Review of Social Capital value Add by M. Cayley

1. Dimitrina (Dima) Dimitrova, Ph. D. Dimitrina (Dima) Dimitrova, Ph. D.
Review of Social Capital Value Add: Value Based Management for the Networked Age
Michael Cayley, BPR, APMCP, MBA
Draft July 29, 2009.
Michael Cayley has a vision: a networked world where Internet links empowered individuals
and enlightened companies and where the connections between them generate social capital. He has
made it his mission to wake up managers and investors to the implications of this new world for
their work. The objective of his paper - “Social Capital Value Add: Value Based Management for
the Networked Age”, is to draw their attention to the rising role of corporate social capital and to
propose a tool for its management.
His work has two distinct parts. In the first part, he develops the argument that social capital has
become the fastest growing driver of value for companies. In the second part, Michael sketches a
method for valuation of corporate social capital - Social Capital Value Add (SCVA). The focus is
on a specific form of social capital, considered most important – social capital arising in the online
relations among individual company stakeholders.
The paper incorporates arguments from the areas of social network analysis; technology and
communications studies; marketing and value-based management. This bridging makes for a
complex discussion that illustrates well both the difficulties and the opportunities of
multidisciplinary work. It also means that the paper is inevitably not an in-depth discussion but
rather a bricolage that draws support from Cayley’s business experience and a wide variety of
sources to serve a particular purpose. A wealth of ideas are put forward in the paper: this review is
limited to the ideas directly related to the concept of social capital.
Part 1: The Importance of Corporate Social Capital
It is worth distinguishing here between established concepts and recent ideas. The
understanding that economic action is affected by the informal relations within and between
organizations is captured in the term “embeddedness” which social scientists have studied for
decades (Granovetter and Swedberg, 1991; Uzzi, 1996). Similarly, the concept of social capital -
the idea that social relations bring benefits, including hard cash - has been around just as long as
“embeddedness” (Burt, 1997; Lin, 1999; Coleman, 1988).
However, the “embeddedness argument” of organizational performance has been at the
periphery of economic theory while social capital has typically been applied to individuals and
communities rather than organizations. It is only recently that academics and practitioners have
started looking at how social capital applies to organizations. To put it differently, the concept of
corporate social capital (CSC) has been slow in coming. When it finally arrived, however, it
became heavily used. Researchers link the concept to strategic management (Leenders et al. 2001),
strategic alliances (Todeva and Knocke, 2001), reputations (Weidman and Hennigs, 2006), and a
host of other issues ranging from R&D collaboration to labour contracts (Leenders and Gabbay,
1999). In short, Michael is in good company, and he is staking his place in a field that is rapidly
being populated.
Part One of the paper demonstrates the importance of specific form of social capital, in which
Michael is interested. All his arguments are familiar from the existing literature but they come from
different fields and are rarely, if ever, put together. The embeddedness arguments from economic
sociology and network analysis start the discussion: economic action is embedded and
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2. organizational performance is contingent on the characteristics of social networks. One of the ways
to view this impact of social relations on organizations is through the concept of corporate social
capital, which focuses on the resources that are accessed through social relationships and that can
either facilitate or impede the attainment of organizational goals.
The second key argument suggests that broadband technology and the Internet have empowered
individuals and dramatically increased the importance of social capital, particularly social capital
arising online. Technology tremendously expanded access to information. It enabled individuals to
create content online - capabilities previously reserved for broadcasting companies - and thus
expanded their influence over others. In turn, games and recent forms of social networking services
on the Internet increased interaction and the role of online networks in the certification of social
credentials and in the reinforcement of identity and recognition.
Finally, the third argument draws on marketing literature to show that social capital has replaced
brand as the fastest growing source of corporate value. Symbolic branding was important in
conditions when space was limited and communications expensive; its goal was to distill
information and to convey the maximum information in the least amount of space and time.
However, in online marketing space is unlimited and what matters is findability. Symbolic branding
is inappropriate under such conditions. The awareness of these changes has led to memetic
branding, which aims at creating a corporate message that resonates across diverse audiences (or
their idea habitats) and spreading corporate presence online. It is this new marketing strategy that
Michael Cayley links to corporate social capital. In order to be successful in their branding,
companies need to reach their customers and other stakeholders through online social networks.
