We examine social
entrepreneurship from a structural perspective, distinguishing
between two structures of social capital and their associated
entrepreneurial strategies: structural holes and the 'disunion'
strategy versus social cohesiveness and the 'union' strategy.
These two strategies represent alternative ways social entrepreneurs
access and mobilize the resources inherent in the structure
of a social network. The disunion strategist exploits structural
holes between alters by keeping them apart; the union strategist
creates value by bringing together disconnected alters. The
frequency, legitimacy, and success of each strategy depends
on the 'design' of the institutional context in which social
entrepreneurs operate. Disunion strategies tend to occur in
organizations and markets characterized by sparse, disconnected,
and differentiated networks, coupled with competitive rules
of exchange, opportunism, and an individualist orientation;
union strategies tend to occur in organizations and markets
characterized by dense, connected, and undifferentiated networks,
coupled with cooperative rules of exchange, norms of reciprocity,
and a collectivist orientation. We illustrate the distribution
of triadic strategies in a specific institutional context
by taking a triad's census of alliances in the global automobile
industry and testing the structural hypothesis about the use
of disunion and union strategies.
INTRODUCTION
Ever since Schumpeter (1934: 156) identified entrepreneurship
as a 'vehicle of continual reorganization of the economic
system,'entrepreneurship has been recognized as playing a
key role in catalyzing change, promoting innovation, and enhancing
productivity in the economy at large. For example, the continuous
process of 'breaking away' from existing firms to create new
ones is a prime engine of the growth and economic development
of cities (Jacobs 1965, 1970). The role of entrepreneurs as
intermediaries between corporate actors (firms, associations,
governmental bodies) is well known (e.g., Coleman 1990: 180-188).
However, entrepreneurship is also recognized as a creative
activity that occurs inside organizations, an activity that
is critical to their survival and health (e.g., Burgelman
1983a; Kanter 1983a). Entrepreneurial action within organizations
is called intra-preneurship (Pinchot 1985), corporate venturing,
or corporate entrepreneurship (Burgelman 1983a, 1983b).
Structural sociologists shifted the study of entrepreneurial
behavior away from a focus on traditional entrepreneurial
activities, such as using economic capital to start new ventures,
to the analysis of the strategic use of 'social capital' both
inside and between organizations (e.g., Burt 1992b; Bourdieu
and Wacquant 1992; Coleman 1988, 1990). Our chapter follows
in this structural tradition. We offer a new theoretical distinction
between two structures of social capital and their associated
entrepreneurial strategies — structural holes and the
'disunion' strategy versus social cohesiveness and the 'union'
strategy. These two strategies represent alternative ways
social entrepreneurs access and mobilize the resources residing
in a social network.
We use the phrase 'social capital by design' in two senses
that together capture the essence of our argument. First,
social capital is related to the 'design' of an institutional
context. A context characterized by sparse, differentiated,
and disconnected networks, for example, yields social capital
in the form of structural holes. A context characterized by
dense, integrated, and connected networks, in contrast, yields
social capital in the form of social cohesiveness. Second,
social capital can be created by intention, that is, by the
strategic moves of an individual entrepreneur or the deliberate
manipulation of organizational and interorganizational structures.
Change agents, for example, can change the structure of social
capital (and the entrepreneurial strategies used to access
it) by altering the design of the institutional context.
STRUCTURES
AND STRATEGIES
The Structural Approach to Entrepreneurship
Most attempts to understand and promote entrepreneurship have
examined entrepreneurs and their behaviors at the individual
level, striving to define the key traits and characteristics
of successful versus unsuccessful entrepreneurs (Gartner 1989;
Low and MacMillan 1988). For example, McClelland (1967) argued
that the need for achievement' is a key psychological characteristic
of the successful entrepreneur, but empirical research has
not supported a link between the need for achievement and,
say, the decision to start a new business (Sexton and Bowman
1985). Locus of control and propensity for taking risks have
been proposed as possible distinguishing characteristics,
but research has not provided much empirical support of these
hypotheses (e.g., Brockhaus 1982; Sexton and Bowman 1985;
Gasse 1982). Tolerance of ambiguity does appear to distinguish
entrepreneurs from managers (e.g., Schere 1982; Sexton and
Bowman 1985). In general, the concerted attempt over the past
decades to build a personality profile of successful entrepreneurs
has not yielded insights into the unique personalities of
entrepreneurs. Based on their review, Low and MacMillan (1988:148)
conclude that, '...at a ... fundamental level, it can be argued
that the wide variations among entrepreneurs make any attempt
to develop a standard psychological profile futile. One is
struck by the appropriateness of Gartner's (1985) observation
that 'there is as much difference among entrepreneurs as between
entrepreneurs and non-entrepreneurs."
The failure of personality research to identify key characteristics
suggests that the individual level of analysis may be inappropriate
for understanding entrepreneurial action (Gartner 1989). These
efforts suffer from the neglect of social structure and the
complex relationships between the individual, corporate actor,
and environment (Martinelli 1994). Others have proposed a
behavioral focus for entrepreneurial research, emphasizing
the processes associated with entrepreneurial behaviors (e.g.,
Gartner 1989, 1990). The structural approach, which we use
here, is consistent with such a behavioral focus (e.g., Aldrich
and Zimmer 1986; Burt 1992b; Krackhardt 1995; see also, Freeman,
this volume, for a similar perspective).
