Thoughts on the Intersections of Social Capital, Virtual Networks, Enterpreneurship and Innovation
I had mentioned a few days ago that I had to write a short essay outlining the main issues to be confronted in any attempt to understand the role of virtual networks in enhancing enterpreneurship and innovation, especially with respect to how social capital accumulates and impacts upon business dynamics.
Here goes then:
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For the project to achieve fruition, there is a plethora of issues that need to be clarified. I will shortlist a few basic issues that pervade the work of leading researchers and practitioners and whose significance cannot be overlooked. First and most obviously, how could social capital be measured, especially within the context of virtual networks? Social Network Analysis tools are widely employed for such purposes, however, their effectiveness is limited due to the difficulty inherent in specifying which criteria should be used. Most analyses based on such tools (ie. Inflow) value the connections between disparate nodes of the social network in which they belong. When the social network consists of a relatively small number of nodes, the analysis will definitely unveil how frequently the nodes communicate and will choreograph the information flows among them. What though the analysis cannot tell is whether the relationship between the nodes in built upon strong or weak ties. Put otherwise, we can infer the existence of a relationship between two nodes, but we cannot determine the exact dynamics upon which the specific relationship is premised, and frequency of communication is not the best of criteria since it may denote hierarchy rather than intense team building or project work [1]. This difficulty aside, the Internet is bound to impact upon the process according to which social networks are formed, and hence the way social capital is accumulated, as “social capital is about networks, and the net is the network to end all networks” [2].
Secondly, the process of innovation is continuously changing in scope due to the amplifying character of all – pervasive communication networks, and this further hinders an analysis based on conventional metrics. For example, the nature of consumerism online can be radically different from the respective consumption modes observed in the physical world. Unhindered by physical matter constraints, users of file-sharing networks, such as the legendary Napster music file sharing network, redefine consumption as an essentially peer activity, which extends far beyond typical paid-for commercial experiences. In a similar vein, economists have a hard time explaining why people share information online without the requirement of quid-pro-quo relations [3][4]. Or in the case of Linux and collaborative software development on the Internet, the boundaries between producers and users are so blurred that this dichotomy between production and consumption loses its meaning. Some have argued that this is where the innovative potential of the Internet actually lies: networks of users providing help to each other without expecting anything in return, in much the same way that mutuals in the UK operate [5]. This peculiarity of the model has led many to assume the prevalence of a gift economy [6], however, it is a mistake to categorise the Internet as a mosaic of gift economies, despite that it arguably promotes the proliferation of certain kinds of gift economies. We should not neglect to bear in mind that the Internet is primarily a collaboration and communication platform rather than a marketplace aimed at co-ordinating exchanges of goods and services. Hence, it should come as no surprise that B2B e-marketplaces, which are geared toward communication and collaboration and aim at co-ordinating supply chains, are far more successful than B2C/e-tailing ventures that initially dismissed the inherently collaborative character of the Internet. And this is also reflected in the success of those early pioneers who have managed to stay afloat despite the current economic downturn.
Amazon.com and eBay are probably the most succinct examples as they have both embraced the contribution of end-users and have continuously rethought their strategy in order to morph from e-tailers to platforms where people could do a lot of things [7][8]. eBay still portrays as the most gigantic marketplace in the world, however, its real strength lies in its ability to build a massively decentralised database of member profiles, which constitutes the pragmatic leverage point of the platform. Users of eBay rank other users they have engaged in some sort of transaction through eBay, and this ranking mechanism emerges as the definitive asset of eBay because it enables users to evaluate the credibility of other users and this is the least-hassle route to reputation building in a dematerialised world [9]. Amazon, on the other hand, invites users to submit reviews of books they have read, and in so doing, a conversational effect is evident throughout the Amazon platform with users seemingly carrying out conversations and forming temporary communities of interest [10][11]. The underlying technology or process, called Collaborative Filtering, has drawn quite some attention as it is reckoned to be in the epicentre of a radical shift away from content based e-commerce models toward user and community centric models. What is more important though, particularly with respect to innovation and social capital, is that the very same process of collaborative filtering enables the formation of social networks at a scale the world has never experienced before. Witness the success of community sites such as Slashdot.org, which recycle the web in real-time, and which rely upon their members to create content and generate value. This genre of websites is also known as weblogs, although the genre is as well defined as peer-to-peer to say the least. Semantics aside, the technology that powers weblogs is not really novel, but the impact on innovation and network formation is dramatic. Nowadays, scores of companies like Macromedia, Microsoft, Apple, Demos, Groove Networks and Jupiter Research to mention but a few, have started experimenting with weblogs in an effort to connect with their market and benefit from end-user innovation.
