Social Capital in the Digital Age. How to Accrue Social Capital in the Digital Era?

Table of Contents

I. Introduction

II. Social Capital Accumulation from a Managerial Perspective
1. Literature Review
2. Practical Implications
3. Suggestions for Future Research

III. Conclusion

Bibliography

I. Introduction

The concept of Social Capital has been established within the past century. The term is well-known as a broad subject which is in use in various different fields of study. Mostly, Social Capital is associated with economic fields, such as education, health, common resources, and economic development. However, Social Capital is not only matters in terms of public economics but has also gained more and more interest in different fields of management research (Kwon & Adler, 2014).

Building and maintaining strong business relationships is highly valued by companies and can be achieved through proper use of Social Capital. Due to technological developments and the growth of social media and online networking sites, Social Capital is not only accumulated offline anymore. Moreover, the Internet established a new way of accruing Social Capital online by making use of new communication channels and thereby, enables managers to strengthen their ties within the business world. Not only business-to- business relationships but also business-to-customers relationships can be improved through Social Capital online.

Social media and networking sites, such as Facebook, LinkedIn, and Xing, experience a constant growth in the number of users. Networks that started as platforms to connect friends and private persons develop more and more to business platforms and offer a new possibility to build relationships between business people. Users rely on other users and develop trust for each other. Not only big, well-established firms but also smaller firms and start-ups can benefit significantly from this less-costly way of building business relationships. In the following, it will be discussed how Social Capital can be accrued in the digital era and to what extend this can be beneficial to entrepreneurial firms.

Managers can benefit from Social Capital, since the concept of Social Capital implies that managers can access a wide range of resources through strong relationships with other managers. Social Capital is, therefore, essential to build up a network of cooperating businesses and investors. Moreover, managers can reach out to a more diverse range of people online. This opens up new opportunities of self-promotion and the acquiring of financial resources. Especially in times of unstable economic situations and economic crises, these strong business ties can be used to secure companies internally and externally and therefore, prevent them from suffering huge losses.

II. Social Capital Accumulation from a Managerial Perspective

1. Literature Review

In order to examine the impact of technological improvements on Social Capital, two aspects have to considered: Firstly, how Social Capital is defined in terms of management relationships, how it was accrued traditionally and how it influences businesses today. Secondly, it is of interest which possible benefits and risks arise from accruing Social Capital online through, for example, networking sites and social media and how this matter needs to be further researched.

Since the concept of Social Capital dates back to the early 20th century, various definitions have been in use to specify the concept in various fields of study. With the rise of the Internet, social media, and online networking sites, there were new ways established that help to accrue Social Capital. With the transition from offline to online accumulation of Social Capital, managers face new opportunities as well as risks which will be discussed in the latter.

Social Capital

One of the first researchers who defined Social Capital in terms of public economics was Putnam (1995). In an interview, he points out trends in the development of Social Capital in the field of economics as well as for management relationships in different regions (Putnam, 1995: 75). According to Putnam's (1995) conceptual framework, Nahapiet and Ghoshal (1998) derived the definition of Social Capital as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet & Ghoshal, 1998: 243). Their research concludes that, from an organizational point of view, the accrual of Social Capital in the traditional way can be costly; however, they also point out that new technologies can help to overcome some of the associated costs, which could possibly enable organizations to accrue and use Social Capital more efficiently (Nahapiet & Ghoshal, 1998: 260-261).

Further focusing on management implications of Social Capital, Adler and Kwon (2002, 2008) worked out a systematic framework of Social Capital definitions and pointed out that the concept is already well-established in a wide range of management study fields. Furthermore, they suggest for future studies to focus on specifying the research more, since the topic in general is already well-covered (Adler & Kwon, 2008).

Two concepts that have been researched more specifically are bridging and bonding Social Capital: Bridging refers to Social Capital which is acquired through weak ties that are used to overcome structural holes in order to get access to information (Burt, 2002; McEvily & Zaheer, 1999). Granovetter (1973) defines weak ties as relationships between acquaintances who exchange information. In the context of management, this refers to entrepreneurs who expand their networks with various different people in order to receive or distribute information. Moreover, weak tie connections and their impact on business investments have been researched by Kwon and Arenius (2010) who found that business investments depend on weak tie connections in different regional areas.

The concept of bonding Social Capital relates to more profound business relationships that are acquired by using strong ties. Strong ties are, according to Granovetter (1973), based on relationships that are more actively pursued, such as close friendships and family relationships. In managerial terms, strong ties do not focus on the exchange of information but rather are used for the acquisition of resources. Bonding Social Capital is based on trust, reciprocity, and the willingness to help between actors to reach a certain goal (Hite, 2003). Bonding, however, plays a less important role in current Social Capital studies, since bonding is solely based on strong tie connections which are less effective for the purpose of exchanging information (McEvily & Zaheer, 1999).