The entry of structuralists into the study of entrepreneurial
behavior shifted the focus away from traditional entrepreneurial
behaviors, such as starting new businesses or founding firms,
to the examination of the strategic creation and use of, social
capital' both inside organizations and among organizations
(e.g., Burt 1992b; Bourdieu and Wacquant 1992; Coleman 1988,
1990). 'The central proposition of social capital theory,'
summarize Nahapiet and Ghoshal (1998: 243), 'is that networks
of relationships constitute a valuable resource for the conduct
of social affairs....' We use the term 'social entrepreneur'
to describe individuals or corporate actors who access and
mobilize the social capital inherent in organizational networks,
as opposed to the 'traditional entrepreneur' who uses economic
capital to create new businesses and firms. (Of course, traditional
entrepreneurial activities often involve the use of both social
and economic capital.) The social processes we discuss apply
to activities both inside organizations and between organizations
(what we call 'institutional contexts' below). We focus on
'corporate social capital' — social capital that resides
inside, between, or among organizations — in contrast
to other locations of social capital, such as families and
communities (see, e.g., Coleman 1988; Putnam 1995a).
The definition of social capital, along with the role and
activities of the social entrepreneur, have been the subjects
of considerable debate.'1 Clarifying the dimensions
of social capital is a high research priority (Putnam 1995a).
Nahapiet and Ghoshal (1998), for example, make useful distinctions
between three dimensions of social capital: the 'structural
dimension' (the configuration of social networks), the 'cognitive
dimension' (shared systems of meaning, narratives, language),
and the 'relational dimension' (norms, trust, obligations).
Our structural view of social entrepreneurship emphasizes
the first dimension, exploring the basic structures of social
capital (structural holes versus social cohesiveness), their
corresponding entrepreneurial strategies (disunion versus
union), and the relationship between institutional context
and strategy. Our distinctions, as we elaborate below, help
to clarify the debate and resolve some of the confusion about
the structural approach to social capital and social entrepreneurship.
Though we emphasize the structural dimension of social capital,
we acknowledge the importance of the cognitive and relational
dimensions.
Two Structures of Social Capital
The triad of social actors, composed of 'ego' and two 'alters,'
is the basic unit of analysis in social entrepreneurship.
Structures larger than the triad are possible, of course,
and often occur; however, they are based on the triad as the
fundamental building block. For example, 'communities of trust'
are generalizations of the three — actor structure (Coleman
1990:188-189). Social actors can be persons or corporate actors:
people acting as individuals, people acting as agents or representatives,
organizational subunits (such as teams or departments), organizations,
and even governmental bodies, states, and nations. (For example,
the triad is a basic unit used in analysis of geopolitical
relations.) Given our focus on corporate social capital, however,
we are interested primarily in two types of social actors:
individuals who are members of organizations and organizations
themselves. Our concepts apply to both types.
The structural basis of entrepreneurial action was suggested
by Simmel (1950: 154-162), who stressed the importance of
the 'third element' in group dynamics. Sinimel argued that
the introduction of a third party fundamentally alters the
social dynamics of dyadic ties (see also Nooteboom, this volume).
Of particular interest is the triad type Simmel (1950) called
tertius gaudens-'the third who enjoys' benefits by his or
her position between two disconnected parties. These two parties,
because of their unfamiliarity with each other, can be manipulated
to the third party's benefit. Simmel's tertius gaudens is
the basis of Burt's (1992b) influential theory of structural
holes. Burt argues that a sparse egocentric network with few
redundancies (few members of the network know each other)
is a social structure rich in structural holes. A hole exists
between two people (alters) if they are not connected to each
other but share a tie with a common third party (ego). This
structural arrangement puts the third party in the role of
the tertius gaudens who can take advantage of the two disconnected
persons (or corporate actors) for private gain. Burt (1992b)
found, for example, that managers in a large corporation who
have networks rich in structural holes were promoted faster
and at earlier ages, compared with otherwise similar managers
whose networks lacked structural holes. Burt (1992b) also
found that firms with inter-organizational networks rich in
structural holes earned a higher rate of profit, compared
to firms without these structural advantages.
Some argue that Burt's (1992b) structural holes theory is
an alternative to, rather than an example of, a theory of
social capital (e.g., Walker, Kogut, and Shan 1997: 112).
These arguments emphasize the 'relational' dimension of social
capital (Nahapiet and Ghoshal 1998), which is absent or undeveloped
in Burt's theory. From the 'relational' view, social capital
exists in a relationship between two people (or two corporate
actors) if they develop personal bonds, attachments, and trust.
'[A] Close working group of graduate students] working on
the same problems constitute social capital for each of them
for his [sic] graduate training' (Coleman 1990: 170). This
'relational' view also stresses the restraints on opportunism
maintained by social capital that allow cooperation take place
(Walker, Kogut, and Shan 1997; see also, Granovetter 1985).
Rather than pitting structural-holes theory against a relational
definition of social capital, we believe it is more theoretically
productive to consider these as alternative views of social
capital (Obstfeld 1997)2 and to concentrate instead
on delineating and analyzing their characteristic social structures.
Burt's (1992b) theory emphasizes only one of several structures
of social capital. Coleman's (1988: 98) original definition
is broad enough to encompass other structures: 'Social capital
is defined by its function. It is not a single entity but
a variety of different entities, with two elements in common:
they all consist of some aspect of social structures, and
they facilitate certain actions of actors — whether persons
or corporate actors — within the structure. Like other
forms of capital, social capital is productive, making possible
the achievement of certain ends that in its absence would
not be possible.' Similarly, Bourdieu's (Bourdieu and Wacquant
1992) definition is broad enough to include multiple structures
of social capital. For Bourdieu, social capital is 'the sum
of the resources, actual or virtual, that accrue to an individual
or a group by virtue of possessing a durable network of more
or less institutionalized relationships of mutual acquaintance
and recognition' (Bourdieu and Wacquant 1992: 119).
