The Concept of Social Capital

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I like to view the end product of networking as something I can quantify in some way. After all, what good is going to the candy store if you don’t walk out with something sweet? For me, the end result of successful networking is the generation of social capital.

You business majors out there are already familiar with physical capital, which refers to the tangible assets of a company (cash, equipment, real estate, buildings, etc.). Likewise, you human resources majors should be familiar with the concept of human capital, which refers to your employees. Social capital can essentially be viewed as the positive relationships formed between stakeholders.

Social capital is grounded in trust and respect between all involved parties. The late French sociologist, Pierre Bourdieu, wrote of social capital in his 1986 book, The Forms of Capital. Bourdieu categorized social capital 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 and recognition.”

Harvard political scientist Robert Putnam categorized social capital as essentially being of two types: bonding social capital and bridging social capital. “Bonding” social capital describes the type of social capital that is generated among members of homogeneous (similar) groups of people, and “bridging” social capital as being the product of relationship building among more heterogeneous (dissimilar) groups of people.

For example, people who have significant shared experiences, such as military veterans, athletes in team sports, or members of college fraternities and sororities will generate “bonding” social capital among themselves. This type of social capital contains incredible, often lifelong properties, which each experience serving to further strengthen the personal relationships of the people involved.

Likewise, members of a chess club, a business networking group, or a civic group such as the Rotary Club will generate “bridging” social capital among themselves. This type of social capital does not have the strength and permanence of its sibling, bonding capital. However, it does allow members of one group or subgroup to “bridge” over into other, unrelated groups, thus affording them opportunities to gain exposure to people outside of their immediate circle. This type of capital is a critical aspect of online social networking, which we will see soon.

While Bourdieu and Putnam offer very apt definitions, I tend to subscribe to Duke University professor Nan Lin’s view of social capital being something a little more tangible. In his 2001 book entitled Social Capital: A Theory of Social Structure and Action, Lin treats social relations as an investment, with expected returns in the marketplace. I hold the view that social capital, in the narrower business context, is a byproduct of your networking investment – effectively the ROI on the investment of your time and energy.

I like to use financial metaphors when speaking about social capital and its effects. This is not out of simple convenience. As you will soon see, there are a number of parallels that can be drawn between social capital and financial capital – especially if we view social capital as an investment platform for your business or career.

Social capital is not something you buy on QVC or Amazon.com, and you can’t get it through your investment broker – it is something you earn. As with all things abstract, an example is the best way to describe it.

If I provide a professional job reference for Martha, or help Sam with the business plan for his new venture, then I am generating social capital for myself. If Gloria stays late one night and provides assistance to Chuck as he works through his presentation for the board of directors, she is generating social capital for herself. Even if Chuck is three standard deviations away from being considered a normal human being by his colleagues, he will undoubtedly feel a sense of gratitude to Gloria, and this will affect their professional relationship in a very positive light moving forward.

Social capital has the potential to be redeemable, although we don’t necessarily have precise control over when, where, and how it can be redeemed, nor for what it can be redeemed. However, if and when it does get redeemed, then it will no doubt be to my professional benefit. As such, social capital must be viewed as the return on an investment of your time and energy. If you are networking your tail off, and feel as if you are gaining a zero ROI for your time and energy, then something is most likely amiss with your approach.

I should stop for a moment and clarify something, before we go too much further. When I speak of social capital, and expecting an ROI from your efforts, I don’t mean to trivialize relationships, and I certainly don’t mean to imply that you should enter into any professional relationship out of purely selfish reasons. And for the love of Pete, I would never recommend that you should attempt to “track” your social capital in a ledger. But the financial metaphor does illustrate the dynamics of business networking fairly adequately.

Great networkers enter into professional relationships out of a host of other senses, including fellowship, compassion, empathy, duty, responsibility, and citizenship. Give first, receive second – learn it, live it, love it.

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Let’s build on the banking metaphor for a moment. If Cindy provides Robert with a fantastic business development lead, she is in essence depositing some arbitrary amount of social capital into her “account” with Robert. Her social capital sits in this fictitious account, and over time has the potential to depreciate in value (erode), appreciate in value (strengthen), or remain relatively the same (stagnant) – in much the same manner as a typical financial investment.

