In today’s rapidly changing world, it is essential that organization’s hire the smartest, most capable people possible. There should be little doubt that human capital is a firm’s greatest asset. However, this isn’t enough. Organizations must also ensure that individuals are relationally positioned for optimal success. In other words, bringing in the best people is only part of the solution. Firms must also bring out the best in people. To do this entails a new frontier, unleashing social capital potential.
Human capital can be thought of as the knowledge, skills, and abilities possessed by an individual. In contrast, social capital has more to do with how well an individual is positioned to leverage these abilities. Think about it for a moment. If someone is tremendously bright but no one listens to them, what value do they actually bring to the organization? We all know a person who needs to make themselves known as the smartest person in the room and consequently gets themselves marginalized by their own network. Sadly, their intellectual resources are left largely untapped as a result.
By definition, social capital is the competitive advantage that is created based on the way an individual is connected to others. And, recent research suggests we need to more strongly consider social capital to enable innovation and application[i]. As a result, HR needs to simultaneously focus on both human capital and social capital practices. Advancements in organizational network analysis have enabled us to take our day-to-day interactions that were once invisible, and make them visible so that they can be objectively evaluated. The network diagram below represents the daily interactions between three different teams inside of a technology group. By evaluating these connections, we can determine how well positioned an individual is to leverage what they know. For example, some of the people on the outer edges of the diagram are limited to sharing what they know with two or three other people on a regular basis, while those in the center of each of the three teams interact with many other individuals. As a result, those in the center are much better positioned to share knowledge with their teams. By examining the social capital of any given individual, we can determine if latent potential exists in the network. Indeed, research has found that only 50 percent of these individuals are identified by the more traditional human capital systems[ii].
Two primary aspects of social capital —group cohesion and brokerage— are particularly relevant to future HR practices. Group cohesion is best described as how connected an individual within a group is to others in the same group. Often referred to as clusters, groups are considered highly cohesive when they have many redundant connections within the group. The benefits of cohesive groups are that individuals are able to quickly share information and typically demonstrate higher levels of trust than less cohesive groups. On the diagram above we can see three cohesive groups, the red team, the blue team and the green team. Brokerage on the other hand represents the bridge connections from one team to another. It occurs as individuals, or brokers, bridge one team to another. On the diagram above, the four individuals represented as grey dots are brokers. These individuals are critical in bridging the three teams together. For individuals, being in a broker role has three specific competitive advantages: wider access to diverse information, early access to new information and control over the diffusion of information.
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High performers tend to be uniquely positioned as brokers in the organizational network. Brokers are much more likely to be in the top 20% of performers within an organization[iii]. These individuals also get promoted sooner and are better compensated than others. The implications of social capital are even greater when it comes to driving business innovation and application. Brokers help to facilitate the creative aspects of innovation. They provide the bridge connections to enhance access to more ideas, insights and information. Sociologist Ron Burt’s research suggests that brokers are best positioned to have insightful ideas, and in one study of nearly 700 managers, he was able to determine that the value of any given idea corresponded to the degree in which a manager was also a broker[iv]. That is, the more managers acted as a bridge to other groups, the more valuable their ideas were. Brokers are intrinsically more likely to discover and distribute creative ideas across an organization.
On the other hand, ideas within cohesive sub-groups are more likely to be developed and applied. Small cohesive teams are able to quickly share and refine ideas. These cohesive groups are tightly linked by many redundant connections within a given team, resulting in deep trust. This level of trust enables individuals to more openly share, debate and refine ideas so that they can be applied. Harvard researcher Lee Fleming studied data from more than 35,000 inventors and found that while bridge connections generate valuable ideas, these connections actually hamper application[v]. That is, for ideas to be useful, they need to be openly shared, experimented with and applied. Fleming found this happens best in small, cohesive teams with high levels of trust.
This research suggests that HR would be wise to shift, at least part of their focus, to unleashing the hidden potential within organizations through a better understanding of social capital. HR needs to explore new practices that more fully leverage the competitive advantages of brokers to generate ideas, while also leveraging the level of trust in cohesive teams to bring those ideas to life. To do this, HR needs to foster approaches that enable brokers to actively access novel ideas across the organization. They also need to leverage the capacity of cohesive groups to develop, and apply those ideas. In today’s dynamic world, HR clearly needs to shift beyond human capital centric practices, to explore the emerging frontier of social capital.
[i] Arena, M., & Uhl-Bien, M. (2016), Complexity Leadership Theory: Shifting from Human Capital to Social Capital, People & Strategy, 39 (2), 22-27.
[ii] Cross, R., Cowen, A., Vertucci, L., & Thomas, R., (2009), Leading in a Connected World: How Effective Leaders Drive Results Through Networks, Organizational Dynamics, 38 (2), 93–105.
[iii] Cross, R., & Cummings, J. (2004), Tie and Network Correlates of Performance in Knowledge Intensive Work, Academy of Management Journal, 47 (6), 928–937.
[iv] Burt, R. (2004). Structural Holes and Good Ideas. American Journal of Sociology, 110 (2), 349–99.
[v] Fleming, L., Mingo, S., & Chen, D. (2007). Collaborative Brokerage, Generative Creativity, and Creative Success, Administrative Science Quarterly, 52 (Sep.), 443–475.