Social capital 'inheres in the structure of relations between
and among actors' Coleman (1988: 98). Structural-holes theory
emphasizes a structure of social capital characterized by
sparse networks and few redundancies. For Burt (1992b), social
capital resides in the patterned absence of ties. This view
is consistent with the argument that social structure is defined
more by the patterned absence than presence of ties (White,
Boorman, and Breiger 1976). What is the alternative? We argue
that social capital also inheres in the structure of social
networks as the patterned presence of ties. The alternative
to the holes-view of social capital is what we call social
cohesiveness, where the structure of social capital is characterized
by dense networks and multiple redundancies. This structure
of social capital corresponds to another of Simmel's triad
types, the third party who acts as a mediator or 'non-partisan'
to create or preserve group unity: 'The non-partisan either
produces the concord of two colliding parties, whereby he
withdraws after making the effort of creating direct contact
between the unconnected or quarreling elements; or he functions
as an arbiter who balances, as it were, their contradictory
claims against one another and eliminates what is incompatible
in them' (Simmel 1950: 146-147).'3 Also see Nooteboom
(this volume), who describes six roles of the third party
(the so-called 'go-between').
Common examples of this structure of social capital include
real estate brokerage, literary agency, and political mediation.4
For example, some Washington lobbyists specialize in the introduction
of corporate actors to public officials (such as executive
agency officials or congressional representatives) (Coleman
1990: 180-182). Coleman (1990: 180) calls the third parties
in these social structures 'intermediaries in trust.' The
third-party intermediary is able to bring together the other
two parties because each one trusts the intermediary. This
structure of social capital is pervasive in society; as Coleman
(1990: 184) describes:
This form of intermediary exists in all
areas of social life. For example, professors write letters
of recommendation to prospective employers about students,
and persons seeking a job or a loan list other persons
who will recommend them. The acceptance of a recommendation
by a prospective employer or creditor is a placement of
trust in the judgment of the intermediary, which allows
a placement of trust in the ability of the prospective
trustee to perform as expected. If the latter defaults,
then the trustor's trust in the intermediary's judgment
is reduced.
A social actor can advertise its position in the social
cohesiveness structure of social capital as a valuable resource.
Consider, for example, the language used by Mayfield, a
venture capitalist firm, in its promotional brochure; as
quoted by Freeman (this volume): 'Because of our long association
with a large number of successful companies and entrepreneurs,
a relationship with Mayfield is highly regarded. It can
enhance the credibility of a young company with potential
customers, vendors and employees, and with other financial
institutions.' Similarly, professional service firms, such
as advertising agencies and investment banks, 'sell' access
to the social capital inherent in their networks. Indeed,
advertising agencies that occupy a central position in the
market are likely to be kept by their corporate clients,
indicating the value clients place on this structure of
social capital (Baker, Faulkner, and Fisher 1998).
The level of trust in the social cohesiveness structure
is probably higher, on average, than the level of trust
in the tertius gaudens arrangement. This is one reason why
some critics argue that structural-holes theory is not a
theory of social capital (see above). Because the tertius
gaudens exploits the structural hole between two alters,
the level of trust is presumed to be low. This is not necessarily
so. Each alter may trust ego, even though the alters are
unaware of each other's existence; in other cases, the alters
may prefer to remain out of contact with each other, relying
instead on their trust in ego. Moreover, the issue of trust
in the social cohesiveness structure is not as unambiguous
as it might seem. Sometimes an 'intermediary in trust' runs
the risk that he or she will be circumvented or 'cut out'
by opportunistic alters. For example, the risk that the
principals in a real estate transaction might consummate
the deal in secret, saving the commission owed to the broker,
is so high that the standard legal contract between a real
estate broker and seller contains protections against such
actions.5
The distinguishing feature between the two structures of
social capital is not trust, but the answer to this question:
What does the social entrepreneur do with the gap between
alters? While one social entrepreneur exploits the structural
hole, keeping alters apart, another social entrepreneur
may choose to close the gap, bringing together the two alters.
These actions represent the two basic entrepreneurial strategies
for accessing and mobilizing the social capital inherent
in social networks. We next describe and illustrate these
strategies, followed by our analysis of the relationship
between entrepreneurial strategies and institutional context.
Two Entrepreneurial Strategies
Strategy is used here to refer to a social entrepreneur's
plan of action for using network structure to access and
mobilize social capital. Burt's (1992b) conceptualization
of social capital as the structured absence of ties favors
what we call 'disunion strategies.' In this strategy, the
social entrepreneur generates 'profit' by taking advantage
of the disconnection of the two parties. The disunion strategy
is
Figure 1. Illustration of Disunion and Union Strategies
illustrated in figure 1. As shown, ego (the tertius gaudens)
is linked to two disconnected alters. The hole is represented
by the blank space between alter I and alter 2, and enables
ego to play the two alters against each other or to secure
a valued resource from one and provide it to the other,
extracting a profit in the exchange. In such a case, ego
benefits from the absence of a connection between the two
alters, may act to keep the alters apart, and at the very
least, chooses not to introduce the two alters. For disunion
strategies, value is created by the exploitation of these
structural holes; value, therefore, is a 'private good'
— the benefits of social entrepreneurship accrue to
the third party (ego).6
The view of social capital as social cohesiveness leads
to the alternative entrepreneurial strategy we call 'union
strategy'—illustrated in figure 1. In this case, ego (Simmel's
non-partisan or arbiter) is linked to two alters who are
disconnected or in conflict. Ego 'closes' the gap between
alters by bringing them together or by resolving their differences.
This suggests a sharing or exchange of resources. The union
strategy produces what Coleman (1988: 107) calls 'closure'
— a social structure that creates the conditions for
the enforcement of norms through 'sanctions that can monitor
and guide behavior.' The combination of norms and trust
that emerge under these structural conditions facilitates
additional use of the union strategy.
