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2008 •Volume XII, Number 5 •IHRIM Journal
38
In the 20th century, the human resources (HR) function became quite adept at managing
human capital – defined as the skills, knowledge and experience of individual employees
within the firm. Just as HR was gaining competencies in this arena, the new economy came
along and moved the goal posts. It is no longer sufficient to manage individual assets. The HR
professional of the 21st century must manage inter-connected assets1of the firm!
In the knowledge economy, content is no longer sufficient – everyone has
access to a multitude of content. You cannot compete on what everyone knows.
As you move up the hierachy, it becomes more difficult to compete on individual
competency – everyone is highly skilled and experienced at the top. It is hard to
compete when everyone is so similar.
The new advantage is context – how internal and external content is inter-
preted, combined, made sense of, and converted to new products and services.
Creating competitive context requires social capital – the ability to find, utilize
and combine the skills, knowledge and experience of others, inside and outside
of the organization. Social capital is derived from employees’ professional and
business networks.
Human Resources used to focus only on within-employee factors. The new
competitive landscape requires focusing on between-employee factors, the con-
nections that combine to create new processes, products and services. Social
capital encompasses communities of practice, knowledge exchanges, informa-
tion flows, interest groups, social networks and other emergent connections
between employees, suppliers, regulators, partners and customers. Social
capital is what connects various forms of human capital. It is these patterns of
connections that produce advantage for one group, and constraint for another.
In the networked economy, the one with the best connections wins!
Winning the Connections Game
Although many HR professionals have not often heard the term “social
capital” used in conversations about organizational effectiveness, research
shows that it will become increasingly important. Ron Burt, a leading researcher
and professor at The University of Chicago, predicts that managing an organiza-
tion’s social capital will become one of the core competencies in knowledge-
based organizations.2
Will this be the road to respect for HR? Will HR even want to travel this wide
open road? In addition to being one of the leading academicians in this field,
Burt keeps abreast on practices by advising executives at General Electric,
Raytheon, several investment banks and other leading-edge organizations. Burt
has developed some of the key theories in the field of social capital3and writes
often and contributes to the most respected academic publications. In these
articles, he cites research on social capital and how it affects recruitment, reten-
tion, performance, compensation and creativity in organizations. The following
is a list of outcomes and goals that are the focus of HR. All are significantly
influenced and enhanced by better social capital both within the firm and across
its borders.
People with better social capital:
• Find better jobs more quickly,4
• Are more likely to be promoted early,5, 6
• Close deals faster,7
• Receive larger bonuses,8
• Enhance the performance of their teams,9
• Help their teams reach their goals more rapidly,10
• Perform better as project managers,11
• Help their teams generate more creative solutions,12
• Increase output from their R&D teams,13
• Coordinate projects more effectively,14
• Learn more about the firm’s environment and marketplace,15 and
• Receive higher performance evaluations.16
The affects of social capital do not contribute to just the success of individu-
Social Capital:
the Key to
Success for
the 21st
Century
Organization
By Valdis Krebs, orgnet.com
IHRIM Journal •Volume XII, Number 5 •2008 39
als and teams. Organizations with better connections in the network of industry
alliances and joint ventures report higher patent outputs,17ahigher probability
of innovation,18and higher earnings and chances of survival in rapidly innovat-
ing industries.19 Social capital, within the firm and across the firm’s border to
other firms, seems to be a prerequisite for organizational learning, adaptability
and agility.
When the HR focus was on human capital, the goal was to hire the best indi-
vidual for the job. In today’s knowledge organization, the goal expands to “hire
and wire;” to hire the best people with the best network and integrate them into
the value chain so that their combined human and social capital provide excellent
returns. Onboarding of new employees includes connecting them to knowledge
sources and information flows that they need to be successful in their new jobs.
The Network is the Employee
Sun Microsystems has long extolled that “the network is the computer” – it is
not the individual box that gives you computing power, but many interconnected
computers that exponentially increase the power of a single processor. The
network effect is more than simply an additive.
With the advent of the Internet we have clearly seen how true this view of the
future was. Social capital has this same effect on productivity and innovation. It
is not what individual employees know that provides competitive advantage. It is
the unique interconnectivity of human capital, available inside and outside of
the firm that will provide some economic players with an advantage over those
who are not so well-connected. Human Resources will not focus on individual
employees but on emergent networks of employees.
Figure 1 is a network map of employees at a U.S. automobile company.
Special network analysis software allows us to map and measure human capital
and social capital in organizations. Two employees are linked if they share
knowledge and expertise with each other. The panel on the right shows mea-
sures of how well the different parts of the company are sharing knowledge and
expertise with each other.
Figure 1. U.S.Automobile Company Employee Network Map.
How should HR usher in the age of the connected employee? Burt sees four
key areas where HR will need to map, monitor and mold social capital:
1) Identification,
2) Development,
3) Retention, and
4) Enhancement.
