Table of Contents

2.1 INTRODUCTION OF THE LITERATURE REVIEW............................................................2

2.2 DEFINITION OF THE VARIABLES......................................................................................2

2.3 THEORETICAL REVIEW.......................................................................................................4

2.4 CONCEPTUAL REVIEW........................................................................................................4

2.5 EMPERICAL REVIEW AND HYPOTHESIS DEVELOPMENT..........................................9

2.5.1 HYPOTHESIS DEVELOPMENT....................................................................................27

2.6. CONCEPTUAL FRAMEWORK...........................................................................................32

2.6.1 FORMS AND DIMENSIONS OF SOCIAL CAPITAL..................................................33

2.7REFRENCES............................................................................................................................36

1
2.1 INTRODUCTION OF THE LITERATURE REVIEW

Social capital can be simply said as the resource embedded in the social relationship and can be
explored and used for some specific goals, however, since social capital is mainly intangible,
there is still no uniform understanding, neither precise definition (Nahapiet et al., 1998), for
instance, Burt defined social capital as the structure of relationship networks and information
available to an individual (Burt, 1992), while Coleman even simply defined social capital as a
type of capital, and can be developed when the relationship between individuals is utilized to
facilitate their actions (Coleman, 1998). However, despite the diverse definitions, it is not
difficult to find that social capital can be used as an instrument for some specific purpose;
undoubtedly, this will influence the individual and organizational performance.

This chapter reviews literature that is related to social capital management and its impact on
organizational performance. It highlights the concept and definition of social capital, innovation
and competitive advantage, the concept of organizational performance, effective social capital
management, organizational commitment, employee relations and more. These serve as the
conceptual review for the research. This chapter also contains the theoretical framework of the
study. This paper considered the Putnam's social capital theory, Bourdieu's theory of social
capital and Coleman's theory of social capital as a point of reference. The chapter further looks at
some empirical studies related to social capital management and organizational performance.
Lastly, the conceptual framework was developed to establish the relationship between social
capital management and organizational performance per the literature reviewed.

2.2 DEFINITION OF THE VARIABLES

Among the variables of interest in a literature review on social capital management in gaining
competitive advantage and innovation would be:

1. Social capital: Social capital has been wildly discussed from 1980s, however, there is still
no precise and completely accepted definition, for example, Bourdieu defined social
capital as the aggregation of actual and potential resources within a specific network,

2
 where the network is composed of relationships that involve mutual acquaintance and
mutual recognition (Bourdieu, 1980), while Adler and Kwon defined it as the network of
relationships which adds value to the network actors by accessing to the resources
embedded in the network (Adler et al., 2002).

2. Competitive advantage; Competitive advantage is obtained when an organization

develops or acquires a set of attributes (or execution actions) that allow it to outperform
its competitors (Wang, 2014). In other words, competitive advantage is revealed, when
activities of a given organization are more profitable than those of its market competitors
or when it outperforms them as regards other significant results of activities (Huff et al.,
2009), including, for example, the share in the market, product quality or technological
advancement

3. Innovation: A company's innovation is its ability to generate value for its stakeholders by
developing and implementing new ideas, products, or processes. Patent filings, product
introduction rates, and R&D investments can all be used to measure innovation. At the
organizational level, innovation is defined as the adoption of a new product, service,
process, technology, policy, structure or administrative system (Daft, 1978; Damanpour,
1991;Zaltman, Duncan and Holbek, 1973)

4. Management practices: "Management practices encompass the set of activities, processes,

and strategies employed by managers to plan, organize, coordinate, and control resources
and activities within an organization, with the goal of achieving organizational
objectives." (Certo, S. C., & Peter, J. P. 2015)

Identifying the most promising strategies and practices on managing social capital in today's
business environment can be accomplished by analyzing how these variables have been
operationalized and quantified in previous studies of this topic by conducting a literature
review on this topic.

3
2.3 THEORETICAL REVIEW
Social capital has hybrid theoretical origins having been explored by theorists from economics,
sociology, political science and virtually every other social science. Social capital is applicable to
anyone investigating human sociability and cooperation, and its evolution. Therefore, social
capital is relevant diverse theoretical paradigms such as game theory and evolutionary socio-
biology.
The initial theoretical development is typically credited to three authors who each approached
social capital from vastly different perspectives and created different theoretical and conceptual
findings.
• Theory of capital – Pierre Bourdieu
• Rational-choice approach – James Coleman
• Democratic or civic perspective – Robert Putnam
An understanding of the foundations of social capital theory helps to navigate the myriad
theoretical perspectives that now prevail in the literature. Social capital is often plagued by
competing or conflicting definitions and conceptualisations. Being able to identify the theoretical
tradition or perspective being used by an author helps to be able to understand the context of
literature on social capital. More recently social capital theory has predominantly focused on the
dimensions of social capital developed by Nahapiet & Ghoshal (1998) building on Granovetter's
(1992) theory of embeddedness.

Theory of capital – Pierre Bourdieu

Pierre Bourdieu (1930 – 2002) was a French sociologist and public intellectual who was
primarily concerned with the dynamics of power in society. His work on the sociology of culture
continues to be highly influential, including his theories of social stratification that deals with
status and power.

Bourdieu was concerned with the nature of culture, how it is reproduced and transformed, how it
connects to social stratification and the reproduction and exercise of power. One of his key
contributions was the relationship between different types of such capital, including economic,
cultural, social, and symbolic.

4
Bourdieu’s (1986) conceptualization of social capital is based on the recognition that capital is
not only economic and that social exchanges are not purely self-interested and need to
encompass ‘capital and profit in all their forms’ (Bourdieu, 1986: 241). Bourdieu's
conceptualization is grounded in theories of social reproduction and symbolic power (Dika and
Singh 2002). Bourdieu's work emphasizes structural constraints and unequal access to
institutional resources based on class, gender, and race.

Bourdieu saw social capital as a property of the individual rather than the collective. Social
capital enables a person to exert power on the group or individual who mobilises the resources.
For Bourdieu social capital is not uniformly available to members of a group or collective but
available to those who provide efforts to acquire it by achieving positions of power and status
and by developing goodwill (Bourdieu 1986). For Bourdieu social capital is irreducibly attached
to class and other forms of stratification which in turn are associated with various forms of
benefit or advancement (Fine 2002a). Bourdieu framed social capital as accrued actual or virtual
resources acquired by individuals or groups through the possession of “more or less
institutionalized relationships of mutual acquaintance and recognition” (Bourdieu and Wacquant
1992: 119). Therefore, social capital resides in the individual as the result of his or her
investment. Bourdieu’s social capital does not include collective property attributes, which
Bourdieu instead calls cultural capital. Therefore, Bourdieu’s social capital does not confuse the
level of observation which is a common problem with other approaches.

Bourdieu’s approach is starkly different to most current conceptualisations of social capital.

Bourdieu is rarely cited for his work on social capital relative to James Coleman and Robert
Putnam. This may be because his approach is too intellectually demanding (Fine 2002a). There
are many concepts underlying the terms he uses that has specific and significant meaning (Poder
2011). His approach is based on his wider sociological theories of habitus and fields of practice
(Bourdieu 1984). He emphasises the fluidity and specificity of his objects of study, which means
that social capital is deeply reliant on the context of a particular social space (Markowska-
Przybyła 2012).

5
Bourdieu’s theory of social capital is substantiated by a rich set of sociological theories that
embrace the complexity of the social environment rather than seeking simplification and
reductionism. Fine (2002a) suggested that this is incompatible with the wide-ranging and
superficial postures currently attached to social capital. My conclusion is that Bourdieu’s theory
of social capital may be beyond the reach of most people outside of sociology who may fail to
fully understand and appreciate the meaning of his terminology.