Disunion Strategies in Action
Disunion strategies are common in situations where the formal
differentiation of the organization presents the social
entrepreneur with many temptations to play one person (or
department) against another person (or department). Burt's
(1992b) original study of managers and structural holes
was conducted in one such organization. Consider, for example,
an entrepreneur with ties to a person in the sales department
who collects current information about customer needs, and
to another person in the marketing department who is desperate
for customer input for a new product. The entrepreneur can
position him or herself to sales as someone with influence
over the company's product development process and to marketing
as a source of new information (Obstfeld 1997). With this
disunion strategy, the entrepreneur seeks to benefit without
ever introducing the two alters, a move that would eliminate
the advantageous position. A similar case is the classic
role of the boundary spanner who links two disjoint groups
(Friedman and Podolny 1992).
Competitive markets are principal locations of disunion
strategies at the inter-organizational level. Simmel (1950)
notes that the market is a prime example of the tertius
gaudens strategy writ large. Here, disunion strategies are
characterized as rivalry,' where two or more sellers vie
'for opportunities of exchange' with a buyer (Weber 1978:
63; Swedberg 1994: 271). For example, Coca-Cola Company
maintains relationships with six different advertising agencies
(Baker, Faulkner, and Fisher 1998: 149), playing one advertising
agency against the other in an elaborate disunion strategy.
The practice of competitive bidding is based on the disunion
strategy, where multiple sellers are pitted against each
other. For example, disunion strategies are evident in the
garment industry studied by Uzzi (1996a) in cases where
dress manufacturers (buyers) select contractors (sellers)
on the basis of price alone to effect discrete, nonrecurring
exchanges. Of course, sellers in an industry suffering from
intense competition caused by the buyers' relentless use
of the disunion strategy may become motivated to collude,
employing an illegal union strategy to counterbalance the
power of buyers (Baker and Faulkner 1993).
Disunion logic drives the avoidance of ties in a competitive
market. Competing companies will not use the same supplier
because doing so would put the supplier in the structural
position of the tertius gaudens. For example, General Motors
avoids using the investment bank Goldman Sachs because its
chief American rival, Ford Motor Company, uses Goldman as
its main bank (Baker 1990). Similarly, corporate competitors
avoid using the same advertising agencies, citing 'conflict
of interest' as their rationale (Baker, Faulkner, and Fisher
1998).
The social structure of disunion strategies can be fluid,
particularly in dynamic markets. When AT&T and China
began negotiations to install an undersea cable system to
provide a telecommunication link between China and the U.S.,
the entrepreneurial leverage associated with the disunion
strategy shifted from one actor to another. AT&T initially
approached the negotiation as the owner and operator of
international marine cables, enjoying an advantageous negotiating
position (Glain 1997). Deregulation and other changes in
the telecommunication industry, however, unleashed a variety
of competitors (such as Baby Bell SBC Communications, Nynex,
Britain's Cable & Wireless, and Japan's Kokusai Denshin
Denwa Co.) that the Chinese invited into the negotiations.
One of China's key negotiators indicated, 'Our general policy
is to not engage in projects that exclude other parties.
We want to engage as many companies as possible on an equal
basis' (quoted in Glain 1997). This approach nullified AT&T's
disunion strategy by leveraging confidential information
provided by the competing companies and the disconnections
between them. Ultimately, the Chinese insisted on a 14-member
consortium that included all of AT&T's major rivals.
Finally, direct exploitation of disconnected parties may
represent only a fraction of the activities associated with
disunion strategies. Some disunion strategies require constant
effort and vigilance (perhaps even subterfuge) to keep alters
apart and to maintain the structural conditions of disconnection,
secrecy, and concealment. Price-fixing conspiracies, for
example, require conspirators to deliberately maintain the
ignorance of their corporate customers (Baker and Faulkner
1993). Some corporate actors attempt to prevent competitors'
actions or the development of new regulations that would
reduce or close the structural holes in markets, fighting
to maintain the structural conditions that favor disunion
strategies. For example, the strategic alliance of IBM and
Apple was opposed by many competitors (Baker 1994a) who
viewed the potential union as a threat that would reduce
their ability to compete for customers — that is, to
operate using the disunion strategy.
Union Strategies in Action
The formal differentiation of an organization does not always
lead to disunion strategies. For example, Kanter (1983a:
141) describes the union strategy used by a corporate entrepreneur
who created an internal alliance between sales, service,
and product development:
He first wrote a memo to all of the sales
people in his area, copying the district managers for
service and products.... He then held a series of sales
meetings, inviting commercial and service staff too....
[He] explained and re-explained the benefits of cooperation
across the sales/service/products boundaries to people
from each function. (Ashkenas et al. 1995: 17)
Similarly, Burgelman (1991) depicts how a corporate entrepreneur
at Intel collaborated with two other product champions to
develop RISC processor technology and to line up a customer
base in advance of Intel's entry into the new market. Ashkenas
et al. (1995) describe union strategies used to transform
General Electric's Retailer Financial Services into a 'boundaryless'
organization. For example, a systems manager employed union
logic to streamline a business process: 'Nastasi then brought
together a group of systems, marketing, finance, and customer
service people and challenged them to complete new customer
conversions in a matter of days, not weeks.' In many cases,
union strategies are used by senior managers targeting major
organizational change. Union strategies are also initiated
by relatively low-ranking employees with more modest objectives.
Union strategies exhibit variation in official support.
General Electric CEO Jack Welch, for example, officially
sponsored GE's Corporate Executive Council to stimulate
the exchange of information and collaboration (Baker 1994a,b).
In contrast, Hutt, Reingen, and Ronchetto (1988) describe
the emergence of a new product through the collaboration
of actors from multiple divisions along with key customers
— all acting outside prescribed corporate guidelines.