Social capital, within
the firm and across
the firm’s border to
other firms, seems to
be a prerequisite for
organizational learning,
adaptability and agility.
2008 •Volume XII, Number 5 •IHRIM Journal
40
The first step is to identify the social capital in the organization. How is the
company connected internally? Are the critical people/teams/projects con-
nected? Is information flowing between these entities? Is knowledge being
exchanged? The next area for identification is across the borders of the organiza-
tion. Is knowledge of the environment flowing into the right parties inside the
company? Are customers and suppliers included in knowledge networks?
Is the company effectively monitoring developments and trends? The devel-
opment process emerges from the identification process. Is there an identified
lack of social capital? How does the company compare to benchmarks? Who
needs to be trained to develop more social capital, a product of the relationship
between individuals and between groups. It is not held by any one party. The
recipient of human capital development is the individual. The targets of social
capital development are individuals and their group/team/community. This rela-
tional aspect adds a whole new dimension to training and learning.
Social capital is a key driver in employee retention. Ron Burt has identified
patterns of social capital that indicate, with a high probability, who will stay and
who will go. Knowing who is in danger of leaving allows early HR intervention
before losing a key knowledge resource. A similar process, developed by the
author for TRW Space & Electronics, revealed that women and minority engi-
neers needed better connections to key knowledge communities. Inclusion in
these communities was viewed as a sign of “commitment” to employees. In
return, employees felt greater commitment to the organization. Employees who
are included in key information flows and communities of knowledge are more
dedicated and have a much higher rate of retention.
The final factor in effective social capital is enhancement. How do we weave a
better organization? Human Resources is accustomed to examining at prescribed,
vertical relationships inside the organization – who works where and who reports
to whom? Going forward, HR must also consider horizontal and diagonal relation-
ships. The focus is shifting from strictly internal connections to internal and exter-
nal connections to all stakeholders. The key to enhancement is knowing where you
are now and where you want to go. With this information, the gaps and holes in
the networks are easy to spot. For example, if we want to develop a product for X
market, we might determine that departments X and Y need a better working rela-
tionship and knowledge exchange. We also need access to knowledge outside the
organization – who has links to the communities in which this knowledge resides?
Who can access and transfer that knowledge?
New Technology
Today we have software to support the building and tracking of social capital
within and between organizations. The two most popular social networking ser-
vices are LinkedIn and Facebook. Both allow employees to track their business or
social networks and provide a place online for people to meet and keep up with
their associates, colleagues and friends.
Unfortunately, these social networking sites have some problems. First, they
are outside the firewall of the corporation. Detailed employee career and contact
information should not be shared on these sites. Second, these sites are
patrolled by headhunters and your competitors. You can’t hide on the Internet,
but employees (and HR) should be careful what corporate information and
structures are shared on these public social networking sites.
Last, but not least, the business and professional networks on these sites can
be very inaccurate. These sites provide the ability for their members to connect
to others on the site – to grow their network. Unfortunately, many members of
these sites try to connect with as many people as possible – whether they know
them or not. This creates many false links/connections in the LinkedIn and
Facebook databases. Two people might show to be connected but they really are
not – one person was too embarrassed to turn down a “friend request” from a
total stranger. These “false positives” tend to pollute the data of these social
networking services. Headhunters and other salespeople often exhibit this over-
connected pattern on these online social networks. They connect to do transac-
The first step is to iden-
tify the social capital in
the organization.
IHRIM Journal •Volume XII, Number 5 •2008 41
tions, not to build social capital for your organization’s benefit. An employee con-
nected to innovators and thought leaders in his or her field has valuable social
capital to do their job, and share with their corporate colleagues. An employee
that is connected to many others, who are selfishly interested only in their own
transactions, does not have social capital that is useful to their employer.
Soon, HRIS/HRMS systems will have well-developed modules that address
employee social capital without the problems we see in the external social net-
working sites. Several clients of mine are currently mapping and tracking the
social capital of key contributors, especially those responsible for innovation in
new products and services. Both internal and external connections are mapped
and measured for these key contributors.
It’s Not Ownership, But Access
It is apparent that the definition of human capital has changed and continues
to take new forms. It is no longer spelled e-m-p-l-o-y-e-e. The human assets that
an organization uses to reach its goals include full- and part-time employees,
contractors, consultants, partners and, increasingly, suppliers and customers.
Today's organizations rely less on owned assets. Today’s fluid environment
does not reward ownership, including the old employment relationship. The
agility needed by today’s organizations requires finding the right assets and
combining them into the right structure to meet short-lived goals. It is not what
you control but what you can access that is the key link in the value chain.
This shifting landscape will drastically alter the HR function and the systems
used to track assets, both within-employee and between-employee assets, a
totally new concept to explore. Even though HR’s realm is becoming more
chaotic, this complexity and increased dependence on human and social capital
will provide HR an opportunity to more directly influence an organization’s
results. As the role of HR grows so will the role of HRIS/HRMS in monitoring
and modeling of these new capital structures.
