Primer: Measuring and Valuing Social Capital
This primer explains the concept of social capital and why and how it should be measured.
Relationships are familiar territory. Social capital is a formal way of thinking about relationships. Technically, the term refers to:
an individual’s or group’s ability to secure or obtain resources, knowledge and information through relationships with and among individuals and groups.
These relationships exist inside an organization (e.g. among employees) and outside an organization (e.g. between it and external stakeholder such as consumers and regulators).
Good relationships among employees make companies more efficient and reliable, in operations, product and innovation management. Benefits come because social capital improves:
Information sharing. If employees have strong and trusting relationships with each other, they are more likely to share knowledge.
Employee commitment and retention: When employees have strong, diverse and trusting relationships, they will be more committed and loyal to the firm.
External social capital focuses on employees’ and the firm’s relationships with external stakeholders, such as neighbouring communities, customers and regulators. External social capital leads to competitive advantage and cost reductions. These benefits come because external social capital improves:
Access to external information and knowledge: As firms face rapid changes in their business environment, their ability to access information shapes their strategic foresight and responsiveness.
Reputation among customers, regulators, and neighbouring communities: Reputation is a vital asset, especially for customer-facing businesses or those that are highly regulated.
Talent recruitment: Positive external social capital gives firms better reputation among prospective employees.
Social development and the business environment: Social capital contributes to community development and sustainable management of natural resources.
Measuring social capital can help firms enhance it, and is also necessary to respond effectively to integrated reporting guidelines.
Each of social capital’s three dimensions is associated with particular measures. We describe these here and then provide specific tools.
We need each other to survive. Organisations depend on diverse internal and external relationships. As with other forms of capital, effective management social capital enhances the success of organizations and society. This primer draws on the best available research, but more work is needed to translate our understanding of social capital into effective management approaches. The NBS network and stakeholders have much to contribute to knowledge of social capital. Please contact NBS-SA
to share your experiences and ideas.