The Strategic Value of Social Capital: How Firms Capitalize on Social Assets

Book synopsis

This book is a collection of five studies written to argue the value of social capital and its importance in firms' innovativeness and performance. Its aim is to increase knowledge about the benefits of social capital as a means for firms to stay competitive and is directed at “individuals wishing to enrich their knowledge on the concept of social capital” (p. 2).

The author's central argument is that “social capital plays a key role in enabling knowledge to flow across firm boundaries, allowing firms to exploit knowledge to generate new ideas” (p. 1). The book differentiates between structural social capital (embedded within the social structure of a firm) and individual social capital (an individual's use of social relationships to utilise diverse resources). This demarcation becomes the book's key organising mechanism. The author utilises a variety of methodologies in her analyses. Data for each of the studies comes from Italy, which the author justifies by Italy's geographic diversity.

The focus of the structural social capital studies were regions and firms with differing amounts of social capital. The studies of structural social capital tested the relationships between firms, regional creativity, and innovation; and the firm‐banking relationships. The studies of individual social capital focused on the relationship between geographically bound social capital, entrepreneurship and innovation; international social capital and offshoring; and the role of social capital with regards to family firms and innovation, for which the author used a case study methodology.

The conclusion presents two themes based on the research findings – how firms capitalise geographically bound social capital, and how they capitalise on individual social capital; implications for theory and practice, and future directions for study.

Evaluation

There are several differences in the definition and operationalisation of “social capital”. Putnam (2000) defines social capital as that which refers to the collective value of all social networks and the propensities that arise from these networks to do things for each other. Fukuyama (2002) stated “social capital is what permits individuals to band together to defend their interests and organise to support collective needs” (p. 26). The central idea of social capital is that social networks have value. However, this value can be difficult to operationalise because social capital is an interaction between individuals and groups (Bankston and Zhou, 2002). Masciarelli measures social capital in terms of social network analysis, participation in associations and organisations, friendship satisfaction, protests, and foreign residents. Social networks and participation in organisations are common measures of social capital and it best addresses the interactional nature of social capital. Protests and friendship satisfaction both get at “trust”, which is another common measure of social capital. Putnam (2002) is cited as the reason for including number of foreign residents as a measure of social capital, although the factor analysis gives it the lowest factor loading of the study. The measures help empirically support the value of social capital. Masciarelli, in our judgment, used appropriate measures of social capital in her analyses.

The placement of chapter 4, which details the relationship of geographically bound social capital and innovation, straddles the gap between structural and individual social capital. Here, the author examines the geography (collective) and the entrepreneur (individual) effects on innovation. In this way, chapter 4 transcends the structural/individual social capital division and belongs to a category combining the two theories.

While the empirical analyses are well developed, they are not exempt from some challenging questions. One would argue that since the main focus of social capital is on generating new ideas, it appears to be that innovation should be the subject of similar scrutiny; in fact it is not sufficiently credited in this study when most of the studies relate to innovation. In that line, it is also curious how the author uses some proxy variables for innovation – by using in her first study a dependent variable that is based on a survey and therefore in participants' self‐reporting assessment, instead of using more objective information that relates to intellectual property rights, like patents, for example. Although there is an interesting discussion about what social capital is, the analytical models used do not portray a dynamic view when operationalised in her analyses, but rather the variables included reflect proxies existing in the geographical context of those firms but do not explain any interaction with the firm (the exchange).

Recommending this book depends on the audience. For those interested in the theories and research of social capital, I would highly recommend this book. It supports its claims with studies based on previous research and provides many future directions for research. For the uninitiated or practitioners looking to better understand social capital, I would suggest looking elsewhere. This book is written for those already familiar with its core topic and will require some catching up with interdisciplinary approaches – including and most notably the studies on innovation. It also shows how social capital appears, but it does not present easy guidelines for creating social capital with one's current resources.

In the author's own words

“This study provides the theoretical, analytical and empirical grounding needed for a comprehensive understanding of how social capital influences firm competitiveness, contributing to the work on geographically localised knowledge creation and entrepreneurship […] This book shows that firms located in geographical environments characterised by high levels of social capital are more competitive and innovative, since social capital is conducive to knowledge sharing and promotes trust‐based relationships among the actors” (pp. 1‐2).