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and knowledge management leaders Laurence Prusak and Don Cohen. Indeed, in a very
similar way, they all define human beings as ‘social animals’, since they use to come
together in friendships and teams, aggregation of practices and communities, societies
and nations. As they argue, people assemble into groups in order to achieve distinctive
aims and to provide the satisfactions of sociability. (Cohen and Prusak, 2001)
Though they also state that in today’s ‘knowledge economy jungle’ management
thinkers have been slower to see the importance of the development of a community
within diverse organizations. They have merely focused on individual workers rather
than at the broader picture of the community they belong to.
In fact, many people around the world tend to consider ‘the law of the jungle’ as a law
that depicts fierce competition, survival of the best, with everyone out ‘there’ solely and
exclusively for his/her own advantage. Particularly in the fields of knowledge
management and intellectual capital, practitioners and theorists alike have long stressed
in favor of the individual rather than the collective.
However, as this study will further confirm, enormous opportunities arise from a
community-model of organization, where at the heart stays the social interaction,
mutual trust and shared vision of its diverse workforce.
At this point, having reached the corner stone of our discussion on social capital in
highly diverse settings, it is time now to give the reader a frame of knowledge about this
social and intangible asset.
1.2 The rise of organizational social capital
People around the world are engaged in a constant struggle to reframe business and
economics in an environment of global interdependency, high uncertainty and volatility.
The migration path from the ‘Old’ to the ‘New’ economy has led many organizations to
reformulate their entire way of doing business and most of all, to concentrate on the
new key sources of sustainable competitive advantage.
As a consequence of changes in economic, market and social trends, new approaches
have started to develop, which have emphasized the role of intangible assets. The
evidence of this transition, can be viewed when considering the enormous importance
that intellectual capital has gained in today’s business context. Indeed, in almost one
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decade, this concept has sparked books and management magazines of almost every
corner of the world.
However, much of the past conversation on this type of intangible asset has focused on
the individual with ‘human capital’ (knowledge, skills, experience of the individual) and
on processes with ‘structural capital’ (systems and work processes such as IT,
technologies and so forth). Surprisingly, less interest has been given to the social
dimension, defined as ‘social capital’.
In fact, the former idea was to see knowledge creation, as rather an individualistic (or
atomic) and process oriented concept, thus, totally ignoring the stock of active
connections among people in firms. The social interaction ties, trust and shared vision
that bind individuals together in a community have long been overlooked by managers
and executives in the past.
Beside of this, the truly dynamic knowledge economy and the continuous looking for
new ways of value creation and organizational performance have led, present
researchers and practitioners to extend the whole system view, looking outside the mere
individual intellectual field toward a more sociological perspective of enterprise.
Indeed, within knowledge management theory, one of the most important aspects to
consider for knowledge creation and its transfer is the socialization process that stems
from the interaction and personal relations of employees within organizations.
(Nahapiet and Ghoshal, 1998; Cohen and Prusak, 2001; Lipparini, 2002; Nonaka and
Takeuchi, 1995).
Several authors and practitioners describe social capital as an important condition for
exchange and combination of knowledge and hence, for value creation and
organizational performance.
Since good communication and extensive knowledge sharing are not likely to happen
unless there is a context of shared vision, an atmosphere of trust and social interaction
ties among employees, it is vital for organizations to invest in this particular form of
intangible value.1 As IBM’s executive director Laurence Prusak and knowledge
management consultant Don Cohen argue in their groundbreaking book: ‘In Good
1
Social interaction ties, trust and shared vision – respectively, the structural, relational and cognitive
dimensions of social capital – are according to Tsai and Ghoshal (1998), the main indicators of social
capital. (See further chapter 3 in this work)
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Company: how Social Capital makes Organizations Work’ (2001), knowledge exchange
depends on active connections, supported by trust, mutual understanding and shared
values and behaviors. Without some degree of mutuality and trust, the knowledge
conversations would not get started; without some degree of shared understanding,
these would not go very far.
1.3 Introducing diversity in a social capital framework2
It is without any doubts that organizations have dealt with social issues long before the
advent of the concept of social capital. However, there has never been the interest and
the need to know how to find out where it is needed, and how to build it in the most
effective and speedy manner.
So far, it is obvious that organizations, willing to invest in this type of asset, have the
need to create occasions for collaboration and cooperation among their employees.
This can, in turn, be facilitated if individuals that are called to interact with each other
share the same vision, common values and if they trust each other.
However, considering that in nowadays, highly globalized environment, organizations
deal with a huge amount of ‘diverse’ team-members, cultural issues can invoke social
dilemmas that can discourage the leverage of social capital and hence, the transfer of
knowledge.
In fact, according to social identity and categorization theory, individuals sharing a
social category (or ‘in-group’), such as same racial attribute, ethnicity or gender, for
instance, are often assumed by others to share similar values and interests, whereas ‘out-
group’ members are perceived as different. (McPherson and Smith-Lovin, 1987).