This is where Michael stakes his claim; this is his niche among researchers and consultants of
social capital. His main focus is on the type of social capital embedded in online relations. The
central concept in his work is scaled-up social capital (SC*), i.e. social capital that is amplified by
broadband and Internet technology. Further, while the consultants trying to put a dollar value on
online connections focus on employees and managers, Michael examines customers and other
stakeholders. He is interested in exchanges and influence processes among individuals who act
simultaneously as producers and consumers. He refers to this social capital as Individual as
Medium (I.A.M.) oriented social capital. His ideas are thus an unusual mix: they highlight the
impact on corporate goals of online rather than traditional face-to-face relations, individual rather
than company level interactions, and outside stakeholders rather than company staff.
Some of the discussion requires more conceptual clarity and precision. For instance, at the heart
of the argument is the concept of corporate social capital, but the term corporate social capital is
never used. Partly, this is because the starting point of the argument is Nan Lin’s (1999) theoretical
framework, and partly because the focus is on individual level activities and interactions that affect
corporate performance and not on group or organizational interaction. As a result, the focus of the
argument and the level of analysis are in places unclear. Such problems might be fewer if the
discussion utilized the conceptual framework of corporate social capital instead of developing the
arguments from the more general concept of social capital (Pennings and Lee, 1999, Lee and
Guthrie, 2008; Krebs, 2008). Many sociologists will wince at the claim that corporations are “a
form of individual”: the anthropomorphic model of organizations is hotly debated.
We have to recognize that the term social capital is notorious for taking different meanings. The
theory is still being developed. There are serious differences even among those analysts committed
to its social networks roots. Some of these problems come back as conceptual issues in the second
part of the paper but they do not undermine the main argument in Part 1: technological advances
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3. have amplified social capital, broke the dominance of broadcast marketing, and increased the
relevance of online interactions among organizational stakeholders for organizational performance.
Part 2: Measuring Online Corporate Social Capital and Its Impact
The second part of the paper is the first stab at developing a method for measuring and
managing the specific type of social capital, in which Michael is interested – the method is called
Social Capital Value Add (SCVA). Admittedly, this is only the beginning: the method is not yet
developed and the paper only outlines the key ideas and major steps. The discussion below explores
the us of the concept of social capital and leaves the rest of the ideas for other experts to examine.
The objectives of the proposed method are two: first, it aims to show the extent, to which
corporate earnings are affected by interactions among stakeholders, whether positively or
negatively, and second, it seeks to capture the specific impact of these online interactions through
social network analysis. Most of the discussion refers to the first objective.
The logic is as follows: each company has online presence, i.e. there are numerous company-
related materials available at websites, blogs, forums, or emails. A portion of this content is created,
broadcast and controlled by the company. This part of online content is not considered an indicator
of interaction with organizational stakeholders, their connections, or embedded resources. By
contrast, the second portion of online content is created either in the interactions between the
company and organizational stakeholders or in the interactions among organizational stakeholders
themselves. Such interactively created content indicates the existence of connections that affect
company performance, whether positively or negatively, and therefore it indicates the existence of
corporate social capital. By its very nature, such interactions cannot be fully controlled by the
corporation although they can be to some extent manipulated and managed. It is the authors (or
“identities”) of this interactively created portion of online content that the method seeks to track.
In turn, not all online authors are equally important for the company performance. Some of the
authors already interact (or have interacted) directly with the company: for instance, an individual
who post comments in an online consumer discussion group and at the same time is a member of
company customer lists. In such cases, the company already has a connection to the individual and
the opportunity to influence him or her. The big unknown and one of the major risks for the
company (besides the negative online content, of course) are authors of online content, who do not
interact directly with the company. The gap between the known authors and all the authors is
interpreted as an indicator of the risk coming from social relations, which the company does not
control.
This logic demonstrates how the method will capture the extent, to which company performance
is exposed to online social capital. It is only after this exposure is examined, that the specific impact
of social capital on company performance can be addressed, including capturing the positive and
negative impact of online social relations on corporate performance. The last step of the methods
will be to measure and analyze social capital through the traditional social network methods.
