The influence of social capital on organizational competitiveness

Abstract

There are two facets of a company: the formal, legally determined one, which consists in firm’s management and the informal one, based on mutual trust, which complements the formal structure and helps the organization achieve prosperity. In this paper we focus on the informal structure of the firm, identified with social capital, in order to explain how it can influence the firm’s performance. Social capital can be defined as a network structure, based on an informal association among the members of the firm. The mutual trust and the obligations create an informal mechanism, an instrument which allows the members of the firm to better and easier achieve their goals. Social capital is considered to be a stable mechanism, which supports the growth of an organization, by its feedback role: creating a sustainable development framework. Horizontal association and vertical integration obtain this framework, which help reaching a consensus in ranking a company’s priorities. Within a company, social capital usually has three functions. The first one is to obtain information through networks of personal contacts maintained by the firm’s owner or managers. They do this in order to identify and contact clients, to access market information, to access inputs, and to obtain technical and financial assistance. The second function is to reduce uncertainty and to better control costs by transacting with trusted individuals and organizations. Finally, the third function relates to collective action. Social capital may help companies engage in mutually beneficial collective actions (such as joint development of a new product, technology or know-how sharing etc.). We conclude that an efficient management of the social capital may help a company develop a better understanding of its competitive environment and improve its motivation and ability to undertake numerous and complex strategic actions. These capabilities are essential to long term competitiveness and sustainable growth.