A Review of “Social Captial, Intellectual Capital, and the Organizational Advantage”

A Review of 
Social Captial, Intellectual Capital, and the Organizational Advantage
By J. Nahapiet & S. Ghoshal

This article considers the value of social capital in providing an organizational advantage, which is rooted in the idea of “the significance of relationships as a resource for social action” (p. 242).  Nahapiet & Ghoshal (1998) define social capital as:

“the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit.  Social capital thus comprises both the network and the assets that may be mobilized through that network.”
(p. 243)

Nahapiet & Ghoshal broke social capital into 3 clusters:

  • Structural embeddedness – the overall structure of the network; the connections between people. (p.244)
  • Relational embeddedness – the actual relationships that connect the different people; how the relationships affect their actions; who you know and how you know them; they are behavioural (p. 244).
    • Key aspects also include trust, trustworthiness, norms, sanctions, obligations, expectations, identity and identification (p.244).
  • Cognitive dimension – the symbols, systems of meaning and how we interpret things is common to a group (p. 244).  It includes the shared language that Daniel, McCalla & Schwier (2002) referenced.

Nahapiet & Ghoshal (1998), along with Daniel, McCalla & Schwier (2002), all noted that “social capital is owned jointly by the parties in a relationship” (p. 244).  No one person has all the social capital.  To add to it’s complexity social capital is something that the individual invests in and builds up within the network.  “It has value in use” (p.244) but it can’t be traded or exchanged.

It reminds me of my transition from a high school teacher and differentiated instruction facilitator within one building to my role as a learning consultant within the school division. Within my home school, I had build up 13 years of credit with both staff and students.  My interactions with the larger network of people was relatively limited. As you grow and change networks you have to reinvest in building your social capital.  It’s obvious in a building when a teacher has social capital.  They can look at a student and the behaviour will stop, when you don’t have the ‘street cred’ in that building, the students just look at you and wonder why you’re looking at them funny.

Nahapiet & Ghoshal (1998) also noted that social capital makes it possible to achieve goals that would not have been possible as an individual.  A strong community of practice with high social capital will produce better results at lower costs (p. 244-245), which is very similar to Covey’s (2006) motto that when trust goes up, speed goes up and costs go down.

Social capital has been shown to encourage cooperative behaviours, which has the potential to lead to new associations between group members along with increased innovation (Nahpapiet & Ghoshal, 1998, p. 245).  As Daniel, McCalla & Schwier (2002) noted, so to did Nahapiet & Ghoshal, social capital is a balancing act. It has the potential to be very positive within an organization; however, if the group becomes so strong that it’s hard for new members to access or integrate into then it can begin to have detrimental effects.   If the group takes on a mind of it’s own then the group becomes more prone to blindly following along rather than building on the strengths and diversity of it’s team (p. 245).

Intellectual capitalrepresents a valuable resource and a capability for action based in knowledge and knowing” (Nahapiet & Ghosal, 1998, p. 245).  This includes four aspects:

  • Individual explicit knowledge – the facts and concepts that are available to us in our personal memory framework
  • Individual tacit knowledge – it’s what becomes automatic to us based on our knowledge and skills.  It’s the knowledge in our heads that we have processed, made connections with and organized according to our experiences.
  • Social Explicit knowledge – the objective knowledge that is known to the people in the group
  • Social Tacit knowledge – the understanding embedded into what happens in that community.  It’s the unwritten knowledge and connections that bind teams together and make institutions unique.
    (p. 247).

Knowledge creation often involves the exchange of information between people or people learning new information (p. 248).  First, there must be an opportunity for knowledge to be exchanged, then people must anticipate the value that will come from it and be motivated by this prospect. Lastly, Nahapiet & Ghoshal referred to the absorptive capacity.  You have to be ready to recognize, incorporate and use the new information to move forward (p. 249-250).

Intellectual capital grows when there are opportunities for information to flow within the network.  This flow is dependent upon your connections and your ability to receive valuable information and know who to share it with in a timely fashion.  Gladwell (2006) illustrated this concept when he retold the story of Paul Revere’s famous ride and the other guy’s less effective attempt.  The more referral ties within a network the more opportunities for quality exchanges (Nahapiet & Ghoshal, 1998, p. 252).  When the authors discussed network configuration and the importance of  having “a player with a network rich in information benefits [along with one who] has contacts established in places where useful bits of information are likely to air and who will provide a reliable flow of information” (p. 252), it reminds me of Gladwell’s (2006) connectors, mavens and persuaders.  These people are important in distributing and ensuring the flow of information.  Nahapiet & Ghoshal also noted the importance of bringing together diverse people within the network because significant creation of intellectual capital happens within those diverse connections (p.252).  Similarly, Gladwell explained the importance of connectors in bringing together people from different social circles.

“Intellectual capital is a social artifact and …knowledge and meaning are always embedded in a social context” (p.253) created and sustained through the relationships of the community. A shared language helps us connect and understand, while shared codes help us organize information.  Language helps us make sense of the world around us.  Shared narratives also play a significant role in facilitating transfer of knowledge often with tacit knowledge embedded into the stories (p. 254).

Trust is the belief that the “results of somebody’s intended action will be appropriate from our point of view” (as noted by Misztal – Nahapiet & Ghoshal, 1998, p. 254).  To trust includes becoming vulnerable, believing in the other person’s good intent, their competence, capabilities, reliability, and openness (p. 254). Trust in turn builds cooperation and cooperation builds trust.  The more trusting a relationship the more people are willing to risk in the knowledge that they share (p. 255), which leads to more opportunities to grow the intellectual capital.  Positive group norms, clear obligations and expectations facilitate people identifying with the group.  When people choose to become one of the group their identity changes, which in turn makes them more likely to exchange information and support the goals of the team (p. 256).

The authors reminded that social capital takes time to grow and requires that people are connected to each other in meaningful ways.  Interdependence will promote more interactions, which increases social capital.  Clear social, legal and financial boundaries will also create a sense of closure.  A defined group will grow more social and intellectual capital than an open group.

While social capital fosters the development of intellectual capital, the same can be said for knowledge supporting the development of social interactions. Nahapiet & Ghoshal explained that the cooveolution of social and intellectual capital lead to a strong organizational advantage.  Fostering the development of both types will build a stronger team.  Both are enhanced by the formal and informal interactions that happen during the day and the development of a shared identity.  Opportunities to interact and create shared stories strengthens the ties between individuals.  Nahapiet & Ghoshal asserted that the true organizational advantage comes when organizations commit to strengthening and continuing to maintain the the interrelationships of their teams(p. 259-260).

Step back for a moment and think about the communities and teams in which you participate. There is a constant ebb and flow of people coming into and leaving the group.  While some maybe more stable in membership than others the importance of developing strong interrelationships is essential in increasing the social and intellectual capital of the group. The more a person connects to the group, the longer they stay involved and add to the shared capital.

Nahapiet, J., & Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. The Academy of Management Review, 23(2), 242–266. Retrieved from http://www.jstor.org/stable/259373


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