In short, the proposed method is a marriage of valuation, online media monitoring, and social
network techniques. Most of the discussion in the second part focuses on capturing the exposure of
earning to the impact of social relations. The social network analysis part is only briefly touched
upon – its development as part of the method is in the future. Yet, this leaves open a number of
conceptual questions. For SNA analysts, the most important questions the approach raises are the
nature of the network and the nature of the relations under investigation.
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4. The concept of social capital is rooted in the notion of resources that are embedded in social
relations, whether online or off-line, and a network position that provides access to them. The
SCVA method seems to uncover sets of dyadic ties between the company and diverse
organizational stakeholders rather than networks. For instance, company records identify customers,
suppliers, and other stakeholders who are all connected to the focal company (ego) but there is no
indication that they (alters) interact and are connected to each other. This issue is all the more
important given that these stakeholders are very diverse, and, most likely, so are their ties with the
focal company. At best, they are connected by a relation similar to co-membership: they are
connected because they all have done business with the focal company, “know of” it and are
perhaps subject to similar constraints and opportunities (Marin and Wellman, 2009). This relation
among organizational stakeholders is tenuous at best.
In turn, this raises the question if and how these tenuous ties create social capital. Not all ties
convey corporate social capital ties because not all ties contribute to organizational goals (Leenders
and Gabbay, 1999). Other network researchers point to mechanisms in which relations impact the
attainment of goals and the specific relational or network characteristics that generate social capital.
For instance, Uzzi, (1996) points to joint problem solving, Burt (1997) - to non-redundant
information linked to structural holes. By all means, the discussion should specify the tangible or
intangible resources that are embedded in social relations under investigation, outline their
relevance to company goals, and describe the way the company can access them and turn them into
opportunities. These conceptual issues need to be resolved before issues of measurement are
addressed.
The paper has done a tremendous amount of work bringing together diverse arguments to show
the relevance of specific online relations for company performance. Michael’s marketing, business
and finance background leads to an interesting application of social capital: he highlights the
changes in marketing in the new business environment, shows that online interpersonal relations
supersede company broadcast messages, and traces their impact on corporate performance. It is an
application of corporate social capital via marketing that brings attention to connections wider than
those usually traced. For CEOs and investors, perhaps the most valuable lesson is the understanding
that social connections, and especially online connections, are emerging as a dominant factor for
creating shared perception and that shared perception, in turn, affects organizational performance.
This is the crest of the wave that they cannot afford to miss. For the rest of us, perhaps most
exciting is the link between the end of broadcasting and social capital, the empowerment of
individual with the augmentation of social connections. At the same time, there is yet a long way to
go and significant hurdles to overcome in resolving conceptual issues, clarifying arguments, and
perhaps narrowing down the focus and the scope of his ideas. As a first stab at the new method of
social valuation, “Social Capital Value Add: Value Based Management for the Networked Age”
acknowledge the essential work that remains to be done.
References
Burt, Ronald. 1997. The Contingent Value of Social Capital. Administrative Science Quarterly, Vol. 42,
No. 2. (Jun., 1997), pp. 339-365.
Coleman, James. 1988. Social Capital in the Creation of Human Capital. American Journal of
Sociology. Vol. 94, 95-121.
Granovetter, M. and R. Swedberg, 1991. The Sociology of Economic Life. Boulder, Colorado:
Westview Press Inc.
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5. Leenders, R. and S. M. Gabbay, Eds., 1999. Corporate Social Capital and Liability. Boston. Kluwer
Acad. Publ.
Lin, Nan. 1999. Building a Network Theory of Social Capital. Connections, Vol. 22, No. 1, pp. 28-51.
Marin, A. and B. Wellman. Social Network Analysis: An Introduction. Forthcoming in Handbook of
Social Network Analysis, Edited by Peter Carrington and John Scott, 2010.
Uzzi, Brian. 1996. The Sources and Consequences of Embeddedness for the Economic Performance of
Organizations: The Network Effect. American Sociological Review, Vol. 61, No. 4 (Aug., 1996), pp.
674-698.
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