Rational-choice approach – James Coleman

James Coleman (1926 – 1995) was an American sociologist who was primarily interested in the
sociology of education and public policy. Like Bourdieu, Coleman was interested in different
types of capital and their interaction, namely human, physical and social capitals. The aim of
Coleman’s concept of social capital was to import the economists’ principle of rational action for
use in the analysis of social systems without discarding social organization in the process
(Forsman 2005). As such, Coleman connected sociology and the social actions of individuals
with the rational ideas of economists (Jordan 2015). This theoretical union represents a middle
line between two theoretical traditions (Tzanakis 2013). The first is a functionalist view of social
action which is conditioned by social structure. The second is rational theory which suggests that
actors’ goals are determined by utility-maximizing pursuit of his or her self-interest (Coleman
1988). Coleman (1988) connected sociology and the social actions of individuals with the
rational ideas of economists that individuals act independently and for self-interest (Jordan
2015).

6
Like Bourdieu, Coleman saw social capital as essentially residing in the social structure of
relationships among people. However, where Bourdieu was concerned with power and status and
the uneven distribution of social capital between individuals, Coleman saw social capital as a
public good where the actions of individuals benefits the whole (Tzanakis 2013). As such
Coleman conceptualised social capital as a collective asset of the group and made little provision
for inequality that results or a causes differential power and status. This neglect of power and
conflict probably stems from Coleman’s preoccupation with social capital being largely a
product of social structure. This is a significant departure from Bourdieu’s theory which treated
collective property attributes under the term cultural capital. This means that Bourdieu’s and
Coleman’s theories of social capital are fundamentally different, and this has resulted in
confusion in the literature about what is and is not social capital.

For Coleman, individuals engage in social interactions, relationships and networks for as long as
the benefits persist (Jordan 2015). This logic stems from rational choice theory which seeks to
explain human behaviour through rationality. These rational actions are set in a particular social
context accounting for not only the actions of individuals, but also the development of social
organization. In this sense, social capital is both a private and public good benefiting everyone in
the group, not only those who invest in organizing the associations or networks. For example,
everyone in a neighborhood benefits when a neighborhood watch group forms to help lower the
local crime rate, even those people who never personally participate (Coleman 1988). Direct
contributions by actors will benefit the whole, not just the individual. Strong families or
communities accrue from strong social bonding among members.

7
Where Bourdieu saw social capital as reproducing social inequality, Coleman treated social
capital as almost universally productive, i.e. it is used so that actors can achieve particular ends
that would have been impossible without it (Coleman 1988). A good illustration of this is
Coleman’s famous example of wholesale diamond merchants in New York. In this context bags
of diamonds are lent for examination without any formal contracts or insurance, leaving the
lender in danger of receiving counterfeits or lower quality diamonds when the diamonds are
returned. Although opportunities for dishonesty are not rare, instances are virtually never
observed. Here, social capital influences individual decisions on honesty because dishonesty by a
given diamond merchant will induce responses by others which matter to his assessment of how
to act (Durlauf 1999).

In Coleman’s initial analysis he referred the work of economists Glen Loury and Ben-Porath,
and sociologists Nan Lin and Mark Granovetter. This integration of economics and sociology is
clearly evident in his work and was one of the most appealing aspects of this theory as it
facilitated cross and interdisciplinary investigation.

Democratic or civic perspective – Robert Putnam

Robert David Putnam (1941-) is an American political scientist most famous for his
controversial publication Bowling Alone, which argues that the United States has undergone an
unprecedented collapse in civic, social, associational, and political life (social capital) since the
1960s, with serious negative consequences. Putnam is generally credited with popularized the
term social capital (Portes and Vickstrom 2011).

Putnam treated social capital as a public good—the amount of participatory potential, civic
orientation, and trust in others available to cities, states, or nations (Putnam 1993, 2000). This
contrasts with Bourdieu’s theory of social capital, with Coleman’s definition somewhere in the
middle. In Putnam’s conceptualisation social capital is elevated from a feature of individuals to a
feature of large population aggregates. Social capital becomes a collective trait functioning at the
aggregate level (Tzanakis 2013).

8
Putnam made the argument that social capital is essentially the ‘amount’ of ‘trust’ available and
is the main stock characterizing the political culture of modern societies. For Putnam (1993 p.
35; 1993) social capital refers to ‘features of social organizations, such as networks, norms and
trust that facilitate action and cooperation for mutual benefit’. Putnam follows Coleman’s belief
that social capital is a quality that can be a facilitator of interpersonal cooperation. In Putnam’s
view, such a feature can be considered an aggregate trait to such a degree that it can become
automatically comparable across cities, regions and even countries (Tzanakis 2013).

Putnam has been widely criticised for fundamental conceptual and methodological flaws.
Perhaps most problematic is the drastic over-simplification of complex and interrelated processes
to a single or small set of factors, i.e. trust as an aggregate indicator of social capital. This is
further complicated by logical circularity. As a property of communities and nations rather than
individuals, social capital is simultaneously a cause and an effect (Portes, 1998).

While popularizing the concept of social capital, Putnam’s work has confounded theoretical and
methodological rigor to such an extent that much of the later work on social capital has be
described as vulgar scholarship (Fine 2002a). I think that Putnam’s work is interesting and
descriptive however offers little in the way of theoretical and methodological framework for
future study.

2.4 CONCEPTUAL REVIEW

Concept of Social Capital

Social capital is a complex multidimensional concept encompassing repertoire of cultural and

social value systems. Recently, it has become a very popular and appealing concept among social
scientists. A growing number of sociologists, anthropologists, political scientists, and economists
have employed the concept to explain various economic and social outcomes. The fundamental
notion of social capital is to incorporate socio-cultural factors to explain development outcomes.
It has emerged as a prominent topic of discussion among academics, development specialists,
and policymakers. The history of social capital traces a long way back to classical economists,
such as Adam Smith and John Stuart Mill, and sociologists, such as Max Weber, who provided
the cultural explanation to economic phenomena (Guiso et al., 2006). The concept of social

9
capital as a topical issue, however, came into the spotlight only in late 1980s and attracted
growing research interest thereafter. The scientific study of social capital is relatively new, but
the growth of literature on the topic is enormous. Despite voluminous literature, there is no
single, universal definition of social capital. It is often defined and measured in a pragmatic and
unsystematic fashion (van Schaik, 2002). Growing interest and numerous studies in recent years
has fine-tuned the concept and measurement approach. Now, at least, there seems to be some
agreement on the conceptualisation and major ingredients of social capital. Social capital is an
abstract idea rather than a firmly tangible phenomenon. The theory of social capital is
particularly rooted on the notion of trusts, norms, and informal networks and it believes that
‘social relations are valuable resources’. Social capital is broadly defined to be a
multidimensional phenomenon encompassing a stock of social norms, values, beliefs, trusts,
obligations, relationships, networks, friends, memberships, civic engagement, information flows,
and institutions that foster cooperation and collective actions for mutual benefits and contributes
to economic and social development. The intellectual history of the concept of social capital can
be traced back to Karl Marx (1818−1883), Emile Durkheim (1858−1917), Georg Simmel
(1858−1918), John Dewey (1859−1952), and Max Weber (1864−1920); these scholars
emphasized the role of culture in economic development—an implicit use of the idea of social
capital. According to Smith (2007), the concept of ‘social capital’ was first invoked by Lyda J.
Hanifan in 1916 to explain the importance of community participation in enhancing school
performance. After long disappearance of the concept, the concept of social capital was
reinvented by a team of Canadian sociologists (Seely et al., 1956) while studying urban
communities, by Homans (1961) for a theory of social interactions, by Jacobs (1961) while
discussing urban life and neighbourliness, and by Loury (1977) for studying income distribution.
All of these authors emphasize the value of social networks and need to preserve them. The first
systematic exposition of the term and its entry into the academic debates can be attributed to the
work of Pierre Bourdieu (1986) and James S. Coleman (1988). However, it was the pioneering
work of Robert D. Putnam (1993) that heavily popularized the term among social scientists and
attracted the attention of researchers and policymakers. Being a multi-faceted construct, it is hard
to expect a single definition of social capital. Different authors defined social capital in different
ways reflecting their own interest. The most prominent names while discussing the definition of
social capital include Pierre Bourdieu (1986), James Coleman (1988), Robert D. Putnam (1993),

