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In Good Company: How Social Capital Makes Organizations Work - Making Social Capital Work

It seems obvious: We should praise people who contribute to the organization. We should involve employees in decisions to increase their stake in the business. Management 101? Maybe. But this and other basic people skills are all too often ignored in many companies. The cost: Valuable knowledge is being locked away, say the authors of In Good Company. They argue that companies should be making big investments in social capital.

In Good Company

Like other companies with high social capital, United Parcel Service makes a wide range of investments in this area. The company prefers to hire people who fit the culture, who share its core values of hard work, cooperation, and commitment, over those who may be more experienced but lack these valued traits. The belief in commitment has been so strong that the company only recently relaxed a rule that forbid rehiring anyone who had left the company. Orientation programs, taught by UPS employees, not outside trainers, emphasize values and norms along with skills and procedures. The still strong promote-from-within policy, virtually universal stock ownership, and distributed decision-making contribute to a sense of participation and membership. An annual employee relations index both tracks employee opinions on issues including fairness of opportunity and trust and signals the firm's commitment to those values.

The firm keeps its traditions, aims, and values alive in "legacy books" that recount the experiences and thoughts of its early leaders and a policy book, originally published in the 1920s. UPS's annual meetings of top managers include a "Jim Casey Night," when the founder's ideas are recalled and discussed in the context of contemporary issues. And people at UPS frequently tell one another stories about the company's past and present. Although large and dispersed and dedicated to efficiency, UPS remains largely a face-to-face, "conversational" organization, held together by personal contact. Its electronic systems track pickups and deliveries and carry other company data, but people get together to make important decisions, build relationships, and communicate about issues and concerns. One senior manager says, "We are not a memo kind of company." The district safety officer at the Watertown, Massachusetts Center, though he normally works regular daytime hours, personally attends the monthly Worker Safety Committee held at 3:45 AM during the package-sorters shift. CEO Jim Kelly told one of the authors, "I don't even know the phone numbers of the people on our management committee because I never pick up the phone if they're in the office. We just walk into each other's offices when we need to talk."

The fact that they are woven into the fabric of daily work gives most of these investments their power. We do not believe that weekend team adventures, company picnics, or similar activities do much to enhance social capital. They may foster a new relationship or strengthen an existing one, and probably help more than they hurt. By and large, though, one-shot "bonding" activities are ineffective because they are brief and a thing apart from daily work. Social capital is mainly created and strengthened (and sometimes damaged) in the context of real work. The conditions and durable connections that we experience day after day have vastly more influence on it than special events and team-building exercises. (These exercises, if they are inauthentic—detached from the work context—can even be counterproductive when they highlight a hypocritical distance between the togetherness activity and the firm's real character.) Communities of practice are a popular and important subject today, and a critical part of the social capital discussion. Students of this phenomenon emphasize that communities grow out of practice; they are groups drawn together by common activities; not people who decide to do things together because they are friends or have played softball together or are pushed together by a manager.

Students of communities also stress that they cannot be managed into existence. Recent work on communities and various aspects of knowledge management promote a kind of managerial intervention that encourages natural development, that orients rather than orders, that provides nourishment rather than blueprints. Some describe the difference in terms of a distinction between management and leadership. Some use the analogy of gardening or husbandry, the stewardship of an ecology as opposed to the construction or maintenance of a machine.

Social capital investment is not for control freaks.

Successful investment in social capital—which of course includes investment in communities—demands this kind of organic approach. Networks of social connection, trust, and commitment cannot be manufactured or engineered, only encouraged. Social capital thrives on authenticity and withers in the presence of phoniness or manipulation. As many failed experiments in social engineering have shown, even well-intentioned and intelligent plans for model towns and cities and countries founder on people's refusal to do exactly what is expected of them, no matter how healthy or sensible that expected behavior is. In fact, the enormous dangers of social engineering might be considered one of the major themes of the twentieth century. Even efforts driven by noble motives have sometimes had dire results—unintended consequences run amok. "Rational" human engineering frequently seems to kill the life it tries to "improve."

We do not suggest that leaders should take a hands-off approach to social capital. What corporate leaders can do to encourage, develop, and enhance social capital is in fact the main subject of this book. But their interventions must be based on a careful understanding of the social realities of their organizations and (even more difficult) a willingness to let things develop, even if the direction they take is not precisely the one envisioned. In short, they need to exercise what we think of as "light-touch leadership." Social capital investment is not for control freaks.

So a key principle for action is "First do no harm." Take care not to damage the social capital you have now. This advice is not nearly as passive as it sounds. It means, first of all, understanding the hidden social capital in the organization: It is easy to crush something you cannot see simply in the course of innocently moving around. It also means valuing the social capital you recognize. Almost every managerial decision, from hiring, firing, and promotion to putting in new technology to establishing revenue goals, setting travel budgets, and designing office space affects social capital.

All of those activities are opportunities for social capital investment or occasions of social capital loss. In fact (to qualify our own axiom), to do no harm is sometimes impossible. Economic and organizational realities often require drawing on and partly depleting a firm's social capital. The corollary to the axiom is to understand how much harm you are doing and to do as little as possible (to recognize, for instance, the damage done by downsizing, not just the benefit of reduced cost) and then to work to repair the losses that do occur.

