Social Capital Theory – An Overview

Last Updated: 17 Apr 2020
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Social Capital has been described as involving egocentric, weak ties and socio-centric types of relationships. How might these concepts help to improve the way organisations generate new knowledge. Might some these concepts also act as a barrier to generating and sharing knowledge? Explain your answer.


In contemporary, highly developing business environment, the success factors of many organisations have been affected with the rapid advancement in communication and ways of sharing knowledge. The knowledge economy has changed the basis of trading and doing business. Success and wealth of businesses no longer depends on their wealth of organisations but on the abilities and knowledge of their employees and the degree to which an organisation harnesses and develops those skills. The more effective the relationship between supplier and customer, the more successful an organisation is. This success depends on their abilities to operate in today's fast moving global marketplace.

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Defining the notion of Social Capital

The notion of social capital first appeared in discussions of rural school community centers by Lyda Judson Hanifan's. Hanifan addressed the cultivation of good will, fellowship, sympathy and social intercourse among those that 'made up a social unit.'

More recently however, the work of Robert D. Putnam (1993, 2000) launched social capital as a focus for research and policy discussion. Putman defined the concept of social capital as "Features of social organisation, such as trust, norms and networks that can improve the efficiency of society by facilitating coordinated action" (Putnam, 1993). This definition of social capital can be criticised for adopting a single view, and being too narrow, as it ignores the fact that social capital can generate negative externalities as well as positive.

Putman assumes 'trust, norms and networks' to have positive outcomes for an individual, or a group however fails to recognise that it can be harmful for an organisation as a whole. Michael Woolcock on the other hand defined social capital as "the norms and social relations embedded in the social structure that enable people to coordinate action to achieve desired goals" This definition not only recognises both positive and negative externalities of social capital but focuses solely on sources of social capital, rather than also including the outcomes derived from it.

One of the most famous examples where social capital is commonly referred to is in Silicon Valley (San Francisco). Silicon Valley is in the southern part of the San Francisco Bay Area in Northern California in the United States. It contains many high tech businesses that are supplying the global market with many innovating technologies and silicon microchips. In Silicon Valley, there is a very high level of knowledge held within individual firms, but this would be true whether they were located in clusters or in isolation. There is also a very high level of knowledge about the firms as well. This information is differentially more available to those in the Valley and in the network. This knowledge is not just technical, it is knowledge about who is a good manager or well connected. It is embedded in the social setting, a knowledge that comes from learning and being in the place where the knowledge is being used, and having an opportunity to use it in that setting. It is about knowledge use and production in action.

Social Capital - promotes knowledge sharing and communication

Many contemporary theorists who conducted studies on social capital identified two differing perspectives within the concept. These concepts are socio-centric, and ego-centric. The socio-centric approach argues that the social structure of interpersonal contacts is important for organizational success (Sandefur and Laumann, 1998). A business can benefit from a strong social structure, by allowing employee cooperation that will enable flexibility and innovation.

Knowledge sharing helps employees perform their jobs more effectively, retain their jobs, and guides them in personal and career development. It also rewards them for successful achievements, and brings more personal recognition so that knowledge sharing will become more practiced. By sharing and collaborating with others an employee is more likely to succeed in providing solutions to his/hers own jobs and by helping others achieve their objectives.

The philosophy of modern knowledge management exponents is that 'intrinsic motivation' is the only real motivator of knowledge sharing. This is where an individual, group or community are sympathetic to each other's goals, those of the organisation work for collective goals-if these are best achieved through sharing then this is what happens. Intrinsic motivation is making sure that individuals feel part of the business and culture through reward and recognition.

The second perspective of social capital is concerned with the relationships between

individuals. Sandefur and Laumann (1998) refer to this as the egocentric

approach of social networks, where "an individual's social capital is characterized by

their direct relationships with others and by the other people and relationships that they

can reach through those to whom they are directly tied". From this perspective, social

capital is able to explain the differences in the success of individuals and firms in a competitive environment (Adler and Kwon, 1999).

A learning organisation views its future and subsequent competitive advantage based on continuous learning and adaptive behaviour. It develops a culture and processes to improve its ability to learn and share both at an individual and organisational level. The main aim is to create a flexible, agile organisation able to handle uncertainty and then hopefully organisations will use this uncertainty to generate new ways of working, to build on this success and learn by mistakes.

For example: a large multinational company, British Airways (BA) identified its culture as the biggest barrier it had to learning and sharing so it set out to create an environment where this was made easy. BA developed facilities for staff to access knowledge, libraries, have meeting rooms, training rooms that enhanced its culture. Therefore the facilitation of personal contacts and network, and the enhance role of training and development being a core was British Airways success for its new culture.

Social capital - barrier to knowledge sharing and communication

As developed in Ronald Burt's theory (1998), the socio-centric notion can act as a barrier to generating and sharing knowledge in an organisation. The socio-centric perspective includes the concept of power benefits acquired by individuals that control structural holes. This idea shows how certain individuals within an organisation may have power over groups of employees and act as the link between them. Such individuals are said to be 'filling a structural hole', therefore their relative contacts have no direct contact with one another.

This allows such an individual to have a certain level of manipulation over knowledge sharing between the two groups and benefit from the social capital derived from them. This can be both an advantage and disadvantage to the firm. It can be an advantage to the individual in that their social capital is increased, and that it allows the two departments to communicate ideas effectively.

However the filling of structural holes with one individual could also act as a barrier to generating and sharing new knowledge within the firm. Because when implemented in a firm it means that individuals in different departments do not need to communicate between each other eliminating knowledge sharing within the individuals in each department.

Within an egocentric network, sharing of knowledge can be one of the most difficult problems faced by knowledge organisations. In most organisations knowledge sharing requires a change in corporate culture, from 'information is power' to 'knowledge sharing build power.' Many organisations decide that the most effective way to encourage individual sharing appears to be through appraisal systems where individuals are asked to assess their own knowledge-sharing behaviours and consider their colleagues view of their sharing performance.

The most obvious disadvantages are: an employee may fear senior experts or a supervisor. This fear can have an impact on the way the employee conveys his/her opinions. Another disadvantage is that employees can get compromising solutions from a group of experts with conflicting opinions. This would not give the knowledge engineer an accurate view of the knowledge needed. Also, there can also be a Lack of confidentiality as employees may feel threatened by knowing that their contributions will be shared with and evaluated or validated by other domain experts. However, the results of the appraisals may affect promotion and salary but their use is part of the development culture that includes knowledge sharing as a core competence.


Social capital has been described as a non-tradable form of capital that will depreciate if not used. Social capital increases in value through use, as relationships get stronger and weak ties are increased (Klaus Nielsen, 2003). In this article we have established that social capital is a rapidly growing notion, more commonly referred to by theorists when discussing issues of economics and organisational knowledge sharing. The concept has been criticised for the diversity of its definition, measurement challenges, and over-versatility (Woolcock and Schuller, 2000).

These theorists concluded that social capital can have both a positive and a negative impact on the overall success of an organisation. Positive, in the aspects that a well working network of sharing knowledge can lead to innovation, and greater efficiency of the employees working relationships. Negative in the sense that strong social capital for an individual, or a group of employees does not necessarily guarantee a benefit on a macro scale for the organisation.

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Social Capital Theory – An Overview. (2018, Jan 04). Retrieved from

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