10
Francis Fukuyama (1995), Nan Lin (2001), OECD (2001), and the World Bank (2007). The
commonality of most definitions is that they emphasise social relations that generate productive
benefits. The main difference between these definitions is that they treat social capital as either
personal resources or social resources. Bourdieu distinguishes between three forms of capital:
economic, cultural, and social. He defines social capital as: “... the sum of the actual or potential
resources that are linked to the possession of a durable network of more or less institutionalized
relationships of mutual acquaintance and recognition—in other words, to membership in a
group” (Bourdieu, 1986: 248). This definition emphasises the importance of social network, i.e.,
the opportunities and advantages available to members from group membership. Bourdieu
considers social capital as a collectively-owned asset endowing members with credits, i.e.,
individual good. The author focuses on instrumental value of social capital to derive economic
and social benefits from group membership and the impetus for individual investment in such
membership (Quibria, 2003). The benefits which accrue from membership in a group are the
basis of the solidarity which makes them possible. The richness of social capital depends on the
size of the network and on the volume of capital (economic or cultural) in these connections’
possession. The capital is maintained and reinforced as long as members continue to invest in the
relationships. Bourdieu’s idea of social capital puts emphasis on class conflicts: it is a personal
asset in the competition among individuals aiming to improve their own positions as compared to
others. Bourdieu’s definition identifies three elements of social capital: (i) the social relationship
that enables actors to gain access to resources possesses by their associates (i.e., it is resources
embedded in social connections); (ii) the amount of those resources produced by the totality of
the relationships between actors, rather than merely a common quality of the group; and (iii) the
quality of those resources. Coleman (1990:302) defines social capital by its function. It is not a
single entity, but a combination of different entities having two characteristics in common: it is
an aspect of a social structure, and it facilitates certain actions of individuals who are within that
structure. The entities include obligations, expectations, trust, and information flows. It is a
productive resource that facilitates production and make possible to achieve certain ends that
would be impossible in its absence. Social capital inheres in the structure of relations between
and among actors. It facilitates the actions of individual actors and forms the basis of social
capital. Efforts to take membership in a group can be seen as rational investments in social
capital. Coleman identifies three forms of social capital: reciprocity (including trust), information

11
channels and flow of information, and norms enforced by sanction. Actors (individuals or
organizations) can use these resources to achieve their ends. Unlike other forms of capital, it is
not completely fungible across individuals or activities. Social capital is inherently social, most
forms of capital developed through combined actions of group members. For Coleman, social
capital is a public good as it exists in the relations among people. For Bourdieu and Coleman,
social networks are seen as the means by which collective capital can be maintained and
reinforced. Robert Putnam played a prominent role in popularizing the concept of social capital.
He defines social capital as: “... features of social organization, such as trust, norms, and
networks that can improve the efficiency of society by facilitating coordinated actions” (Putnam,
1993: 167). Social capital refers to connections among individuals—social networks and the
norms of reciprocity and trustworthiness that arise from them (Putnam, 2000: 18−19). For him,
social networks have value and social contacts affect the productivity of individuals and groups.
Social capital is closely related to ‘civic virtue’. The number of civic associations and degree of
participation in those associations indicate the richness of social capital in a society. In that sense
social capital is closely related to civic engagement, participation in voluntary organizations and
social connections, which fosters sturdy norms of reciprocity and trust. Networks of civic
engagement facilitate societal cooperation, coordination, and communication; strengthen
reputations; and, thus, allow dilemmas of collective actions to be resolved. Social capital affects
the productivity of actors (individuals and groups) and it possesses the characteristics of public
good. Because of its collective nature, it cannot be transformed into a private good. Stocks of
capital (trust, norms, and networks) accumulate in use and diminish if they are not used. A
significant contribution to social capital theory was made by Francis Fukuyama. He offered the
more specific but significantly different definition of social capital. He defines social capital in
terms of trust as: “... the ability of the people to work together for common purposes in groups
and organizations” (Fukuyama, 1995: 10). Alternatively, he defines social capital simply as the
existence of a certain set of informal values or norms shared among members of a group that
permit cooperation among them (Fukuyama, 1995). He contends that interpersonal trust is
fundamental for social relationships to emerge. Mutual trust improves the cooperation between
individuals, reduces transaction costs, and increases business transactions. Fukuyama emphasises
on the qualities in social relationships (interpersonal trust, reciprocity, shared norms and
understandings, etc.), which permits people to associate with others, and it helps to develop

12
social capital. Fukuyama’s significant contribution to the theory of social capital is that he
provided a single, most straightforward means to measure social capital: the proportion of people
who think that ‘most people can be trusted’. Nevertheless, given the multidimensional nature of
social capital, it should be just one, but not the only, indicator of social capital. Lin (2001: 19)
defines social capital as: “... investment in social relations with expected returns in the
marketplace.” Operationally, Lin defines social capital as the “... resources embedded in social
networks accessed and used by actors for actions” (Lin, 2001: 24−25). The concept has two
important elements: (i) it represents resources embedded in social relations rather than
individuals, and (ii) access and use of such resources reside with actors. The first element implies
that social capital can be envisioned as an investment by individuals in interpersonal
relationships useful in the market. It is an investment in social connectedness through which
resources of other actors can be accessed and borrowed. Lin’s concept of social capital has a
more individualistic approach. Actors engage in interactions and networking in order to produce
benefits. Lin treats social capital as a social asset by virtue of actors’ connections and access to
resources in the network or group of which they are members. Robison et al. (2002) defines
social capital as: “... a person’s or group’s sympathy toward another person or group that may
produce a potential benefit, advantage, and preferential treatment for another person or group of
persons beyond that expected in an exchange relationships.” They argue that this definition
contains the properties of classical capital and it separates what it is (sympathy) from what it
does (potential benefits) and focus on transformative capacity of capital residing (embodied) in
human relationships. Major international organizations, particularly the Organization for
Economic Cooperation and Development (OECD) and the World Bank has adopted their own
definition. The OECD (2001: 41) defines social capital as: “... networks together with shared
norms, values, and understandings that facilitate cooperation within or among groups.” The
World Bank takes a broader view and defines social capital as: “... the institutions, relationships,
and norms that shape the quality and quantity of a society’s social interactions. Social capital is
not just the sum of the institutions which underpin a society—it is the glue that holds them
together” (World Bank, 2007). Quibria (2003) reviewed different definitions and comments
concluding that social capital is an individual asset that comes from access to networks and
social connections, whereas others view it as a shared asset that resides in a homogenous
collective entity—such as a community with common interests and shared values. Some others

13
have focused on trust and tolerance, while others have focused on the degree of civic and social
engagements as the vehicle of such social capital. Still others have highlighted issues of culture
and social norms. Needless to say, adoption of social capital by social scientists from different
background has led to the multiple definitions. The variety of definition is not due to lack of
understanding about what social capital is, but it is due to various dimensions of social capital.
Robison et al. (2002) write that the differences in definition have arisen primarily because
scientists have included in the definition expressions of its possible uses, where it resides, and
how its service capacity can be changed; which the author argues should not be include in its
definition. In his view, social capital can be deconstructed into what it is, where it resides, what it
produces (how used), and how it produces. Nevertheless, the basic notion of those definitions
falls within the broad framework of Bourdieu who said that, “It’s not what you know but who
you know that matters.” There are voluminous literatures discussing definition and measurement
of social capital but none of them have come up with firm, non-disputable definition. There is
still considerable debate in the academic community about what refers to social capital and what
its major components are that makes it representative to all situations. Given its complex nature,
it is not surprising to see many definitions and also it is not reasonable to expect a universal
definition. Nevertheless, over time, the concept has been fine-tuned and there is commonality on
the meaning of social capital. The set of definitions representing different view broadly agree
with the view that the basic foundation of social capital is the social relations that engenders
individual and collective benefits. Social capital is a multidimensional construct containing
various forms and functions. Encompassing different view, social capital can be regarded as a
collective asset in the form of social relations, shared norms, and trust that facilitate cooperation
and collective action for mutual benefits. It is a capital asset produced through actor’s
investment, endowing investors to use as credits by virtue of connections. Social relations are
regarded as an asset of an individual—a resource in the form of information and trust that actors
can draw dawn once accumulated. Availability of the capital allows achieving certain goals that
would otherwise be impossible in the absence of capital. Social relations vanish if not
maintained; reciprocity decline over time; and norms depend on regular communications
(Coleman, 1990). This implies that the actor’s investment strengthens and reinforces the capital
while disinvestment leads to a decline of the capital. Elements that are crucial to the definition
and conceptualisation of social capital can be grouped into three broad categories: social

14
networks (of families, friends, communities, and voluntary associations), norms of reciprocity
(shared norms, values, and behaviours), and trust (in other people and institutions). Specifically,
social capital involves informal social relations, memberships in social networks and groups,
civic engagements (volunteering), community and organizational participation (volunteering),
trust in the people and institutions, and norms of reciprocity. It is a collectively-owned resource
generated through individuals’ shared norms, values, attitudes, and behaviours that produces
mainly a positive influence on economic development.