Previous research has mainly focused on how weak ties help to accrue Social Capital (Granovetter, 1973; McEvily & Zaheer, 1999; Ruef, 2002). According to McEvily and Zaheer (1999), overcoming structural holes and acquiring more information is mainly possible by using weak ties. Strong ties can partially also be used in the same way but stronger relationships might bias the opinion of actors to each other and therefore, weaken the quality of information that can be acquired through strong ties (McEvily & Zaheer, 1999).

Existing research has so far focused more on the concept of Social Capital than on how Social Capital influences business relationships (Kwon & Adler, 2014; Prasad, Naidu, Murthy, Winkel & Ehrhardt, 2013). Little research exists on how Social Capital is effectively used by entrepreneurs in various contexts (Foley & O'Conner, 2013; Gedajlovic, Honig, Moore, Payne, Wright, 2013). Foley and O'Conner (2013) looked into how Social Capital can be acquired within different ethnic minorities. Moreover, little research has been done on the impact of Social Capital on smaller firms and start-ups (Molina-Morales & Martinez- Fernandez, 2010; Stam, Arzlanian & Elfring, 2014). Stam, Arzlanian and Elfring found in their study that small firms can benefit from the Social Capital that is accrued through bridging and overcoming structural holes. Especially network diversity, was found to be a significantly positive factor (Stam, et al., 2014: 167). Network diversity can be achieved by targeting a broad range of different people which can be done more easily through social networking sites than with traditional means. Nonetheless, the authors limit their results and point out that the beneficial effect of bridging depends on the industry and other factors (Stam, et al., 2014: 167).

Little research has been conducted on the negative impacts of Social Capital so far. Pillai, Hodgkinson, Kalyanaram and Nair (2015) approached this topic by using ‘social identification theory' to point out the disadvantages of Social Capital in organizations. They conclude that possible negative effects of Social Capital might have been neglected so far and that this downsides of the concept need to be further addressed in the future. Social Capital and Networking Sites

Since Social Capital can not only be obtained offline anymore, social media and social networking sites gain importance in this field of study. To name some potential sources of Social Capital, Facebook is currently used by approximately 1.94 billion active users monthly (Facebook, 2017). Twitter reached out to 328 million people in the first quarter of 2017; LinkedIn reached a number of 467 million users in the third quarter of 2016 (Statista, 2017a; Statista 2017b).

Most research regarding the influence of social networking sites on Social Capital is from a socio-economic perspective. Ellison, Steinfield and Lampe (2010) assessed different strategies of Facebook users that were used to connect through the website. They found that “only social information-seeking behaviors contribute to perceptions of social capital; connection strategies that focus on strangers or close friends do not” (Ellison, Steinfield & Lampe, 2010: 873). Applying this to our previous concepts, it shows again that Social Capital is more likely accumulated through bridging and weak tie connections online than through bonding and strong tie connections. A further study focusses on the relationship between Facebook and Social Capital and demonstrate how Social Capital can be formed through weak ties (Ellison, Vitak, Gray & Lampe, 2011). Valenzuela, Park and Kee (2009), however, found in their study that for young adults the correlation of Social Capital and the use of Facebook is rather small. Nonetheless, the impact of Facebook use on Social Capital is existing and their results were coherent with existing studies (Valenzuela, Park & Kee, 2009).

Some research has already been conducted on how managers use Twitter to deal with uncertainty (Fischer & Reuber, 2014). Fischer and Reuber (2014) found that entrepreneurs can not only use traditional ways to accrue Social Capital but also new technologies and online platforms. In their study, they acknowledged that Twitter can positively influence relationships between entrepreneurial firms and their customers. Even though Twitter only allows to use a certain number of symbols for each post, it provides a platform for communication that provides information fast and efficiently (Fischer & Reuber, 2014). Moreover, businesses are able to post updates with a high frequency and show interest for their customers' needs, which improves weak tie connections. Despite that, the study found that customers' reactions to Twitter posts differ: some entrepreneurial firms do not receive feedback or comments for their posts while other firms' posts can get retweeted by thousands of network users. Therefore, firms need to work on their online appearance and keep track with what their customers want to read online. All in all, the study found a positive correlation between social media use and customer relationships as well as more trust between firms and customers. (Fischer & Reuber, 2014: 580).

