERING COOPERATION

Adversity or opportunity-impulse is to pull

together
Ex-Malden Mills (building the organization in the same place
where it got burned down)

Financial stake in the outcome-all in this together feel

Ex-UPS ( Allowing employees including part-time workers who stayed
with the company just for 30 days to purchase stocks)

Bonuses-more importance to group & corporate

performance and less on individual importance
Ex-IBM ( Bonuses based on corporate performance and less
dependent on individual performance)
 FREE AGENT NATION

Each Worker can be a company of one, porting his

expertise, on a project-by-project basis, to wherever in the
world it is needed

Claims: Free agency is becoming model of work and

employment

Claims are counter to how people understand shared task

and come together to work

Silicon Valley: Ability to work Independently is

dependent on their being socially tied to a physical
community through durable networks
 THE PROBLEM OF PLENTY-TOO MUCH
SOCIAL CAPITAL ?

Social capital is not a

Business strategy
Marketing plan
A substitute for either
Not always even a good thing
Companies-damaged by high social capital
Breeds groupthink-a tendency not to question shared beliefs
Support ideas that are narrow or wrong
Prevent people from challenging one another with tough questions

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 THE PROBLEM OF PLENTY-TOO MUCH SOCIAL
CAPITAL ?

Discourage Creative abrasion-a source of innovation

Ex-Digital Equipment , Polaroid
In general effects of social capital are positive
Engagement, collaboration, loyalty, persistence & dedication
are important benefits
Ex- UPS, HP, Russell Reynolds, SAS

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 AUTHENTICITY IN
MANAGEMENT

The key for an actor is sincerity because if you can fake that you
can fake everything-Samuel Goldwyn
Invest in social capital only to the extent that you believe in it
Dont do any of this for the sake of appearances.
In a company without authentic respect for social capital, none of the
interventions will succeed.
Human beings know when someone is trying to manipulate their
feelings.
Lasting social capital cannot be built merely by going through the
motions of team building
Trust is built over time
It represents organic growth of trust, understanding,& loyalty-takes
time to develop

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 THEM AS HAS, GETS.

The social capital that used to be a given in organizations is

now rare and endangered.
Social capital cant be legislated or managed in any directive
sense.
Robert Putnam, in The Prosperous Community - Stocks of
social capital, such as trust, norms and networks, tend to be
self-reinforcing and cumulative
Hobson Brown, Jr., president and CEO of Russell Reynolds,
put it more simply.Everything in this firm works because of
social capital.
 CONCLUSION

The social capital that used to be given in organizations is now rare

and endangered
We can build social capital to capitalize on the volatile, virtual
possibilities of todays business environment
Building social capital cant be legislated or managed
It occurs through natural development that orients rather than
orders, that provides nourishment rather than blueprints
Everything in this firm works because of social capital
-Hobson Brown, President & CEO, Russell Reynolds

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