Concept of Competitive Advantage

In recent years the concept of competitive advantage has taken center stage in discussions of
business strategy. Statements about competitive advantage abound, but a precise definition is
elusive. In reviewing the use of the term competitive advantage in the strategy literature, the
common theme is value creation. However, there is not much agreement on value to who, and
when. According to one school of thought, value is created by favorable terms of trade in product
markets. That is, sales in which revenues exceed costs. However, scrutiny of the concept of
“cost” quickly reveals problems. What is the “cost” of a scarce resource? Another school of
thought holds that advantage is revealed by “super-normal” returns. Again, questions quickly
arise. Internal returns are normally measured by some type of market-book ratio. Such ratios
include return on capital, return on assets, market-to-book value, and Tobin’s Q. Given such a
measure, are supernormal returns “super” relative to the expectations of owners, the economy as
a whole, or the rest of the industry? A third school of thought ties advantage to stock market
performance. According to financial economics, superior stock market performance stems from
surprising increases in expectations. Thus, after 9/11, the stocks of defense companies rose
dramatically. Does this signal competitive advantage? To illustrate various approaches to these
issues, I summarize below a variety of thoughts on the subject by important contributors.

• Porter says “competitive advantage is at the heart of a firm’s performance in competitive

markets” and goes on to say that purpose of his book on the subject is to show “how a firm can
actually create and sustain a competitive advantage in an industry—how it can implement the
broad generic strategies.” Thus, competitive advantage means having low costs, differentiation
advantage, or a successful focus strategy. In addition, Porter argues that “competitive advantage

15
grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s
cost of creating it.”

• Peteraf [1993] defines competitive advantage as “sustained above normal returns.” She defines
imperfectly mobile resources as those that are specialized to the firm and notes that such
resources “can be a source of competitive advantage” because “any Ricardian or monopoly rents
generated by the asset will not be offset entirely by accounting for the asset’s opportunity cost”
(i.e., its value to others).

• Barney [2002: 9] says that “a firm experiences competitive advantages when its actions in an
industry or market create economic value and when few competing firms are engaging in similar
actions.” Barney goes on to tie competitive advantage to performance, arguing that “a firm
obtains above-normal performance when it generates greater-than-expected value from the
resources it employs. In this final case, the owners of resources think they are worth $10, and the
firm creates $12 in value using them. This positive difference between expected value and actual
value is known as an economic profit or an economic rent.”

• Ghemawat and Rivkin [1999: 49] say that “A firm such as Nucor that earns superior financial
returns within its industry (or its strategic group) over the long run is said to enjoy a competitive
advantage over its rivals.”

• Besanko, Dranove, and Shanley [2000: 389] say “When a firm earns a higher rate of economic
profit than the average rate of economic profit of other firms competing within the same market,
the firm has a competitive advantage in that market.” They also carefully define economic profit
[1999:627] as “the difference between the profits obtained by investing resources in a particular
activity, and the profits that could have been obtained by investing the same resources in the
most lucrative alternative activity.”

• Saloner, Shepard and Podolny say that “most forms of competitive advantage mean either that
a firm can produce some service or product that its customers value than those produced by
competitors or that it can produce its service or product at a lower cost than its competitors.”
They also say that “In order to prosper, the firm must also be able to capture the value it creates.
In order to create and capture value the firm must have a sustainable competitive advantage.”

16
• John Kay [1993: 14] defines distinctive capabilities as ones derived from characteristics that
others lack and which are also sustainable and appropriable. “A distinctive capability becomes a
competitive advantage when it is applied in an industry or brought to a market.” Kay [p. 194]
measures the value of competitive advantage as valued added, with the costs of physical assets
measured as the cost of capital applied to replacement costs.

• Dierickx and Cool [1989: 1059] have echoed Barney [1986] in arguing that competitive
advantage is not obtainable from freely tradable assets. “if a privileged product market position
is achieved or protected by the deployment of scarce assets, it is necessary to account for the
opportunity cost of those assets. Many inputs required to implement a strategy may be acquired
in corresponding input markets. In those cases, market prices are indeed useful to evaluate the
opportunity cost of deploying those assets in product markets. However, the deployment of such
assets does not entail a sustainable competitive advantage, precisely because they are freely
tradable.”

• Brandenberger and Stuart [1996] discuss multi-agent games (industries) and examine the
conditions under which players can appropriate a portion of the total gains to trade. Agents
include buyers, suppliers, and producers. Total gains to trade are maximum available from the
assignments among agents. They conclude that the maximum value appropriated is limited by
the agent’s value added to the game—the amount the game’s total value is increased by the
agent’s presence. In addition, “To have a positive added value it must be ‘different’ from its
competitors . . . . . enjoying a favorable asymmetry . . .”

• Various strategy consulting firms measure competitive advantage in terms of shareholder

returns.

Concept of Innovation

Innovation is one of the most important concerns of each organization and its role in the
development and coordination of the market is inalienable. Innovation in all human areas is
applicable from product development, methods of management, ways of doing works and etc. In
all of definition used for innovation, changing or improvement of the process or product are
common. Innovation is a process that begins with introduction to plan of an idea and will
become a new function and so it different from creation.

17
Many authors as (Rowe and Boise 1974), (Dewar & Dutton 1986), (Rogers, 1995), (Utterback
1994), (Afuah 1998), (Fischer, 2001), (Garcia& Calantone, 2002), (McDermott & O’Connor,
2002), (Pedersen & Dalum, 2004), (Frascati Manual, 2004) have combined technology and
market perspectives in their development of theoretical models of innovation.

Some authors are saying that innovation consists of the generation of a new idea and its
implementation into a new product, process or service, leading to the dynamic growth of the
national economy and the increase of employment as well as to a creation of pure profit for the
innovative business enterprise (Urabe, 1988).

In general, the concept of "innovation" - a rather complex and multifaceted, his study of the
subject of many studies, but, despite this, the generally accepted definition of innovation in
science does not exist. There are three main approaches to the consideration of the term (Siauliai,
2013).

Schumpeter, which may be called the founder of the theory of innovation in the economy
generally, regarded innovation as the economic impact of technological change, as the use of
new combinations of existing productive forces to solve the problems of business (Schumpeter,
1982).

According to Twiss, innovation - a process that combines science, technology, economics and
management, as it is to achieve novelty and extends from the emergence of the idea to its
commercialization in the form of production, exchange, consumption (Twiss, 1989).

(Afuah, 1998) refers to innovation as new knowledge incorporated in products, processes, and
services. He classifies innovations according to technological, market, and
administrative/organizational characteristics.

Concept of management practices

Excellence in management is a must in today’s competitive business environment. Business has

become complex and global. Traditional management practices like: strategy planning, personnel
organization, budget setting and problem solving on a daily basis are still essential. Yet the
emphasis is shifting. More and more significance is being placed on the organizations ability to
survive and to achieve performance in these turbulent times. Management practices must evolve

18
and change to continue to meet the need of an organization. Organizations face many problems,
but of them all, two could be the most impactful: how to grow a business, and how to ensure that
the growth helps the organization become sustainable over the time (Rieley, 2006). Over time, as
they continue to grow organizations will face several things. As growth occurs, organizations
find themselves facing the challenge of increasing employee skills and increasing the level of
customer satisfaction. At the same time, companies need to be able to reduce costs and ensure
that they don’t lose sight of their long-term vision for their future. Organization’s management
should be guided by one objective increasing the organizations performance. Examples of such
targets could be maintaining or increasing the number of working places, environmental
protection or increasing customer satisfaction. But could these objectives result in increased
welfare for the business (Ciobanu, 2006)?