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Excerpted with permission from In Good Company: How Social Capital Makes Organizations Work, Harvard Business School Press, 2001.

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Don Cohen is co-author of In Good Company: How Social Capital Makes Organizations Work. In an e-mail interview with Editor Sean Silverthorne, Cohen discusses the role of social capital in creating an effective organization, and how technology can advance—or retard—the development of corporate social resources.

Working Knowledge: Where do you think Good Company breaks new ground?

Don Cohen: Mainly, in looking specifically at social capital inside organizations. Most earlier social capital research and writing have focused exclusively on cities, neighborhoods, regions, and countries, analyzing trust and relationship in those social groupings and trying to understand their value. Some work has dealt with the value of social capital to the individual. Instead, we consider organizations as social entities where social capital plays a critical role.

This organizational social capital focus has allowed us to bring together some issues that are often considered separately: trust, communities, communication, and knowledge. We also look at the technology of virtual work from a social capital perspective, an approach which (we hope) makes it possible to chart a reasonable course between technophiles and technophobes and even provides some clues about blending old and new ways of working that contribute to both.

What do companies risk by ignoring the social capital aspect of knowledge management?

Mostly clearly, they risk losing good people and the knowledge that goes with them. Longevity is a key benefit of high social capital. Low social capital organizations tend to have high turnover rates, and salary alone does not reliably assure longevity: people who do not have other ties to an organization can be enticed away by a higher bidder.

Also, our knowledge management work has shown that knowledge travels effectively in organizations only through existing social pathways, established relationships characterized by trust and understanding. So ignoring social capital issues is likely to cripple knowledge management efforts and hamper collaboration in general.

In addition to the effect of low morale and low trust on the quality of work, companies that ignore social capital issues are saddled with additional expenses for hiring and training and costs of monitoring employees that high-trust organizations can minimize.

Finally, organizations cannot hope to have lasting, loyal, effective relationships with customers if lasting, loyal, effective relationships are not common among employees.

In writing the book, what was your most surprising finding?

No big surprises, but we did discover examples that counter what may be a popular perception: that trust-building and social-capital building in general have to do with everyone being nice to everyone else or with having unlimited opportunities to "play" together. IDEO, the successful design company, is a highly collaborative, close-knit organization, but a tough-minded one: people who don't respect the way things are done there or don't meet their obligations are not treated gently. UPS has tremendous social capital, but it is incredibly efficiency-minded; the contacts and conversations that build social capital fit themselves into a demanding, deadline-driven workday.

In many respects, recognizing social capital is an obvious idea—i.e., giving credit to people who contribute seems like a no-brainer. So why have companies overlooked some of these issues—and how can they tell if they are short in this area?

You would think that it is a no-brainer to recognize that giving credit, trusting, and providing reasonable opportunities and reward will mean better work and more cooperation. Turns out it's a brainer, because quite a few organizations don't see it. Why? To some extent, the old industrial-era model that looks at employees as replaceable (and unreliable) cogs in a machine continues to influence management in the knowledge era. The incredible pressure from the market to achieve greater and greater profits every quarter also works against investments in social capital whose benefits are likely to be realized over the long term. Cost-cutting, whether in the form of downsizing or even eliminating travel budgets, tends to erode social capital. The time needed to form trust relationships is hard to come by in organizations where everyone is working flat out. And, although most leaders believe they always act rationally and with their eye on the bottom line, some get irresistible pleasure from lording it over employees even when their assertions of power harm the company.

How can companies tell if they have social capital problems? As important as anything is the "feel" of the place. Do people greet each other or blame each other? Do they tend to talk about "we" or "I?" How much time do they spend muttering about office politics, unfairness, and lack of opportunity? There are also some harder measures. Comparing turnover rates with others in your industry is one. Social network analysis techniques can help identify effective communities and isolated individuals and groups. Employee surveys, especially when given year after year, can chart social capital trends and problems.

What roles does technology—the Internet, e-mail, cell phones, etc.—play in fostering social capital in a company? That is, is technology a valuable tool for unleashing social capital—or does it get in the way?

This is a mixed story. When e-mail and intranets take the place of face-to-face contact or cause people literally to turn their backs on the people around them and stare at their computer monitors, then technology damages social capital. E-mail is great for exchanging information but not good for trust-building or decision-making. Full-time or most-of-the-time telecommuting isolates individuals from the culture and life of the organization. Those telecommuters are out of the loop of informal knowledge exchange and the trust- and value-building contacts that enable people to work together effectively.

At the same time, electronic communications and shared electronic workspaces can help maintain social capital when it is developed and periodically refreshed in person. We believe that time together (and time spent in conversation, not just information exchange) is an essential source of social capital—electronic contacts can support social capital if they are part of a rich repertoire of contacts. The expansion of e-mail seems to have led to increased travel. That suggests that e-mail contacts can contribute to the formation of new relationships but that those relationships need to be strengthened and deepened in person. Future developments in technology will undoubtedly make richer and more nuanced electronic communications possible, but traditional meeting, talking, and working together will be an essential part of the social fabric of organizations (and society) for a long, long time to come.