Similarly, the successful Intel intrapreneurs described
above went against explicit corporate policy and had to
disguise the RISC project as just another 'co-processor'
until sufficient progress had been made (Burgelman 1991).
Union strategies also occur in markets. Some union strategies
involve the introduction of initially unconnected suppliers
or customers via common third parties. Starr and MacMillan
(1990:86) describe a case of an entrepreneur who introduces
two suppliers:
A corporate entrepreneur saw an opportunity
to connect two of his major suppliers while developing
a new medical products business. One manufacturer, in
the south, had cheap labor costs and good employee morale,
but was nonetheless losing money due to lack of business.
The other, in the north, had high labor costs and an employee
shortage. By introducing these two manufacturers the venture
manager reduced the costs of one and increased the sales
of the other.
Uzzi (1996a: 679) describes a similar union strategy used
in the New York garment industry:
One CEO explained how [a] tie formed between
him and a manufacturer named 'Diana.' He said that his
contact with Diana began when Norman, a close business
friend of his and Diana's, asked him 'to help Diana out'
in a time of need (cut her fabric at a special price and
time), even though he had no prior contact with her....
[The CEO said] 'So why did I help her out? Because Norman
asked, 'Help her out.'
The formation of strategic alliances — joint ventures,
technology sharing, marketing arrangements, product development,
and others — can result from union strategies. For
example, Corning introduces alliance partners to each other,
fostering creation of ties between them. AT&T Global
Information Solutions convenes an annual conference in which
its strategic allies meet in 'alliance fests' used to generate
new alliances and associations (Baker 1994b). Digital Equipment
Corporation (DEC) invites its alliance partners to a four-day
conference to share information and foster alliance formation
(Gulati 1995a). Similarly, the monthly meetings of the 128
Venture Group were convened by an entrepreneur and venture
capitalist to establish a place where venture capitalists,
entrepreneurs, consultants, and management team candidates
could meet and explore collaborations (Nohria 1992b).
The introduction of disconnected parties is only a fraction
of the activities associated with union strategies. Union
activities include investing in already established ties,
cultivating ongoing collaborations, and maintaining the
general structural conditions that facilitate union strategies.
Some union strategies are self-sustaining, such as those
associated with the trading groups in the industrial districts
of north central Italy and southwestern Germany (Powell
1990). In other cases, however, such as real estate brokerage,
the repeated cultivation of new alters is necessary to stay
in business. Of course, the real estate broker with a good
reputation and lots of contacts enjoys the benefits of union
strategies in reverse, as satisfied customers refer new
alters to the broker.
These examples illustrate the general principle that union
logic drives the selection of ties, whereas disunion logic
drives the avoidance of ties (as described above). Disunion
strategies proscribe the use of common third parties, such
as suppliers, while union strategies prescribe the use of
common third parties, such as alliance partners. These strategies
may exist side by side in the same institutional context,
which is a topic we take up in the following section.
INSTITUTIONAL
CONTEXT
So far, we have not been very specific about the
context in which social entrepreneurs operate. This was
intentional, so that we could be clear about the distinctions
between the two structures of social capital and their corresponding
strategies. However, the relationship of structures and
strategies to institutional context is critical. First,
we argue that the nature, level, and forms of social capital
— and therefore the strategies social entrepreneurs
employ — depend on the structure and culture of the
institutional context. This relationship holds in the institutional
context of an organization as well as that of organizational
fields, business sectors, industries, and markets. Second,
we argue that the frequency, legitimacy, and success of
an entrepreneurial strategy depends on its 'fit' or compatibility
with the institutional context in which it is used.
Table 1. Institutional Context and Entrepreneurial Strategies
|
Institutional Context
|
Disunion Strategy
|
Union Strategy
|
Structural
Conditions
Size
Density
Connectivity
Formal differentiation
Cultural Conditions
Rules of exchange
Norms
Orientation |
Large
size
Sparse networks
Disconnected networks
Many formal boundaries
Competition
Opportunism, distrust
Individualist orientation |
Small
size
Dense networks
Integrated networks
Few formal boundaries
Cooperation
Reciprocity, trust
Collectivist orientation |
|
Nahapiet and Ghoshal (1998) argue that the 'firm' is a better
institutional setting than the market for the development
of high levels of social capital; because the firm is a 'social
community' (Kogut and Zander 1996: 503), it enjoys an 'organizational
advantage' over markets. However, some firms are organized
and operated as markets,' and some markets are organized and
operated as 'firms' (Eccles 1981; Eccles and White 1988; Stinchcombe
1985). Therefore, we make the bold assumption that the characteristics
of 'institutional context' can be specified in such a way
that they apply to both firms and markets. An advantage of
our approach is the generalization of the concepts of corporate
social capital across institutional levels — that is,
within firms and between firms. The relationship between institutional
context and strategy is summarized in Table 1.
Structural Conditions
By structural conditions, we refer to the 'network configuration'
of an institutional context, consistent with Nahapiet and
Ghoshal's (1998) definition of the 'structural' dimension
of social capital. Standard network measures can be used to
represent a configuration. Nahapiet and Ghoshal (1998) propose
density, connectivity, and hierarchy. We substitute 'formal
differentiation' for hierarchy, because an organization can
be differentiated along three dimensions — spatial, horizontal,
and vertical. Markets, too, are organized along these three
dimensions, as economic geographers have documented. Formal
divisions such as these, whether in firms or markets, create
structural holes. We add 'size,' since the number of social
actors influences the fragmentation of an institutional setting,
and along with it, the number and extent of structural holes.