Comparing best managerial practices from United States and Japan

Organizational practices are of great concern to every company on the globe. In recent years
many Romanian business have looked to US, Japan and other European countries to find
answers to the financial crisis. For example the Japan's phenomenal success in increasing
performance is often attributed to its managerial competence. These are numerous books on both
United States and Japanese management. Since Japan and United States present contrasting
managerial approaches, Romanian managers should probably adopt aspects from either one.
The problem would be finding the best suitable managerial practices that would be appropriate
for making Romanian business more effective and efficient thus increasing its organizational
performances. Of course it is obvious that not all companies are managed the same way as
discussed here. The managerial functions will serve as a framework for comparing and
contrasting the managerial approaches in these countries (Weihrich, 1990).

1 Planning

Planning is choosing the purpose and objectives of the organization as a whole or a part of it
and selecting the means to achieve those ends. It requires making decisions. The Japanese, in
general, have a longer-term orientation in planning than U.S. managers. One reason for this is
that in Japan banks are the primary providers of capital and their interest is the long-term
health of the businesses. In contrast, U.S. managers are often under pressure by stockholders to

19
show favorable financial ratios each time they report them. This, unfortunately, may not
encourage investments that have a payout in the more distant future. This is why decisions are
often made on short-tem.

2 Decision making

In Japanese companies a very important aspect is how the decisions are taken. A very large
numbers of levels are involved in discussion the decision. The final decision is still discussed and
authorized by the top management, but before the proposal reach the final level, the problem and
possible solution are discussed at various levels in the organizational hierarchy. In U.S.
organizations, usually only a few people are involved in taking decisions. The decision-
making is rather fast, but its implementation is very time-consuming and requires compromises.
After the decision has been made it has to be sold to people with different values and
different perceptions of what the problem really is and how it should be solved .

3 Organizing

In order to contribute effectively and efficiently to the aims of the business, organizing involves
setting up a structure to coordinate human effort. This requires determining roles,
responsibilities, and accountability. In Japanese companies, largely due to the search for
consensus in decision-making, the emphasis is on collective responsibility and accountability.
Individual responsibilities, then, are implied rather than explicitly defined. Organizations in
the United States emphasize individual responsibility, with efforts to clarify and make
explicit who is responsible for what. Job descriptions are perhaps the best evidence of this.
Many organizations, especially those operating in a stable environment, have been rather
successful in using the formal bureaucratic organization structure. As far as the climate is
concerned, not many managers make special efforts to create a commonly shared organization
culture.

4 Leading

Leading involves the process of influencing people so that they contribute to organizational
aims. It is concerned with leadership, motivation, and communication. In Japan the social
integrators are the managers who are seen as part of the work group. Using a paternalistic

20
leadership approach, managers show great concern for the welfare of their subordinates.
Common values and a team spirit facilitate cooperation. The role of managers is to help out in
doing the same work as their subordinates do. In United States companies leaders are seen as
decision-makers heading the group. They are expected to be directive, strong, and determined.
Their job is to integrate diverse values, but the emphasis on individualism in the society in
general and in organizations in particular may hinder cooperation. Managers are expected to take
decisive actions, and clarify the direction of the group or the business, even if this requires face-
to-face confrontation with those who may disagree.

5 Control

In the view of Western managers, controlling involves setting standards, measuring

performance, and correcting undesirable deviations. To the Japanese, this process is less
direct. The group, its dynamics, and its pressures have a profound impact on the managerial
process. Control in the United States often means measuring performance against precise
standards. Management by objectives, widely practiced in this country, requires the setting of
verifiable objectives against which individual performance is measured. This way the superior
can trace deviations to specific people and this frequently results in fixing the blame. In an
attempt to maximize individual results, group performance may suffer.

To adapt to these and other changes, Romanian managers look at both Japanese and United
States managerial practices and compare them with their past experiences. Some may be
transferable, but others are not. The environment, especially socio-cultural factors, does
influence practice, but its impact may have been overstated.

Examples of managerial practices

Today, managers are expected to continuously increase performance. Managers are required to
do more, but with fewer resources. For senior management standard response to increasing
competition and decreasing profits mean budget cuts and layoffs. When effectively implemented,
management best practices result in a wide range of benefits for employees, managers and
companies. In order to ensure this employees need a clear understanding of individual goals and
how they fit into the larger organization (Rieley, 2006). Regularly tracking progress against
performance goals and objectives also provides the opportunity to recognize and reward

21
employees for performance and exceptional effort, contributing to job satisfaction and
productivity. We have identified a few managerial practices which could be of use for all types
of industry.

Setting the goals

Goals should be focused on making processes effective. There are several elements which should
be taken into account when developing the goals. First, goals should be written clearly and
objectively, and second they have to focus on contributing to the achievement of business
strategy. Usually departmental managers set the goals for their department. That’s how process
begins. The department goals are always correlated with the organizations goals, which support
the general business strategy. Members of different departments support each other and are
working for the same purpose if the goals are accessible, while conflicts are also diminished.
Each manager identifies together with his/hers employees the individual performance goals and
plans. The main reference for setting goals should include responsibilities and job expectations.
For example (MacMillan, 2006), the "what" covers quality or quantity expected, deadlines to be
met, cost to deliver, etc. The "how" refers to the behavior demonstrated to achieve outcomes, for
example, focus on customer service. In addition, some organizations choose to include
competencies within performance expectations, to reinforce the link to business strategy, vision
and mission. An example of setting goals is the SMART framework (Doran, 1981): S – Specific
M – Measurable A - Achievable/Attainable R - Results oriented/ Realistic/Relevant T - Time
bound

Planning the performance

The basis being set, by using established goals, the next step should include performance
planning by setting an actionable plan and communicating the objectives to successfully achieve
goals. We understand by performance planning a collaborative process between the manager and
employee. Even though there are some elements that are not negotiable, job description and job
expectations can be clarified for each major areas. Planning the performance it is important to
identify long-term and short-term goals, along with action plans around how they will be
achieved. Also the plan should include details about how goals progress will be evaluated, any
obstacles that would stand in the ways of these goals to be achieved. Performance planning and

22
ongoing performance feedback are critical because they facilitate continuous improvement and
aid open communication.

Trained and Prepared

A manager managing an organization is not an easy task and requires many skills. Trained and
prepared managers are required in order to effectively complete all the tasks related to the
company. Their job is quite complex. They not only need to understand how process work, but
also they will deal with people. Managers need to understand human behavior, how to motivate,
how to develop, provide coaching and deal with conflict. To a great extent, managers must be
observers and able to assess a situation, provide motivation and identify problems that interfere
with performance. In addition, managers must understand that individuals at different levels of
comfort, ability and experience with their jobs will require different levels of input, support and
supervision. A manager who feels adequately prepared to provide and receive feedback, deliver a
performance evaluation and conduct a performance evaluation meeting will be a major
contributor to a successfully functioning process (MacMillan, 2006).

Performance measurement

Defining appropriate measures is a critical step in performance measurement. Selecting the right
set of measures is also an important decision. One view is to establish a single global measure of
performance, like revenue. Many studies suggest that a single measure of performance is not
sufficient to capture all factors contributing to an organization’s strategic performance, but a
system of measures must be employed. For example in the case of financial measures the
company could include: ROI, return on sales, revenue growth, sales by employee and sales to
assets etc. (Altinkemer et all, 1998). More than one productivity or financial performance
measures are needed to accurately judge a firm’s performance rather than a single productivity or
financial measure. The objective of business change should be long-term strategic performance,
which is best captured by a system of measures. The measure of performance has a powerful
influence on people’s behavior, and changing measurement and reward system is essential for
successful process change. Similarly measures used to evaluate business change could influence
the behavior of those leading business changes.

