Relational capital: Strategic

Advantage for Small and Medium-Size

Enterprises (SMEs) Negotiation and
Collaboration

Dr. Theresa M. Welbourne

Center for Effective Organizations, Marshall School of
Business, University of Southern California and eePulse, Inc.

Dr. Manuela Pardo del Val

Universitat de Valncia, Spain
 INTRODUCTION
Theoretical framework
Small companies can now compete globally with as much ease, in
many cases, as their large firm counterparts
Collaborative entrepreneurship: organizations will soon pursue more
collaborative relationships throughout a worldwide network of firms
SMEs primarily will act in a collaborative way because they do not have the
resources to engage in continuous innovation by themselves and will view
the collaborative network as an essential means of doing business
Resource-based view: human capital is a unique, inimitable resource that
can drive long-term competitive advantage
Combining collaborative entrepreneurship and RBV: it is not the human, per
se, that is the real asset, but the relationships those humans have that are
the most inimitable and important capital
We hypothesize that SMEs are currently the group of firms most ready to
take advantage of relational capital
 HYPOTHESES

Hypothesis 1. SMEs place more value on

relational capital than do larger firms.

Hypothesis 2. Higher performing SMEs place

higher value on relational capital than do lower
performing SMEs.
 RESEARCH

exploratory study with senior leaders

part of an overall larger-scale research project
survey of conference attendees: higher level
executives (38% of the survey respondents were
CEOs; 22% were vice presidents).
A total of 382 people completed the survey (out
of about 2,000 registrations, response rate of
19%).
 METHODOLOGY

Questions asked were based on earlier studies

conducted by the researchers on the role of
various forms of business capital on firm
performance (see Welbourne & Wright, 2002).

First scale measures human capital, second

represents relational capital
Questions in the human capital scale
Rate the degree to which the various sources of capital
were important both to your firm in the past and the
degree to which they will be important in the future
(1=not at all important and 5=very important):

(1) our ability to develop people

(2) our employees
(3) the way employees at energized at work
(4) the companys approach to employees
(5) overall culture of the company.

Reliability (alpha) coefficient .89.

 Questions in the relational capital
scale
Rate the degree to which the various sources of capital were
important both to your firm in the past and the degree to
which they are important today and will be in the future
(1=not at all important and 5=very important):

(1) our level of customer service

(2) the relationship managers have with employees
(3) the quality of relationships we have with our clients
(4) the relationships we have with external firms such as
partners.

Reliability (alpha) coefficient .78.

 Questions about firm performance

Self rating of firms performance compared to

others in their industry of same size and rate of
change
1 = very low performance,
2 = low,
3 = average,
4 =high and
5 = very high.
 Other control variables

Industry
Job level
Rate of change
Company size (by revenue & number of
employees)
 RESULTS
Hypothesis 1. SMEs place more value on relational capital
than do larger firms.

Variable Human Relational

capital capital
Firm performance .03 .09*
Rate of Change .18* .13*
Goverment .05 -.09
Other .08 .07
Services .02 .08
Technology .02 .01
Revenue (Size) .12* -.13*
Job level .04 -.04
R2 .06 .05
F 2.89** 3.49*
 RESULTS
Hypothesis 1. SMEs place more value on relational capital
than do larger firms.

Variable Human Relational

capital capital
Revenue (our measure of firm Firm performance .03 .09*
size) has a positive effect on Rate of Change .18* .13*
human capital and a negative Goverment .05 -.09
effect on relational capital Other .08 .07
Services .02 .08
Technology .02 .01
Revenue (Size) .12* -.13*
Job level .04 -.04
R2 .06 .05
F 2.89** 3.49*
 RESULTS
Hypothesis 2. Higher performing SMEs place higher value
on relational capital than do lower performing SMEs.

2 subcategories for SIZE:

1) the smallest firms (less than 100 employees)

2) the largest firms (more than 25,001 employees).

2 subcategries for PERFORMANCE

1) lower (scores of 1 to 3)

2) higher (scores of 4 and 5).

 RESULTS
Hypothesis 2. Higher performing SMEs place higher value
on relational capital than do lower performing SMEs.

Sample and n Performance Human Relational

(sample size) Capital Capital

Smaller firms Lower (n=109) 4.41 4.35

(less than 500 empl.) Higher (n=56) 4.48 4.50*
n=165

Larger firms Lower (n=26) 4.51 4.28

(more than 25.001 Higher (n=34) 4.54 4.49+
empl.)
n=60

Although we did not develop hypotheses for the larger firms, it is of interest to
note that the pattern of results is the same, with relational capital being more
important for the higher performing firms in that size category.
 DISCUSSION

Direct influence of relational capital on firm

performance.
Positive relationship of relational capital and
performance in small firms.
Also big companies benefit from this link

In fact, literature has mainly stressed the

benefits of collaboration among firms independently
of firm size.
 DISCUSSION
Smaller firms place more value on relational capital than do
larger firms
The only capital that differentiates low vs. high performance,
regardless of firm size, is the relational capital aspect.
Our research goes a step further by combining RBV and collab.
entrepr., focusing on the specific characteristic of human capital
as the ground for relational capital, and most specifically on the
key importance of it in SMEs.
The main reason for relational capital to be more interesting in
smaller companies might be that they are aware of their lack of
fundamental resources and thus have more incentives towards
negotiating and collaborating with other firms.
 Limitations

Lack of adequate control measures

Our use of both future-oriented and past-oriented
questions provided us with good insights into the
overall data, but it clouded some of the
interpretations we can make
The restriction of asking too many or too complex
questions made our items far from being perfect
All of our data are from one source, the survey
 Conclusion

Relational capital is a fundamental asset

for firms, but specially for SMEs. High
performing companies are those that are
able to negotiate with others and
develop collaborative agreements, thus
placing a high value in relational capital.
 Further research

How should firms measure relational capital?

Would that be of help for firms, e.g. while
downsizing, to avoid firing employees that
add big value to the companys relational
capital?
Relational capital: Strategic
Advantage for Small and Medium-Size
Enterprises (SMEs) Negotiation and
Collaboration

THANK YOU!