The structural conditions associated with disunion strategies
are large size, sparse and disconnected networks, and many
formal boundaries. The design of most large-scale, traditional
organizations favors disunion strategies because it creates
so many structural holes between departments, across levels,
and between spatially separated operations. Formal differentiation,
for example, hampers collaboration across boundaries (Lawrence
and Lorsch 1986). Large size disfavors the integrated 'network'
organizational design (Baker 1992a). Similarly, markets with
many players are more fragmented than markets with few players,
producing many structural holes. The alert tertius gaudens
in a fragmented market generates profit by arbitraging across
these gaps in the social structure of trading (Baker 1984),
just as the tertius gaudens in a fragmented firm generates
profit by exploiting the disconnection inside the organization
(Burt 1992b).
The structural conditions favoring union strategies are small
size, dense and integrated networks, and low differentiation
(see Table 1). Union strategies are common in network organizations,
for example, because these organizations are characterized
by flexibility, lateral ties, and a high degree of integration
across low formal boundaries (Baker 1992a). A dense network
of customers, producers, and suppliers provides a structural
basis for cooperation (Perrow 1992), such as the dense social
networks of firms, local universities, community colleges,
research institutes, financial institutions, trade associations,
and regional governments in Silicon Valley (Saxenian 1991,
1994).
The biotechnology industry features dense and well-connected
networks of interfirm cooperation as well (Walker, Kogut,
and Shan 1997; in this volume see also Stuart, Smith-Doerr
et al., and Omta and Van Rossum). These structural conditions
are conducive to the formation of new alliances based on the
union strategy. For example, the likelihood that two previously
unallied firms will form an alliance increases with the number
of third-party ties they have in common (Gulati 1995a). Similarly,
the greater the number of research and development alliances
and other types of collaborations a biotechnology firm has
at a given time, the more diverse its future portfolio of
ties will become (Powell, Koput, and Smith-Doerr 1996).
Cultural Conditions
Cultural conditions can be defined in many ways. Indeed, the
definition of culture itself is a subject of considerable
debate and rival interpretations (DiMaggio 1994; Scott 1995).
Rather than trying to resolve this debate, we propose a simple
definition of cultural conditions — the institutionalized
rules of exchange, norms, and social orientation in an institutional
context — and focus primarily on the relationship between
strategy and cultural context.8
Rules of exchange are shared social understandings about 'who
can transact with whom and the conditions under which transactions
are carried out' (Fligstein 1996: 658). For example, exclusivity
(sole-source) is a rule of exchange governing buyer-seller
relationships in the advertising industry (Baker, Faulkner,
and Fisher 1998: 15 1). Competitive rules of exchange prohibit
union triads. The avoidance of common suppliers is a good
example (Baker 1990). Disunion strategies are legitimate and
successful in firms operated as 'markets' (Eccles and White
1988). In settings such as markets operated as 'firms' (Stinchcombe
1985), however, cooperative rules of exchange discourage disunion
strategies (which would be interpreted as self-serving, opportunistic
behaviors). Similarly, organizations in small-firm networks
share information, establish long-term relationships, and
support each other's efforts, in opposition to the competitive
rules of exchange in classic markets (Perrow 1992). The search
for greater efficiencies through closer ties between customers
and suppliers can displace traditional rules of exchange that
pit suppliers against one another. New developments in just-in-time
(JIT) inventory control, for example, call for close coordination
between customers and their suppliers. Honeywell orchestrates
close cooperation between its internal buyers and five suppliers
who would ordinarily compete for business (Bleakley 1995).
Norms are shared expectations that regulate behavior (DiMaggio
1994), including choice of entrepreneurial strategy. Norms
of openness, teamwork, trust, and reciprocity favor union
over disunion strategies. For example, Putnam (1993a) argues
that norms of reciprocity in the industrial districts of northern
Italy foster interfirm cooperation and limit opportunistic
behavior — that is, the use of disunion strategies. Similarly,
norms of reciprocity support the union strategies evident
in such business groups as the Japanese kieretsu and Korean
chaebol.
Social orientation refers to the distinction between individualism
and collectivism (Triandis 1995: 2). Individualism, for example,
is 'a social pattern that consists of loosely linked individuals
who view themselves as independent of collectives; are primarily
motivated by their own preferences, needs, rights, and the
contracts they have established with others; and emphasize
rational analyses of the advantages and disadvantages of associating
with others' (Triandis 1995: 2). Individualism favors disunion
strategies; collectivism favors union strategies. For example,
collectivist practices such as cross-functional teams, multi-level
management networks, group-level reward systems, and team-building
programs, facilitate union strategies within organizations
(Baker 1994a). Recent research has shown that a collectivist
orientation often increases the odds of alliance formation
(Dickson and Weaver 1997). Private economic associations and
political organizations foster cooperation in the industrial
districts of northern Italy (1993a). The robust collaboration
found in these industrial districts is supported by technical
colleges, vocational training, supportive banks, and extended
kinship ties (Powell 1990).
Distribution of Strategies
We argue that the frequency, legitimacy, and success of an
entrepreneurial strategy depends on its 'fit' with the 'design'
of the institutional context in which social entrepreneurs
operate. This suggests the following proposition: The ratio
of disunion to union strategies varies according to the structure
and culture of the institutional context. At one extreme,
disunion strategies dominate in settings characterized by
sparse, disconnected, and differentiated networks, along with
competitive rules of exchange, opportunism, and an individualist
orientation; at the other extreme, union strategies dominate
in settings characterized by dense, connected, and undifferentiated
networks, coupled with cooperative rules of exchange, reciprocity,
and a collectivist orientation. A mix of strategies occurs
in an institutional context located between these two extremes.
The distribution of strategies in a given context can be determined
by a triads census (Wasserman and Faust 1994: 556-602). The
pattern of strategic alliances in the global automobile industry9
illustrates one empirical distribution (Baker 1992b), though
the triads approach can be applied in any institutional context.