Link Performance Management with Rewards and Recognition

23
The existence of performance process that is fair and equitable ensures the effectiveness of a link
between performance management and rewards. There are several ways to provide recognition
for a job done properly like: formal recognition events, informal public recognition or privately
delivered feedback or compensation. Employees need to know that if an individual in one
department is identified as a top performer and compensated accordingly, then an employee
performing at the same level in another department will receive similar rewards. The open
organization climate ensures that employees will be able to honestly discuss improvements in
order to move to better performance. Also annual surveys, focus groups and managers feedbacks
are needed to evaluate the process itself.

In conclusion we think that there is no single managerial practice that can transform an
ineffective system into a good one. In order to increase performance coordination of multiple key
practices are required. The more of these practices that are in place, the more likely an
organization system is to be seen as effective. It is amazing to look back at the different changes
that management has gone through in the past twenty years. But even with the latest management
trends that supposedly solve all the management problems there are two things that remain
constant:

1. Managing an organization to high performance is not easy.

2. There are a few organizations that are able to constantly demonstrate high
performance on a long-term. The top managers of companies that are able to sustain consistent
performance growth over time seem to have a clear understanding that everything that has to do
with organizational performance is interrelated and being able to command an understanding of
those relationships can be a significant differentiator in business today.

2.5 EMPERICAL REVIEW AND HYPOTHESIS DEVELOPMENT

A lot of research has been conducted on how social capital management can be used in
organizations to gain competitive advantage and innovation in the contemporary world. Research
has examined how social capital affects organizational competitiveness. There have been many
scholarly works that describe the relationship between social capital and organizational
performance. Recent studies have explored the impact of social capital and specific management

24
practices on firm performance in terms of productivity, profitability, innovation, competitive
advantage etc.

At the firm level, connection between people within the firm and with outside parties can give
firm or individuals access to new resources, which can be considered as the firm's social capital
(Burt, 2000). Social capital is of importance to organizational performance, however, personal
social capital cannot be owned by the organization, it can only be owned and utilized by the
individual actors, once the individual leaves the organization, the organization will lose the
individual social capital. In general, at the organizational level, social capital can affect
organizational performance positively, at this point, the personal network is generally seen as a
whole network, and the network is considered as the valuable organizational assets, actors in the
network are considered as a whole group, instead of independent point, and focus on the total
effects of network, rather than the effects on individual actors, even some actors in the network
may not acquire equal or more value in the exchange process within the network, however, in
detail, the different dimensions of social capital may influence the organizational performance
differently. First of all is the structural social capital, the network structure will have significant
influence on organizational performance, the social network structure can be seen as the way
people interact with each other, a good manager should be able to get the right people at the right
position and explore the opportunities (Gregory et al., 2001). However, from the whole
organization perspective, the researches about the structural social capital are not consistent,
some researches have shown that it is benefits for the organizational performance, such as
reaching niche market, sales revenue (Mariel Fornoni et al., 2012), PETER MORAN's research
indicated that, compared with relational social capital, structural capital plays a stronger role in
explaining routine, execution-oriented tasks (PETER MORAN, 2005), some researches do not
confirm this, for instance, structural social capital is unrelated with organizational performance
(Rhys Andrews, 2010), the structural embeddedness has no direct impacts on organizational
performance (Bat Batjargal, 2003), the density of personal contacts and diversity of contacts
have no significant relationship with organizational performance (Dan Ofori et al., 2010), the
structural dimension of an entrepreneur's social capital cannot facilitate their access to
information (Mariel Fornoni et al., 2012), some research show nonlinear relationship, network-
level diversity has an inverted U-shaped relationship with the firm's innovation performance
(Sui-Hua Yu, 2013), some even have shown negative effects, for example, the social class

25
diversity has negative relationship with core service performance (Rhys Andrews, 2010). It
cannot be generally said the effects of structural social capital at the organizational level,
different researches focus on different aspects, and different aspects have different influences,
even the same dimension, the influence is still uncertain, take the density and information
sharing as an example, the sparser the network, the likely the information and knowledge
available to those contacts are non-redundant (PETER MORAN, 2005), however, the sparse
network may not benefit for the building of strong ties and trust, while strong ties and trust is one
of the core base for valuable information sharing (Uzzi, 1997), as a consequence, the effect of
structural social capital at the organizational level is uncertain. The resources owned by the
individual in the network also have significant influence on the organizational performance,
Batjargal considered resources dimension of social capital as the value of resources network
agents are able to provide (Batjargal, 2003), according to the resource based theory (RBT), the
valuable, rare, costly to imitate, non-substitutable resources can be the source of competitive
advantage, without doubt, the resources owned by the individual actors decide the organizational
performance at some extent, for example, the resources dimension of an entrepreneur's social
capital facilitates their access to finance, production, information (Mariel Fornoni et al., 2012).
Social network, even the social capital cannot create or add value for the firm itself, but through
the exploration and utilization of the resources embedded in the network, for instance, the
network ties cannot directly influence the organizational competitiveness improvement, but
through the totally mediation effects of information sharing (Wei-ping Wu, 2008). In general,
according to the RBT, in the personal network, the valuable, rare, costly to imitation, non-
substitutable resources can provide potential benefits for the organizational performance, while
this potential benefit itself cannot improve the organizational performance, instead, it can only be
explored and utilized through the interaction and exchange between the actors in the network.
Since interactional dimensions are similar to the previous relational and cognitive social capital,
many researches have shown the positive relationship, for example, Rhys Andrews's research
showed that relational and cognitive social capital are positively related organizational
performance (Rhys Andrews, 2010), relational social capital plays a strong role in explaining
new, innovation-oriented tasks (PETER MORAN, 2005), cognitive aspects of social capital help
to build shared visions and goals for the organization, thus will benefit the organizational
performance (Dan Ofori et al., 2010). Trust is the core concept of the interactional dimensions,

26
and is the key factor of social capital accumulation (Leana et al, 1999), while trust can lower the
transaction costs (Gregory et al., 2001), thus will be benefit for the organizational performance;
Besides, because of the intangible nature and stickiness of tacit knowledge, thus trust is the core
base for the transmission of tacit knowledge within the organization, as a result, trust in the
network is critical for knowledge sharing, thus has significant positive relationship with
organizational performance (Dan Ofori et al., 2010); Moreover, there exists both formal and
informal relationship between each other, and social network is of importance for informal
contact, thus can promote the sharing and interaction between network members (Filip
Agneessens et al., 2011), thus in the personal network, informal relationship can promote the
interaction and information sharing in the network. However, there are rarely researches show
that the interactional dimensions, like trust, shared vision, have negative influences on the
organizational performance, In general, from the network perspective, interactional dimensions
like trust, informal relationship may not directly influence the performance at the organizational
level, but through promoting the interaction, information sharing, then influence the
organizational performance.

2.5.1 HYPOTHESIS DEVELOPMENT

Social capital and innovation activities

There is a profusion of definitions of social capital (SC) in the literature. In this study, social
capital is defined as the values and properties such as social interaction, mutual trust and
understanding, shared vision and norms, which allow organizational members to work toward a
goal successfully. It is recognized as a multidimensional construct consisting of structural,
relational, and cognitive capital.

Structural social capital (SSC) is about the overall network of relationships and accessibility of
network members. From an organizational perspective, ease of access among organization
members (both in terms of hierarchical structure and spatial proximity) is important for
communication and sharing. Relational social capital (RSC) is about the quality of relationships
in a network. Normative characteristics of relationships such as mutual respect and trust,
reciprocity, norms, identification are studied under relational social capital. Cognitive social
capital (CSC) relates to common understanding and values, shared vision, and goals.

27
Innovation is considered imperative for organizational success. Methods, practices, and systems
in other organizations can be borrowed and implemented in an organization, and they will be
considered innovations as long as they are new for the adopting organization. Djellal & Gallouj
state that innovation efforts in hospitals have frequently been unrecognized and underestimated
and that to fully appreciate innovation efforts in hospitals, a more broad and open definition of
innovation should be adopted. They argue that not only radical innovations but even incremental
innovations resulting from a simple change and adaptation should be considered. We define
innovations as the intentional developments and improvements made in services and/or
processes to achieve a certain desired outcome. Following Djellal & Gallouj, we do not limit
innovation activities to radical, large-scale innovations and consider small-scale, incremental
innovations as well. Furthermore, we focus on service and process innovation ‘adoption’ rather
than ‘generation’. Innovation activities, in this study, refer to the in-hospital efforts and activities
involved in the implementation of these innovations.