If Cindy does nothing else to strengthen her relationship with Robert, then over time, her “account balance” could slowly erode. Think of that scenario as a checking account that has a monthly inactivity fee associated with it!

On the other hand, if the social capital that she generated were of such a magnitude that Robert feels it to be of invaluable worth to him, then the balance in her account could slowly appreciate over time, irrespective of how much interaction they have together in the future. Think of that scenario as being similar to an interest bearing account.

I am reminded of this great fellow by the name of Jim Campbell. Jim found me years ago, back in Columbus, Georgia, working away as a young computer programmer. I was satisfied with my work, but really had no direction in my career. Seeing the potential for me to do bigger things, Jim convinced me to take a role in a bigger city, with a fast-growing boutique consulting firm. In looking back over my career, that seemingly insignificant discussion we had over lunch at Evelyn’s Café made a tremendous difference in my life. It would be another 12 years before I would finally reconnect with Jim, and I made an effort to express the fullness of my gratitude to him. We did nothing to strengthen our relationship over those 12 years, but his act was of such personal importance to me, that the social capital at play grew quite substantially.

Let’s get back to our fictitious example with Cindy and Robert again. If Cindy continues to help Robert whenever possible, then her account balance would most likely increase in value, which would represent a strengthening of their professional relationship. If Robert does something detrimental to their relationship, such as spread a rumor about Cindy, then the account balance would probably quickly erode.

As with financial investments, social capital also has the ability to compound. When a person redeems social capital in exchange for a favor or request, the amount of social capital that the recipient has in an account with the requestor actually grows substantially. For example, consider John and David. John and David have known each other for quite some time, and they have quite a bit of social capital invested in one another. John calls David up one day and asks for David’s help on an important project, which ends up being a windfall for John’s company. While John has effectively redeemed some of his social capital, the amount of social capital that David had invested in John has just appreciated quite a bit.

Given the financial analogies here, you can easily see why relationships should be treated in much the same manner as long-term financial investments – they grow in value over time, provided you invest wisely – if you add additional principal to the original investment (by continuing to serve that person), it no longer grows in a linear fashion, but instead grows exponentially, in much the same way as compound interest.

The more social capital one has, the more projected or perceived power one wields. The more social capital that a person has, the wider their sphere of influence, and thus the higher the likelihood that hey can get the people around them to rally around their cause, no matter how arduous that challenge may be.

While it won’t appear on a company’s balance sheet, I view social capital as an asset, much like human capital, cash, working capital, and other physical investments. I have an associate here in Atlanta who is known around town as a “power networker.” The guy basically knows everyone in town – more importantly, everyone in town knows that he is seriously connected. He was recently hired by a firm here in town for the sole purpose of leveraging his relationships to grow business. The company essentially bought a nice happy bundle of social capital for itself by hiring him – not a bad strategy, and this is something that is not uncommon. My friend will bring his new employer into business relationships that they have only dreamed about in the past.

In a “buy-versus-build” scenario, “buying” social capital (acquiring social capital from someone else by employing them) will almost always be faster and more efficient than trying to accumulate it from scratch. How many times have we seen the job posting for senior sales leaders where one of the hiring criteria is “must bring a book of business” or “must already have industry relationships?”

Ask any venture capitalist and they will tell you that the relationships belonging to the management team of a company will go a long way toward making or breaking the company. The investor knows that the firm’s management can leverage those relationships to earn favor within the marketplace. This “relationship portfolio” is one of key investment criteria that every venture capitalist will consider as they are evaluating potential investments.

From the entrepreneur’s standpoint, he or she should go out of their way not just to find a “money” person to back their new venture, but to find a “smart money” person – an investor who has social capital to bring to the table as well. Why get a run-of-the-mill investor, when you can get the same amount of money from another investor who is in possession of some key industry relationships that would help get your venture off the ground faster? This is the social capital concept hard at work.

Cheers.

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