Perhaps, the greatest challenge and promise at the same time of seamless communication networks revolves around work organisation. As knowledge workers no longer need to be physically located in a specific workplace, and they can co-ordinate their creative output regardless of geographical constraints, the role of organisational structure loses its historic role of managing power relations at a distance. In much the same way, organisational boundaries tend to become more elastic and flexible, and it is not rare to confront organisations whose strategy is defined by their structure. Put bluntly, although at first glance conventional structures seem to gradually evaporate, the overall importance of structure is as important as ever. In a sense, structure precedes strategy [12][13]. In fast-pacing industries fraught with technological uncertainty and galvanised by rapidly changing consumer expectations, the only way to compete is by elaborating on a fluid organisational structure that allows for quick adaptation to environmental disturbances. Thus, strategy becomes of secondary importance, and day-to-day management is what matters now. Under such circumstances, a rigid structure is bound to result in managerial lethargy, and to ease this tension, organisation around teams and projects becomes the norm. Nevertheless, this is not to say that the boundaries of the network can be easily defined, as many organisational actors may not be even conscious of those very swiftly adjusting boundaries.
Furthermore, when average job tenure lasts for no more than a couple of years as it is the norm in the Silicon Valley, and the emerging model of organisation is modelled on Hollywood, where individuals form ad-hoc, temporary, project-based business networks and once the film – the project – is completed, the temporary network disbands, then the corporate world is certain to undergo for a major restructuring [14]. Needless to say, this process is further accelerated by cyberspace and the new legion of e-lancers that discover new opportunities through always-on communication technologies [15]. Some speculate that the prevalent organisational entities of the future will not be mega-corporations the size of countries, but small clusters of e-lancers brought together for a single project and continuously reconfiguring their dynamics and components [15]. So far so true, people no longer need to see each other in a face-to-face context in order to work together. But, how can they trust each other if they have never physically seen, touched, and handshaken them? And this is perhaps the greatest obstacle that virtual organisations face: how to establish trust in a exclusively virtual context where relationships and processes are in flux, and the lifespan of the temporary organisation is meant to be so short that most organisational actors will never get to really know everyone involved? The importance of swift trust [16] and weak ties [18] has been proposed as the antitode, however, the Hollywood organisational model, again, offers a glimpse of the future to come: intense team building through a shared goal and trust building through webs of trust. First, there must be no ambiguity as to which purpose the organisation seeks to fulfil, and most importantly, you trust the people whom the people you trust trust. After all, centralised trust systems have always been inherently risky.
References
[1] Preece, J. Online Communities: Designing usability, designing sociability, John Wiley & Sons, NY, 2000
[2] Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community, Simon & Schuster, 2000, p.171.
[3] Richard Barbrook, The high-tech gift economy, First Monday, 1998, at http://www.firstmonday.dk/issues/issue3_12/barbrook/index.html
[4] Felix Stalder, Beyond portals and gifts: Towards a bottom-up Net economy, First Monday, Issue 4, No 1, 1999, accessible at
www.firstmonday.dk/issues/issue4_1/stalder/.
[5] Charles Leadbeater, Up the Down Escalator: why the global pessimists are wrong, Penguin, 2002.
[6] Kollock P. The Economies of online cooperation: gifts and public goods in cyberspace in Smith M and Kollock P (Eds) Communities in Cyberspace, Routledge, 1997.
[7] Sandeep Krishnamurthy, Case study #1: amazon.com - a business history, in E-Commerce Management: Text and Cases, 2002.
[8] Tapscott, D. Digital Capital: Harnessing the power of business webs, McGraw – Hill, 2000.
[9] Boyd, J. In community we trust: online security communication at eBay, Journal for Computer-Mediated Communication, Issue, no 3, April, 2002, accessible at http://www.ascusc.org/jcmc/vol7/issue3/boyd.html
[10] Locke, C. Gonzo Marketing: Winning through worst practices, Perseus, 2001
[12] Langlois N. Langlois, The Vanishing Hand: the changing dynamics of industrial capitalism, University of Connecticut Working Paper, Version 3.02b, 2001.
[13] The McKinsey Quarterly Reader, “Strategy=Structure”, May 2002.
[14] Jeremy Rifkin, The Age of Access: how the shift from ownership to access is transforming modern life, Penguin, 2000, pp.24-29.
[15] T.W. Malone and R.J. Laubacher. "The Dawn of the e-lance economy," Harvard Business Review, volume 76, number 5 (September-October), 1998.
[16] Meyerson D., Weick K.E. and Kramer R.M. “Swift Trust and Temporary Groups” in Trust in Organizations: Frontiers of Theory and Research. (Eds) Kramer R.M. and Tayler T.R., Thousand Oaks, CA: Sage Publications, pp.166-195.
[18] M. Granovetter. The strength of weak ties. American Journal of Sociology, 78, 1973.
[George Dafermos' Weblog]
Excellent stuff George
11:30:57 PM 
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