It is commonly expressed that innovation requires the convergence of knowledge from different
actors and that social capital enables this convergence. Innovation is considered to be a social
learning process that entails the participation of many different actors.

Most research in the extant literature shows a positive relationship between social capital and
innovation. The existence of trust among members of an organization has been shown to enhance
communication and cooperation and facilitate resource exchange and combination which then
positively affect product innovation. Frank et al. investigated the diffusion of innovations within
schools, and they concluded that when individuals identify themselves with their organization
and think that they share a common faith, they may exert social pressure on their colleagues for
coordination and successful implementation of innovations.

Leenders et al. found an inverted U-shape of the relationship between tie strength in a team and
team creativity. They delineated that a very low or very high level of interaction frequency
impeded team creativity, and that team creativity was highest with moderate interaction
frequency. On the other hand, it is indicated by Damanpour that less interaction would be more
desirable in the idea generation stage of innovation, whereas during the innovation
implementation stage, more interaction and closer ties are desired to build solidarity. Since the
idea generation stage of innovations in this study does not occur inside the hospitals, it is not

28
taken into consideration. Only the implementation stage of the innovations is relevant for this
study. Hence, high social interaction, and close relationships are expected to have a positive
effect on innovation activities, and we argue that social capital will have a positive impact on
innovation activities.

H1: Social capital has a direct and positive effect on innovation activities.

Social capital, innovation activities, and intellectual capital

Intellectual capital (IC) can be added to the list of concepts that has an abundance of definitions
despite the arduousness of conceptualizing it. In the literature, IC is commonly studied as a
multidimensional concept consisting of three main constructs: human, structural, and customer
capital.

In this study, IC is defined as the knowledge and knowing capability of an organization

consisting of human, structural, and customer capital. Human capital (IC-HC) consists of an
organization’s members’ knowledge, capability, experience, and skills. It is the knowledge stock
and power an organization possesses via its members. Structural capital (IC-SC), on the other
hand, comprises all the knowledge apart from IC-HC; business procedures, policies and
strategies, processes, routines, organizational charts, and manuals. It is expressed as the
knowledge retained in the organization after the employees leave. Customer capital (IC-CC) is
about the knowledge embedded in an organization’s relationships and networks with its
customers.

The empirical studies in the extant literature investigating the relationship between SC and IC
display mixed results. While most studies support the theoretical framework outlined by
Nahapiet and Ghoshal and confirm the positive influence of SC on IC, some of the studies do
not. Wu and Tsai find a positive relationship between SC and knowledge-creating activities and
IC while Demartini found a negative relationship between CSC and SSC and IC, and a positive
relationship only between RSC and IC. Furthermore, in some studies, SC was found to be a
moderator of IC. In this study, we postulate that SC affects IC directly and also indirectly via
innovation activities.

H2: Social capital has a direct and positive effect on intellectual capital.

29
Social capital, innovation activities, intellectual capital, and organizational performance

Organizational performance (PERF) in this study is considered to be a multidimensional concept

that uses financial and non-financial indicators to measure its success in reaching its
predetermined goals. The empirical evidence on the relationship between SC and PERF suggest
both direct and indirect relationship. In the extant literature, it is commonly expressed that SC
enhances PERF by fostering cooperation and coordination or by facilitating knowledge transfer
resulting in increased IC, which in turn increases PERF via improved innovation.

Similarly, the studies exploring the effect of IC on PERF also provide support for both direct and
indirect effects. IC has been shown to affect PERF via knowledge management capabilities and
intellectual property. The studies of Bontis, Bontis et al and Sharabati et al. show a positive
direct link between IC and PERF. Therefore, following the evidence from the literature, we can
say that SC is expected to affect PERF indirectly through IC. Hence, we posit that:

H3: Intellectual capital mediates the relationship between social capital and organizational
performance.

The positive effect of innovation on PERF has been well established in the extant literature.
However, in this study, we are investigating the effect of innovation activities (INNO) rather
than the innovation itself on PERF. Adopting and implementing innovation is a complex process
affecting many intermediary factors along the way. This is especially true when process
innovations are considered where the effects are expected to be mostly indirect rather than direct.
Consequently, we do not expect INNO to directly affect PERF. On the other hand, as mentioned
previously, innovation can be considered as a process of learning and knowledge creation that
can trigger new waves of knowledge creation. Hence, we believe that efforts exerted and
activities performed during the process of innovation implementation may contribute to
organizational IC, which in turn contributes PERF. Hence, we believe that INNO affects PERF
only indirectly. We posit that:

H4: Intellectual capital mediates the relationship between innovation activities and
organizational performance.

30
Building on our discussion in previous sections, we can argue that SC facilitates INNO, which
may trigger the creation of a new IC, which in turn may increase PERF. Accordingly, we posit
the following hypothesis:

H5: Innovation activities and intellectual capital serially mediate the relationship between social
capital and organizational performance.

Table 1. Summarizes the hypotheses of the research model. The conceptual framework, which
depicts the relationship between the main constructs of the research, is delineated in Fig. 1.

Table 1. Summary of the Hypotheses.

Hypothesis Independent variable Dependent Expected

variable sign

H1 Social capital Innovation +

activities

H2 Social capital x Innovation activities Intellectual +

capital

H3 Social capital x Intellectual capital Performance +

H4 Innovation activities x Intellectual capital Performance +

H5 Social capital x Innovation activities x Performance +

Intellectual capital

Fig. 1. Conceptual framework.

31
2.6. CONCEPTUAL FRAMEWORK
A conceptual framework can be defined as a set of broad ideas and principles taken from
relevant fields of enquiry and used to structure a subsequent presentation (Reichel & Ramey,
1987).) Conceptual framework is lined with the concepts, empirical research and important
theories used in promoting and systemizing the knowledge espoused by the researcher (Peshkin,
1993). Today, the success of organizations cannot be evaluated only in terms of the accumulation
of material wealth, physical facilities, and technology, since the financial, human, and physical
capital cannot be effective without social capital (Safarzadeh et al, 2010). The concept of social
capital has a profound relationship with the working environment and may be more important
than human capital in terms of achieving corporate interests such as reduction of transport costs,
improving information sharing, and increasing confidence in the organization, stability, common
goals, and maintenance as well as retention of staff (Timberlake, 2005).

Conceptually, there is a relation between social capital and organizational performance,

according to this framework. The conceptual framework hypothesized that there is a positive
relationship between social capital and organizational performance in the schooling industry.

Employee engagement

Organizational
Employee commitment
Social Capital Performance

Employee performance

FIGURE 2.1 Conceptual Framework showing the relationship between Social Capital and
Organizational Performance.

Source: author’s own construct (2023)

32
2.6.1 FORMS AND DIMENSIONS OF SOCIAL CAPITAL
Forms of Social Capital

Social capital can be divided into internal social capital and external social capital depending on
where actors obtain their resources. Acquaah (2011) suggests that internal social capital is
derived from social networks and connections among individuals. On the other hand, external
social capital is derived from the relationships between external stakeholders and actors,
organizations, or communities.

Dimensions of social capital

Administration literature suggests that social capital has three interrelated dimensions:
relationship capital, structural capital, and cognitive capital. Despite the similarities between the
three dimensions of social capital, each dimension has unique characteristics.

Relational Dimension

Personal relationships are built over time as people interact with each other (Nahapiet and
Ghoshal 1998). It encapsulates the attributes and qualities of individual relationships. Therefore,
friendship, trust, respect, and shared history are essential. Described in relational dimension,
character and qualities are characterized by trust, cooperation, and identity within a network. In
relational social capital, trust, trustworthiness, respect, friendship, and more are part of the
resources generated and leveraged through the relationship.

Structural Dimension

Nahapiet and Ghoshal (1998) define structural social capital as the properties of social systems
and networks in general. Harpham (2008) describes structural social capital as the actions that
can be objectively verified (by observation and records). The structure of social capital is the
pattern of connecting with other actors: who you reach, how you reach them, and what resources
and information you share (Nahapiet and Ghoshal, 1998).

