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Social Capital - an Underestimated Enabler of Small Firm Growth
Briga Hynes
The performance and growth of a small business depends largely on the competencies and capabilities of the owner-manager. As the small firm attempts to achieve growth, owner-managers need to adopt a planned strategic orientation to help them successfully manage the dynamic and uncertain environment in which they compete. Central to the effective achievement of sustained firm growth is the ability of the owner-manager to access and effectively manage scarce financial and non-financial resources. Within the small firm, the knowledge, skills and abilities of the owner-manager and their staff influence the direction and level of growth achieved and thus should be viewed as a critical resource. These competencies and capabilities are tacit in nature, making them unique to each firm and are therefore difficult to imitate, rendering them an important source of sustainable competitive advantage.
All too often owner-managers focus their attention on sourcing and managing predominately financial resources and those related to the fixed asset base of the business as the primary revenue generators for firm growth. However, the same focus and concerted effort should be extended to identifying how social capital can be best used to overcome the challenges of business growth. Broadly, the notion of social capital promotes the expansion of small firm capabilities through the development and maintenance of relationships internal and external to the small firm. Essentially it is advanced that the old adage “It's not just what you know, but who you know" is a necessity for the owner-manager in building organisational capabilities.
Internally, social capital involves developing and facilitating interaction with and between employees at all levels of the organisation to encourage collaboration, exchange of ideas and co-learning. This will provide a repository of valuable tacit knowledge which should not be overlooked by the owner-manager as a growth enhancing resource
The external dimension to social capital comprises of the informal and the formal relationships, alliances with other firms at any stage of the value chain of activities (suppliers, customers and intermediaries), membership of professional organisations and other stakeholders. These connections can assist the owner-manager to access and secure a range of financial and non financial resources (information, knowledge, technology, and finance).
As such social capital can be viewed as a form of (not exclusively) ‘networking capital’ since its core principle is based on identifying relevant and beneficial relationships. Owner-managers need to have the capacity to identify, generate and use social networks – this does not happen in ad hoc manner, for sustained relationships this activity needs to be planned.
Social capital is more than networking as it is embedded in relationships that facilitate collaboration and cooperation to achieve mutual benefits. Therefore, understanding how relationships function and ensuring reciprocity is central to the effective management of social capital. Essentially, it is an investment in social relations with individuals and develops internally and externally to reap benefits that will facilitate the achievement of firm growth objectives.
Integrating both internal and external social capital can be a powerful and cost effective asset to create a performance advantage for the small firm. The responsibility of achieving this lies with the owner-manager.
Ensuring a return on social capital requires a commitment of resources, where the owner-manager needs to be willing to relinquish their total control of activities and decisions, and be agreeable to share recognition with those they network with (internally and externally).
Management of social capital involves ongoing monitoring of internal and external social capital components to asses their value and the benefits they accrue to enhanced firm performance. Owner-managers need to build on, and develop underutilised internal social capital through training and development or through increased delegation.
Concluding Comments
Due to the informality and flexible structures of the small firm and the relatively few staff they employ, the social networks they should engage in are more readily identifiable than those of larger firms. This positions them ideally to employ social capital, which if effectively managed is a business growth activity in its own right. Managing social capital can be low cost, sustainable and help in the improved utilisation of the financial capital of the business. Equally poor management of social capital may result in the misuse of financial capital. Developing an improved understanding of how social capital can be exploited as an enabler of firm growth provides opportunities from the researcher perspective. Social capital is a nascent topic in the determinants of small firm growth research stream. Opportunities exist to research how the concept of social capital is understood by the owner-manager, do they engage in social capital building activities without acknowledging it, what are the benefits of social capital and how can it be effectively managed by the owner-manager.
Briga Hynes, Kemmy Business School, University of Limerick, Ireland