Endnotes
1Krebs, Valdis, “Managing Connected Assets,” IHRIM Journal, Volume 3,
Number 2, June 1999.
2Ronald S. Burt, personal conversation with the author, March 2000.
3Burt, Ronald S., Structural Holes -The Social Structure of Competition, Harvard
University Press, 1992.
4Granovetter, Mark S., Getting a Job, University of Chicago Press, 1995.
5Burt, Ronald S.‚ ”The Network Structure of Social Capital,” Research in
Organizational Behavior, edited by Robert I. Sutton and Barry M. Staw, JAI Press,
2000.
6Gabbay, Shaul M., Social Capital in the Creation of Financial Capital, Stipes, 1997.
7Mark S. Mizruchi and Linda B. Stearns, “Strategic Social Capital and Deal
Making in a Large Commercial Bank,” presented @ the Sunbelt Social Network
Conference. XX, April 2000.
8Op. Cit.
9Elizabeth A. Rosenthal, “Social Networks and Team Performance,” Ph.D. dis-
sertation, University of Chicago, 1996.
10 Morten T. Hansen, “Combining Network Centrality and Related Knowledge
Explaining Effective Knowledge Sharing in Multiunit Firms,” Harvard Business
School, 98-081, 1998.
11 Arent Greve, “Comparing the Influence of Human Capital and Social
Capital on Performance,” paper presented at the Sunbelt Social Network
Conference. XIX, February 1999.
12 Ancona, Deborah G. and David F. Caldwell, “Bridging the Boundary:
External Activity and Performance in Organizational Teams,” Administrative Science
Quarterly, 37: 634-665: 1992.
13 Ray Reagans and Ezra W. Zuckerman, “Networks, Diversity and
Performance: the Social Capital of Corporate R&D Units,” Carnegie Mellon
University, Unpublished Paper, 1999.
It is apparent that the
definition of human
capital has changed and
continues to take new
forms. It is no longer
spelled e-m-p-l-o-y-e-e.
2008 •Volume XII, Number 5 •IHRIM Journal
42
14 Gargiulo, Martin and Mario Benassi, “Trapped in Your Own Net: Network
Cohesion, Structural Holes, and the Adaptation of Social Capital,” Organization
Science, November 2000.
15 Shawn M. Lofstrom, “Absorbtive Capacity in Strategic Alliances:
Investigating the Effects of Individuals, Social and Human Capital on Inter-firm
Learning,” Paper presented at the Organization Science Winter Conference.
Denver, CO, February 2000.
16 Burt, Ronald S., Joseph E. Jannotta and James T. Mahoney, “Personality
Correlates of Structural Holes,” Social Networks, 20:63-87: 1998.
17Gautam Ahuja, “Collaboration Networks, Structural Holes, and Innovation:
A Longitudinal Study,” Paper presented at the annual meetings of the Academy
of Management, 1998.
18 Stuart, Toby E. and Joel Podolny, “Positional Causes and Correlates of
Strategic Alliances in the Semiconductor Industry,” Research in the Sociology of
Oraganizations, edited by Steven Andrews and David Knoke, JAI Press, 1999.
19 Kenneth Koput and Walter W., “Not Your Stepping Stone: Collaboration
and the Dynamics of Industry Evolution in Biotechnology,” Paper presented at
the 2000 Organization Science Winter Conference, 2000.
Valdis Krebs is the founder and chief scientist at orgnet.com. He is a management consul-
tant, researcher, trainer, author, and the developer of InFlow software for social and organiza-
tional network analysis SNA/ONA. InFlow maps and measures knowledge exchange,
information flow, emergent communities, networks of alliances and other connections within and
between organizations and communities. Since 1987, Krebs has participated in almost 500
SNA/ONA projects. He is an often quoted expert on network analysis and network weaving.
His work has been covered in major media including IHRIM Journal, BusinessWeek,
Discover Magazine, Business 2.0, New York Times Magazine, Fast Company,
CNN, Entrepreneur, First Monday, Optimize Magazine, Training, PC, ZDNet,
O'Reilly Network, Knowledge Management, Across the Board, HR Executive,
Personnel Journal, Forbes, Fortune, CIO Magazine, and several major newspapers
around the world, including The Wall Street Journal, The New York Times, Christian
Science Monitor, USA Today, Washington Post, and Associated Press. He is also quoted
in dozens of books, many of which have reprinted his network maps. He has undergraduate
degrees in mathematics and computer science, and a graduate degree in organizational behav-
ior/human resources and has studied applied artificial intelligence. He can be reached at
valdis@orgnet.com.
As the role of HR grows
so will the role of
HRIS/HRMS in
monitoring and
modeling of these new
capital structures.