The structural dimension encompasses network elements and aspects including the connections
between parties, the configuration of networks, and concepts such as density in relationships,
structural holes in networks, ties between individuals, formal and informal network

33
configurations. A number of structural and relational dimensions of social capital are further
classified as social networks and ties, and whether the ties are strong and diverse, if they are
horizontal or vertical, or whether they are formal or informal (Burt, 2002).

Cognitive Dimension

In cognitive social capital, we refer to what people feel (values and perceptions) (Harpham,
2008). Cognitive resources are those that enable shared representations, interpretations, and
systems of meaning. In this way, parties obtain resources from a shared set of goals, a common
vision, and common representations, interpretations, and meaning systems. Parties share
meanings and interpretations in a relationship in this dimension. We can predict that the
cognitive dimension will directly impact social capital development and the development of
relationships (Nahapiet 2008, Krause et al. 2007), as it captures notions of shared norms, systems
of meaning, and values.

Dimensions of Competitive advantage

Providing a better value to customers gives businesses a competitive advantage. Lower prices
and higher quality products attract customers. Target markets recognize these unique products.
Creating competitive advantage involves determining the factors that can help a firm
differentiate itself from its competitors. There are four competitive capabilities that can be
considered high priority: low cost, quality, quick delivery and flexibility (Conner, 2003).

Generic competitive strategies

A generic strategy Porter identified to help companies deal with competition is three strategies.
They include cost leadership, differentiation, and focus. These strategies can be applied by any
business regardless of the product or service it offers. Porter (1990) describes the strategies that
have been developed to improve a business and gain an advantage over competitors.

The successful implementation of strategies will facilitate a firm's performance by giving it

competitive advantage to outperform current or potential competitors. Various resources that a
firm controls can generate competitive advantage if it manipulates them to gain competitive
advantage (Rijamamp and Ianina, 2003).

34
Cost leadership strategy

If the business can produce a product of the same quality at a lower price, it has an advantage
over other businesses that have similar products at lower prices. Porter suggests that if a business
isn't making enough money, find a low-cost base, such as labor, and facilities. This gives the
customer a price value. By transferring cost advantage to customers, the company can add value
to them. (Phusavat & Kanchana, 2007) Cost leadership requires intense labour supervision, tight
cost control, frequent and detailed control reports and structured firms.

Differential strategy

The concept of differentiation applies to a business that can have a different product from its
competitors as a result of research, development, and design thinking. In addition to improving
quality, a business may also want to innovate a better way to ensure customer satisfaction. In a
study conducted by Evans & Collier (2007), it was found that consumers who believe a product
or service is different from other products are willing to spend more money in exchange for these
advantages. It must be established that the firm's price premium will exceed its costs to achieve
or attain its unique position in order for it to be successful, that is to achieve and sustain
differentiation.

A firm that adopts this strategy, according to Porter (1998), must define the attributes with
which it will separate itself from its competitors so that the firm can be truly unique at
something, or be perceived as such, if it intends to receive a premium price for the product it
sells for the firm's product.

Focus strategy

Focus strategy, unlike other marketing tactics, emphasizes that businesses should target a small
number of target markets instead of trying to reach everyone in order to reach a larger number of
people. Often, small businesses employ this strategy because they lack the necessary resources. It
is used by businesses that want to enhance the daily lives of their customers by focusing on what
consumers need, what they need to achieve their goals, and how to improve their daily lives. The
public can even provide input through their own websites.

35
In addition, the strategy can also be referred to as a segmentation strategy, since it consists of
geographical, demographic, behavioral, and physical segments. When businesses are able to
narrow down the market into smaller segments, they are able to meet the consumer's needs
(Wheelen & Hunger, 2010). Cost-focused businesses look to gain an advantage in their target
segments, while companies which focus on differentiation seek to differentiate themselves from
their competitors. Based on what the focuser's target segment is, he or she should use a different
strategy. Either there has to be unusual buyers or the production and delivery systems need to be
different if the focuser wants to reach the target segment. (Awuah, 2011) points out that cost
focus exploits differences in cost behavior in some segments, whereas differentiation focus
targets the specific needs of some segments of the market.

2.7 REFRENCES
1. Burt, R. S. (2000). The network structure of social capital. Research in Organizational
Behavior, 22, 345-423.
2. Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal
of Sociology, 94(Supplement), S95-S120.
3. Hansen, M. T., & Haas, M. R. (2001). Competing for attention in knowledge markets:
Electronic document dissemination in a management consulting company.
Administrative Science Quarterly, 46(1), 1-28.
4. Nahapiet, J., & Ghoshal, S. (1998). Social capital, intellectual capital, and the
organizational advantage. Academy of Management Review, 23(2), 242-266
5. . Brouthers, K. D., Nakos, G., & Dimitratos, P. (2015). SME entrepreneurial orientation,
international performance, and the moderating role of strategic alliances.
Entrepreneurship Theory and Practice, 39(5), 1161-1187
6. Adler, P. S., & Kwon, S. W. (2002). Social capital: Prospects for a new concept.
Academy of Management Review, 27(1), 17-40

36
7. Srivastava, S. C., Fahey, L., & Christensen, H. K. (2001). The resource-based view and
marketing: The role of market-based assets in gaining competitive advantage. Journal of
Management, 27(6), 777-802.
8. Woolcock, M. (2001). The place of social capital in understanding social and economic
outcomes. Isuma: Canadian Journal of Policy Research, 2(1), 11-17
9. Almahasneh, M & Hawajreh, K. (2015).The impact of human capital and social capital
on the business performance at the
Pharmaceutical industry in Jordan. Dirasat: Administrative Sciences .42 (1). 19 – 43.
10. Acquaah, M. (2011). Utilization and value of social networking relationships in family
and nonfamily firms in an African transition
economy. European Management Journal. 29.347– 361.
11. Association of Banks in Jordan. (2015).Annual report 37.Association of Banks in Jordan.
12. Awuah, L. (2011). An Evaluation of Strategies for Achieving Competitive Advantage in
the Banking Industry. The Case of Ghana Commercial Bank Limited. Unpublished
doctoral dissertation, Kwame Nkrumah University of Science and Technology.
13. Bourdieu, P. 1986. “The Forms of Capital.” Pp. 241–58 in Handbook of theory and
research for the sociology of education, edited by J. G. Richardson. New York:
Greenwood Press.
14. Bourdieu, P. and L. P. D. Wacquant. 1992. An Invitation to Reflexive Sociology.
Chicago: University of Chicago Press.
15. Bourdieu, Pierre. 1984. Distinction: A Social Critique of the Judgement of Taste.
Harvard: Routledge and Kagan Paul Ltd.
16. Bowles, Samuel. 1999. “Social Capital and Community Governance.” Focus: Newsletter
for the Institute for Research on Poverty 20(3):6–10.
17. Burt, Ronald. 1992. Structural Holes: The Social Structure of Competition. Cambridge:
Harvard University Press.
18. Burt, Ronald. 1997. “The Contingent Value of Social Capital.” Administrative Science
Quarterly 42(2):339–65.
19. Burt, Ronald. 2000. “The Network Structure of Social Capital.” Research in
Organisational Behaviour 22:345–423.

37
20. Burt, Ronald S. 1982. Toward a Structural Theory of Action : Network Models of Social
Structure, Perception, and Action. New York: Academic Press. Retrieved
(http://citeseer.ist.psu.edu/context/310092/0).
21. Buys, Laurie and Val Bow. 2002. “The Impact of Privacy on Social Capital.” in Social
Change in the 21st Century Conference. Brisbane: QUT.
22. Cabrera, Elizabeth F. and Angel Cabrera. 2005. “Fostering Knowledge Sharing through
People
23. Management Practices.” The International Journal of Human Resource Management
16(5):720–35. Retrieved September 1, 2017
24. Coleman, James S. 1988. “Social Capital in the Creation of Human Capital.” The
American Journal of
25. Sociology 94:S95.
26. Coleman, James S. 1990. Foundations of Social Theory. Cambridge: Harvard University
Press

38