CHAPTER 2: SOCIAL NETWORKS
2.9 PRACTICAL APPLICATION OF SOCIAL NETWORKS
Attention to networks is powered by the notion that firms cannot survive and prosper solely through their individual efforts and that each firm’s performance depends upon the activities and performances of others. Hence the nature and quality of the direct and indirect relationships that a firm develops with its counterparts is fundamental to managing complex networks. ECFs must combine their individual competencies and corporate competencies in ways superior to those of competitors in order to achieve superior performance. Social capital has become a frequently used concept when social scientists explain innovative processes and economic development at various levels, such as within individual firms and at regional and societal levels in the new knowledge economy. The concept of social capital has been adopted in a wide range of arenas and organisational practices, including recruitment processes, knowledge management and innovation (Bresne et al., 2004:38).
Social capital has two major distinguishing benefits. First, social capital facilitates information flow (Portes, 1998:15; Burt, 2000:347; Lin, 2001:37; Adler & Kwon, 2002:23; Adam & Urquhart, 2009:6; Bhandari & Yasunobu, 2009:489). In imperfect market situations such as the construction sector, where everyone is not optimally
connected, social ties can provide an individual firm with useful information about opportunities to access resources otherwise not available to competitors. That is, more ties may mean more opportunities to access diverse information in comparison to those having fewer tie connections (Lin, 2001:38). Social control is the second benefit of social capital. It is closely related to rule enforcement. Kaasa (2009:220) expressed it as a social contract or unwritten rule. In ECFs’ context this social contract helps to assist associational members in transacting with each other in a fair and transparent manner. Building a set of obligations and trust from actors, individuals, or groups can establish greater power to control actors’ behaviours (Bourdieu, 1986:36; Coleman, 1988:97; Putnam, 2000:38; Kaasa, 2009:220). Such power benefits enable actors or firms to get things done smoothly and to achieve their goals (Adler & Kwon, 2002:25).
The widespread interest in social capital and its application resulted in cost-benefit analysis of the concept. Theoretically speaking, advantages drawn from social capital in the context of ECFs are as follows:
It brings together social support, integration and social cohesion, creating organized entities working harmoniously toward a common good.
It is an important base for cooperation across sectors and power differences and an important product of such cooperation.
It is crucial for social wellbeing (trust is of special importance, while other aspects are more instrumental).
It is the only type of capital that is in its nature cost-free and therefore accessible to emerging construction firms.
2.9.1 FACTORS PROMOTING SOCIAL CAPITAL IN ORGANISATIONS
Nahapiet and Ghoshal (1998) propose four relevant factors (Figure 2.2) that develop social capital in an organisational setting. These factors are stability, closure, interdependence and interaction. In particular, these drivers of social capital entail the following:
Stability: The length of time that members of a group have had to develop their relationships. Time allows the building of strong bonds and ties in a community.
High degrees of stability increase the propensity to build stocks of social capital in three dimensions: promotes the creation of networks and relationships, allows people to share experiences which drive same vision and language, and facilitates the creation of trust and norms (Yildirim, 2012:9). Stable ECFs are seen by long-term survival in the industry, as opposed to those that fail within their first three years of existence.
Closure: Closure refers to the existence of dense social network boundaries that distinguish members of a group from non-members. Network closure leads to improved communication and sanctions that make trusting another person in the network less risky (Burt, 1992:30). Closure, as in the case of bonding social capital, facilitates the development of trust, norms, identity, and shared codes and languages (Nahapiet & Ghoshal, 1998:245; Yildirim, 2012:9). In open structures (or bridging social networks), violation of norms is more likely to go undetected and unpunished and consequently, people will be less trusting of one another, weakening social capital.
Interdependence: Interdependence between members is key to building social capital. The degree of interdependence refers to shared goals and the concern for the success of the organisation shared by members of a collective entity.
Therefore, high levels of mutual interdependence help social capital formation, especially in the relational dimension (Nahapiet & Ghoshal, 1998:251; Yildirim, 2012:9). ECFs that collaborate and are interdependent work with each other and sometimes share resources that are not necessary to have on a permanent basis. For example, most ECFs cannot afford the services of a full time quantity surveyor but would generally share such service and contribute proportionally toward the costs.
Interaction: Interaction refers to the frequency with which members of a network communicate with each other. It reflects the quantity, quality, direction
and strength of the relationships among them. Ongoing higher levels of social interactions strengthen social ties and thus social capital formation (Nahapiet &
Ghoshal, 1998:253). Interaction develops structural and relational social capital, but also facilitates the development of shared codes and language associated with cognitive social capital. The latter is created through communicative language, narratives and codes which influence perceptions of meaning and reality in relationships (Davenport & Daellenbach, 2011:58). In ECFs’ contexts, constant interaction not only builds capacity but also serves as
“social oil” that lubricates relations and cements the bond among collaborating firms.
Figure 2-2: The effect of drivers on social capital dimensions Source: Camps and Marquės (2011:39)
As indicated in previous sections, the study’s main area of focus is the structural dimension of social capital. Attention to networks is powered by the notion that ECFs cannot survive and prosper solely through their individual efforts and that ECFs’
performance depends upon the activities and performances of other ECFs either through bonding or bridging social capital or both.
2.9.2 SOCIAL CAPITAL, INCLUSIVE AND EXCLUSIVE SOCIAL NETWORKS
In the context of the current study, aligning Nahapiet and Ghoshal’s (1998) dimensions of social capital within the broader framework of inclusive and exclusive networks could provide a number of useful insights in relation to the business performance of ECFs. As stated in Chapter 1, networks are the vital antecedent to innovation. The consequence of innovation is improved firm performance, with competitiveness as a moderating variable. Thus, social networks as a dimension of social capital have significant effects on resource exchange.
According to Tomlinson (2011:7), the underlying relational dimension of social capital manifests in inclusive structures, particularly the reciprocity of participating firms in their interactions. The structure of relations, which describes patterns of relations between firms, has an impact on economic performance (Džunić, 2010:144). For example, Anne (2001:328) argues that exclusive social networks combine both high gains from trade and low enforcement costs, which affect economic performance positively.
The degree of openness of a social network, Anne (2001:329) elaborates, is limited by the network's capacity to process information about members' past behaviour and trustworthiness. Conversely, the closed nature of social networks is associated with rather poor economic performance. In this regard, while inclusive social networks provide a sense of collective identity, they may lack the organisational stability and ability to formulate and pursue long-term organisational objectives (Tomlinson, 2011:
5). Such networks (inclusive structures) limit the opportunity for ECFs to obtain information about available funding, tenders and exploit opportunities. Moreover, closed social networks may remain a source of competitive advantage only as long as they enable organisations to benefit from areas of uncertainty (Comet, 2009:412).