For strategic alliances, a triads census includes only four
possible triad isomorphism classes: 1) the null triad, composed
of three unallied firms; 2) the dyad, composed of three firms
of which only two are connected by an alliance; 3) the disunion
triad, composed of two alliance dyads; and, 4) the union triad,
composed of three alliance dyads.10 The first class,
the null triad, represents a classic competitive situation
— the complete absence of strategic alliances among three
firms. The second class, the dyad, represents an isolated
alliance between two firms. The third class, the disunion
triad, represents the terrius gaudens arrangement (as illustrated
in figure 1). The fourth class, the union triad, represents
the social cohesiveness structure of social capital (see figure
1).
The empirical distribution obtained in the triads census of
the automobile industry is shown in Table
2. For our purposes,
we focus here on the two triad types of particular interest,
disunion and union triads. Both triad types occur much more
often than expected by chance alone, considering all alliance
types combined."11 However, if we examine
the triads census for each type of alliance, we find an interesting
pattern: 1) Disunion triads (but not union triads) occur more
often than by chance in joint ventures. 2) Disunion and union
triads occur more often than by chance in two types of alliances
— technology sharing and manufacturing/assembly. 3) Union
triads (but not disunion triads) occur more often than by
chance in three types of alliance — supplier ties, marketing/distribution,
and equity investments.
This pattern suggests that the structure of social capital
varies by alliance type. The structure of joint ventures implies
that social capital is accessed and mobilized by exploiting
structural holes, using the tertius gaudens strategy. The
structure of supplier ties, marketing/distribution, and equity
investments implies that social capital is accessed and mobilized
by closing structural holes. The mixed structure of technology
sharing and manufacturing/assembly suggests the presence of
both types of social capital. However, the statistically significant
use of both disunion and union strategies may indicate a competition
of strategies in which neither dominates.
The general relationship between entrepreneurial strategies
and institutional context is illustrated in figure 2. This
stylized representation implies the possibility of change
or movement, of the transformation of an institutional context
and its corresponding strategies. The intersection of the
curves in figure 2 represents a balance of disunion and union
strategies. This point is an unstable state in which neither
strategy dominates, such as the mixed structure of triadic
strategies for technology sharing and manufacturing/assembly
in the automobile industry (Table 2). If so, then the automobile
industry may fall back on earlier, simpler, and over-learned
strategies (arms'-length competition), as people and organizations
are prone when faced with uncertainty and ambiguity (Weick
1995:102).
For an organization, the point of intersection in figure 2
indicates a particularly risky stage in an organization's
transition from one institutional design to another. For example,
a firm attempting to improve collaboration and cooperation
must foster both the structural and cultural conditions that
favor the union strategy (moving from left to right in figure
2). Some consultants claim that a hierarchy can be converted
into a network organization simply by adding links (Lipnack
and Stamps 1994:72; see, also, Mueller 1986), but structural
change is not enough. Failure to change both structural and
cultural conditions endangers a change effort. For example,
the effort to transform Industrial Computer and Control Group
failed because change agents altered only organizational structure
(Nohria and Berkley 1995). By replacing hierarchy with a network
design, they may have induced more
union strategies, but by itself this structural change was
not enough. Without a corresponding cultural change, the
effort to foster cross-divisional collaboration was doomed.
Employees did not fundamentally change their strategies
for action (Nohria and Berkley 1995). The change effort
may have collapsed at or near the point of intersection
in figure 2.
CONCLUSION
Our chapter attempts to specify and clarify the dimensions
and structures of social capital. We offer a set of concepts
that encompasses different views of the structural sources
of social capital, the basic strategies used to access social
capital, and the relationship between institutional contexts
and strategies. We argue that social capital 'inheres in
the structure of relations between and among actors' (Coleman
1988: 98) in two fundamental ways — one based on the
patterned absence of ties, the other on the patterned presence
of ties. Structural holes theory (Burt 1992b) emphasizes
the absence of ties, where social capital resides in a social
structure characterized by sparse networks and few redundancies.
We maintain that social capital also inheres in social structure
as the presence of ties, which we call social acknowledge
cohesiveness, where social capital is found in dense networks
with multiple redundancies.
Each structure of social capital represents opportunities
to access and mobilize the resources inherent in a social
network. The first structure calls for a 'disunion' strategy
that exploits the structural holes between alters by keeping
them apart. The second structure calls for a 'union' strategy
that creates value by bringing alters together, closing
the hole between them. Our qualitative and quantitative
examples provide ample evidence of the use of these strategies
in a wide range of institutional contexts, both inside and
between organizations. The concepts of two types of social
capital (structural holes versus social cohesiveness) and
two types of entrepreneurial strategies (disunion and union)
can be generalized and applied to understand the structure
and use of social capital in many different institutional
settings.
The actual distribution of strategies in a particular institutional
context depends on the 'design' of the institutional context
in which social entrepreneurs operate. An entrepreneurial
strategy that 'fits' the structure and culture of a given
institutional context occurs more frequently, enjoys greater
legitimacy, and will be more successful in the long run,
compared to a strategy that does not fit. Disunion strategies
dominate in organizations and markets characterized by sparse,
disconnected, and differentiated networks, coupled with
competitive rules of exchange, opportunism, and an individualist
orientation; union strategies dominate in organizations
and markets characterized by dense, connected, and undifferentiated
networks, coupled with cooperative rules of exchange, norms
of reciprocity, and a collectivist orientation.