Steinfield, DiMicco, Ellison and Lampe (2009) provide some further information on how social networking sites provide a possibility to accrue Social Capital within organizations. Therefore, they surveyed users of IBM's internal networking site Beehive, which works similarly to other networking sites, such as Facebook. Their results show that using networking sites enhances weak as well as strong ties between colleagues (Steinfield, DiMicco, Ellison & Lampe, 2009). Moreover, they call out for businesses to provide their employees with a possibility to engage personally as well as professionally through networking sites, since building up more personal relationships encourages employees to put more effort into their professional interactions and the exchange of resources (Steinfield et al., 2009). Moreover, Steinfield et al. (2009) point out that companies should make use of features that are already used by other networking sites: As an example, they refer to Facebook's feature of ‘friendship recommendations'. This feature is used by Facebook to connect people who might know each other or have friends or interests in common. In companies, this feature could be used to provide employees with the possibility to extend their business connection network in order to accrue more Social Capital (Steinfield et al., 2009).

Even though current literature does not fully cover to what extend Social Capital can be accrued in the digital era, the findings of current research suggest a positive correlation between modern social media sites and networking possibilities and relationships within entrepreneurial firms as well as between firms and their customers. Entrepreneurs are able to reach a broader and more diverse range of people online, which helps to build connections through bridging. Weak tie and strong tie connections can be more actively pursued.

2. Practical Implications

Entrepreneurs can benefit from Social Capital if they use it to build relationships with other business partners as well as with their customers. Especially through bridging, entrepreneurs are able to reach out to a broader and more diverse range of people. Moreover, there are almost no regional limitations, since networking sites can be reached from almost every country worldwide.

There are two different ways, in which companies can accrue Social Capital from networking sites: Either they can create their own company internal networking site for their employees or use existing sites, such as Facebook, Twitter, and LinkedIn to communicate with other business people as well as with customers.

As mentioned before, IBM uses its own social networking platform called Beehive. It works similar to other networking sites, such as Facebook, and provides IBM's employees with the opportunity to increase their Social Capital and to stay in touch with co-workers. The beneficial effect of Beehive on the workforce at IBM has already been researched (DiMicco, Millen, Geyer, Dugan, Brownholtz & Muller, 2008; DiMicco, Geyer, Millen, Dugan & Brownholtz, 2009). According to the research, Beehive helps employees to build weak ties and encourages them to establish and maintain business relationships online.

By using well-established public social networking sites, companies can reach a broad variety of different people. Many companies use networking sites like Facebook and Twitter to promote their products and to get feedback. Sometimes, companies ask their customers what they think should be improved or changed in a product. This interaction between businesses and customers directly can build trust and a stronger connection (Fischer & Reuber, 2014). However, this works better for already well-known, established firms, since they can easily generate a significant number of followers who comment and repost their online communication.

For smaller companies, it might be a little more difficult to promote themselves. They are definitely provided with an opportunity to build strong networks online but they can face more trouble in attracting users and potential customers in the first place. Nonetheless, social networking sites provide a less costly and time-consuming way to accrue Social Capital for small firms and can, therefore, even be used by start-ups to build up business to business connections as well as business to customer relationships (Stam, et al., 2014).

In general, managers and entrepreneurial firms can profit from the high accessibility and diversity of social networking sites. Users are open to engage in weak tie relationships and these network connections lead to higher levels of Social Capital for the businesses as well as for the customers.

3. Suggestions for Future Research

Since social networking sites gain more and more importance for managers, there is a need for more specific research. As mentioned before, the concept in general is well- established and therefore, future studies need to go deeper into the implications of the digital era on Social Capital.

Since bridging Social Capital has already been researched, it would be of interest to find out more about why bonding Social Capital does not have the same impact (McEvily & Zaheer, 1999). Research in this matter seems to be a little outdated. The Internet is constantly evolving and younger generations already grew up in a world that defines relationships through online communication. How this might influence strong ties relationships online would be interest. Strong personal relationships could benefit businesses, since they provide trust and access to resources. Moreover, it would be of interest to conduct more research on how entrepreneurs can make use of their strong ties online. Furthermore, research should go deeper into how bridging can also be achieved through strong ties and not only through weak ties.

Much research focuses on the benefits of online Social Capital accumulation; however, the Internet bears risks that should not be neglected. Little is known about the effects of hacking and identity theft on Social Capital. By using the Internet to build up trustful and strong business relationships, business partners and customers need to be assured of the correctness and liability of the information that is exchanged. Moreover, the social networking sites that are used need to be secure and trustworthy. Future research needs to draw a connection between network security and Social Capital benefits.

Furthermore, there is a need for studies about how controversial topics can harm weak tie relationships of businesses and customers. Most networking sites offer the possibility for users to comment on post and express their personal opinion. Controversial topics could and how companies handle them could either strengthen or weaken their relationships to their customers, which should be further looked into.

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