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Shifting from Human Capital to Social Capital

For the past decade or more, organizations have dedicated much of their efforts to optimizing human capital strategies in an effort to win the war on talent—building out comprehensive talent management systems, validating leadership competency models, and designing the best possible leadership development programs. In more recent years, emphasis has turned to enhancing employee engagement, refining performance management systems, and leveraging people analytics. While it is hard to argue against the need for these human-capital-centric strategies, new research raises questions about whether they are as effective as currently believed. In particular, research suggests we need to more strongly consider social capital strategies in driving both performance and innovation within complex organizations.

By definition, social capital refers to the competitive advantage that is created based on the way an individual is connected to others. Two primary aspects of social capital — group cohesion and brokerage — are particularly relevant to organizational practices. Group cohesion is best described as how connected an individual within a group is to others in the same group. Often referred to as clusters, groups are considered highly cohesive when they have many redundant connections within the group. The benefits of cohesive groups are that individuals are able to quickly share information and typically demonstrate higher levels of trust than less cohesive groups. Brokerage represents the bridge connections from one cluster to another cluster. It occurs as individuals, or brokers, act as connectors from one cluster to the next. For individuals, being in a broker role has three specific competitive advantages: wider access to diverse information, early access to new information and control over the diffusion on information (Burt, 2005).

High performers tend to be uniquely positioned as brokers in the organizational network. Brokers are much more likely to be in the top 20% of performers within an organization (Cross & Cummings, 2004). These individuals generally perform better, get promoted sooner, and are better compensated than others. The implications of social capital are even greater when it comes to innovation. It appears that innovation is as much a social phenomenon within complex organizations as it is a technological one. Brokers are more likely to discover and distribute novel ideas across an organization. On the other hand, ideas within cohesive sub-groups are more likely to be developed and adopted. Successful innovation in a social context requires a thorough understanding of the interplay between cohesion and brokerage. Despite this, routinely across organizations only 50 percent of these high performers and innovators are identified by traditional human capital systems (Cross, Cowen, Vertucci & Thomas, 2009). Such research suggests organizations would be wise to shift at least part of their focus to unleashing the hidden potential within organizations through a better understanding of social capital.

We need to explore new leadership frameworks that more fully leverage the competitive advantages of brokers to drive better performance today, while enabling the organization to more effectively innovate and adapt to the challenges of tomorrow. To do this requires that we enable the capability of brokers to actively link up diverse information and solve existing problems. Organizations must consider how we can foster approaches that enable brokers to actively access novel ideas across the network that emerge in response to unfolding pressures and challenges. They also need to leverage the capacity of cohesive groups to disperse and share information.

In today’s dynamic world, leadership frameworks must shift—from a predominantly human capital focus, such as the bias toward competency-based models, to a social capital emphasis, focusing on facilitating the movement of ideas across a system through bridging and brokering. While also enabling cohesive groups to better drive execution.

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