Of course, a mix of triadic strategies falls between the
pure disunion and union extremes. Thus, one avenue of additional
research is to explore further the precise connection between
institutional context and entrepreneurial strategy. This
line of work calls for demography of social entrepreneurial
relationships (see, also, Baker, Faulkner, and Fisher 1998:
173). The statistical methods available for taking a triads
census (Walker and Wasserman 1987), which we used in our
analysis of the distribution of strategies in the global
automobile industry (Baker 1992b), can be used to determine
the distribution of strategies in any organization, market,
or organizational field. In addition, organizational change
can be tracked by measuring shifts in the distribution of
strategies over time, using methods designed to model longitudinal
change in networks (e.g., Leenders 1995a, 1996; Wasserman
and Faust 1994). By coupling new and better measurement
methods (e.g., Borgatti 1997; Han and Breiger, this volume;
Doreian, this volume) with more precise concepts of social
capital and their corresponding entrepreneurial strategies,
it is possible to take another step forward in the exploration
of corporate social capital.
We are grateful to the editors of this volume
for their helpful comments and suggestions. Direct correspondence
concerning this chapter to Wayne Baker, University of Michigan
Business School, 701 Tappan Street, Ann Arbor, MI 48109
(wayneb@umich.edu).
ENDNOTES
1 The debate takes place in published works (see
citations herein) as well as in informal discussions on
the Internet, such as the recent interchanges on social
capital in SOCNET that occurred between January and June,
1997. We cite the published literature to support our points,
but we also acknowledge the contributions to the debate
in SOCNET made by Xavier De Souza Briggs. Robert Putnam,
Barry Wellman, and others.
2 This point was also made in SOCNET comments
by Barry Wellman and Robert Putnam (January 1997).
3 Simmel (1950) describes another triad type,
'divide and conquer,' in addition to the tertius gaudens
and 'non-partisan' types. In 'divide and conquer,' the third
party deliberately introduces conflict between the other
two. This type is not our concem in this chapter.
4 Real estate brokerage and literary agency qualify
as this type because the ego is not a principal in a transaction,
but instead brings together the two principals (alters)
who consummate the transaction. In the first case, the real
estate broker (ego) matches a buyer and seller (alters)
who exchange property for money; in the second, a literary
agent (ego) matches a publisher and author (alters) who
exchange 'the property' (manuscript) for royalties. Some
types of brokerage do not qualify as this type. For example,
in a wholesaler arrangement, the broker is a principal in
one transaction (buying goods from a manufacturer) and in
a second transaction as well (selling the goods to the consumer).
5 Consider, for example, the protections contained
in the standard 'listing agreement' (officially, the 'cooperative
selling contract') used in the state of Illinois to define
the legal obligations of the seller to the real estate broker:
'SELLER SHALL: Cooperate fully with Broker; refer all inquiries
to Broker. conduct all negotiations through Broker; ...
and pay a real estate brokerage commission of X % of the
sale price; if 1) Broker provides a purchaser ready, willing,
and able to purchase in accordance with this Contract or
2) if the property is sold, exchange, gifted, or optioned
by Broker or by or through any other person including the
Seller during the period of this contract; or 3) if it is
sold directly or indirectly within six (6) months after
termination of this contract to a purchaser to whom it was
offered during the term thereof.'
6 It is possible that the individual pursuit
of entrepreneurial profit as a private good produces value
at the collective level. This line of reasoning is consistent
with traditional management and economic theories. For example,
the tournament model of mobility assumes that competition
among managers yields better ideas, more satisfied customers,
and greater shareholder value. The theory of the market
similarly assumes that individual striving maximizes social
welfare. Burt (1992) does not emphasize the public-goods
aspect of social entrepreneurship, though he mentions the
possibility: An entrepreneur is 'a person who generates
profit from being between others. A nonprofit player, pursuing
entrepreneurial opportunities just for the pleasure of being
the one who brings others together to build value, could
choose to reinvest it all' and strengthen existing relationships
(Burt 1992:34-35). Of course, social capital can be considered
a public good in and of itself. Putnam argues, for example,
that Coleman's (1988) original concept of social capital
incorporates such a view. He adds, however, that the views
of social capital as a private and public good are complementary
(see discussions in SOCNET; see, also, Putnam 1993a, 1995;
Knoke this volume).
7 Nahapiet and Ghoshal (1998: 261) briefly mention
that some inter-organizational networks may develop an institutional
context that is conducive to high levels of social capital,
and point to this as an avenue of future research.
8 We acknowledge, but do not elaborate here,
the importance of the 'constitutive' as opposed to the ,regulatory'
view of culture (DiMaggio 1994). In addition, we acknowledge
but do not discuss the state as part of the institutional
context (Fligstein 1996).
9 We obtained data for the triads analysis from
a special issue of Ward's Automotive International (1986).
This issue reported the alliances known to exist among 37
major automobile companies, classified by the six alliance
types reported in Table 2. We created a square, binary,
symmetric matrix for each alliance type, where each company
is assigned a row and corresponding column, and an entry
indicates the presence or absence (0, 1) of an alliance
between two companies. Thus, we created six 37 X 37 matrices.
We analyzed the triads structure of each matrix using TRIADS
(Wasserman and Walker, 1987). These data are treated as
symmetric because alliances are naturally mutual ties, and
we adjusted the weighting vector in TRIADS accordingly.
10 A triads census includes sixteen isomorphism
classes when asymmetric ties are considered (Wassemian and
Faust 1994: 566). Since alliances are mutual ties, however,
there are only four classes of interest: triad types 003
(null), 102 (dyad), 201 (disunion), and 300 (union These
three-digit numbers [MAN] refer to triad isomorphism classes
using standard labeling, where M number of mutual dyads,
A = number of asymmetric dyads, and N = number of null dyads.
11 Structural hypotheses are tested using the
TRIADS program (Walker and Wasserman 1987) in which the
empirical distribution of triads is compared against a theoretical
distribution of triads assuming random assignment of ties.
The weighting vector used in these tests reflects the number
of disunion
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