Furthermore, ‘in-group’ members are often assumed by each other to be easier to
communicate with, more trustworthy, more likely to share information than with ‘out-
group’ members. (Komorita, Parks & Hulbert, 1992 ctd. in: Schneider and Northcraft,
1999) Indeed, it is proved that observable forms of diversity, particularly race and
2
Diversity is a prescription used for dealing with a collective of individuals, who describe and perceive
each other as dissimilar or different. So far this study is concerned, it refers to individuals, who perceive
to belong to a specific and unique racial identity group (i.e. historically advantaged and historically
disadvantaged people in South Africa). ‘Racial identity’ can be described as a sense of group or collective
identity based on one’s perception that he/she shares a common racial heritage and a common thread of
historical experience. (Dizard, 1970 cited in Helms, 1993)
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gender, are especially prone to negative outcomes since they often imply stereotypes,
prejudice, and negative affect. (Schneider and Northcraft,1999)
1.4 Problem statement
Of course, to assert that diversity leads to lower levels of organizational performance
means jeopardizing this work and this because the ’optimistic’ view of diversity has not
yet been taken into consideration. Indeed, the various proponents of the optimistic
perspective argue that diversity in organizations is attractive because of the variety in
perspectives and skills of diverse members, which in turn can stimulate knowledge
creation, creativity, innovation and so forth. (Cox, 1993; Thomas and Ely, 1996;
Amabile, 1998)
Because greater demographic diversity entails relationships among people with different
sets of contact, skills, information, and experiences, heterogeneous teams would enjoy
an enhanced capacity for creative problem solving.
This new picture illustrates how both, diversity and social capital can lead to value
creation and organizational performance, but at the same time seem to oppose each
other, or rather, diversity seems to discourage the social asset. The most important
reason for this discouragement is that people are attracted to others perceived to be
similar to themselves, and seem to generate a bias and an ‘us-them’ categorization,
which discourages social interaction, trust relations and a common understanding.
Consequently, it comes with no surprise that multicultural companies, if willing to
become outstanding learning organizations, have the need to exploit the potential of
diversity for the knowledge creation it can bring about, but at the same time, allowing
such knowledge to be exchanged and combined within the organization with an
investment in social capital. Indeed, the transfer of knowledge among diverse mindsets
seems difficult to practice, this because of the destructive drivers of diversity to social
capital. Stereotyping, miscommunication, prejudices pose a great threat to the structural,
relational and cognitive dimensions of social capital.
In order to exploit the potentials of diversity and at the same time, allowing social
interaction, trust and shared vision to flourish, multicultural organizations are constraint
to find a way around this social capital-diversity dilemma.
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1.5 Aim of the study
Considering that the general attempt is to minimize the impact of the destructive drivers
of diversity on social capital, management and executives need to act accordingly,
finding solutions that may allow social capital to prosper within their organizations.
However, before efficient strategies for the leverage of social capital can be framed, it is
of vital importance that top-management understand, in which way and to what extent,
diversity effectively impacts the social asset of their organizations. They have the need
to understand the matter from its grass roots, if their intent is to find a shift to the above
mentioned dilemma.
Put it differently, an assessment of social capital within multicultural organizations is a
must that management should consider before actions can be taken in regard. This is
one major feature that this study aims to argue, and thus, contributing to a totally new
perspective of measurement of social capital in organizations.
Put it differently,
the overall objective of this research is to comprehend the relation between
diversity and organizational social capital, thereby seeking to understand and
explain theoretically and empirically to what extent diversity (in racial attributes)
affects the social capital of multicultural organizations.
Reaching an understanding of how organizational social capital interacts with diversity
in the workplace, may serve as bedrock, from which, suitable suggestions and
recommendations for social capital development can be drawn upon.
In such a way, it is possible to make management aware that there is a solution to the
paradox that affects nowadays knowledge intensive, multicultural organizations.
1.6 Research question
Unfortunately, despite abundant research in diversity and a few in social capital, little if
no work at all exists that directly addresses the integration of both areas.
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Therefore, it is important for the assumptions hereof presented to be empirically tested,
this in order to find a solution to several questions. For instance, queries such as:
• What is the impact of diversity on the stock of active connections of individuals
within an organization?
• How does organizational social capital interact with racial identity in the
workplace?
• To what extent does diversity, in regard to racial attributes, really affect the
social capital asset in organizations?
point to one unique problem to be researched. Basically, they all refer to what extent,
diversity may affect social capital in multicultural organizations.
In order to find an answer to this main research problem, a series of hypotheses were
constructed to make work run more efficiently. These are comprehensively described
and motivated in the ‘problem statement and research hypotheses’ part in chapter 6 and
referenced further on in the analysis in chapter 8.
From the answers that will be obtained and from the discussion and reflections that will
be made upon, a series of suggestions to top-management and executives will be given.
These will provide in turn, such individuals with a broad set of ideas for the
development and harnessing of social capital in their organizations.
1.7 South Africa as research context
In order to find reliable and outstanding answers to the above mentioned questions,
there was the need to get immersed into a very ‘diverse’ and dynamic environment. For
this purpose, it is unquestionable that South Africa, with its strong demographic and
cultural diversity, best suites as a target-field for this kind of study.
South African organizations, with their diverse workforce and multiculturalism, show
many interesting elements that can help to enhance the understanding of this topic.
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As Kurt A. April (1999) argues, managing cooperation, mutual trust, relationship, and
equal employment opportunity are words in common currency in a newly democratic
South Africa as they are in most democratic countries of the world.
Until 1994, systems in this country were designed to keep people apart and more
emphasis had been put on differences rather than on building cooperation. (Burgess,
1989 ctd. in: Horwitz et al., 1996).
As Human (1996) argues, all over the world, but particularly in a patriarchal country as
South Africa, power differentials and maximalist stereotypes of culture remain. These
are no longer generally translated into overtly racist or sexist remarks and/or behavior.
They remain, nevertheless, on the level of negative expectancy communications and
continue to cement power relation, with a negative impact on relationships across
cultures.
By examining the harsh realities of business in South Africa with the mixed character of
its different races, ethnic groups and cultures, and including all the prejudices, conflicts
and clashing ideologies that permeate historically disadvantaged and advantaged people,
outstanding inshights may be gained that might contribute in turn, for a better
understanding of the topic under investigation.
1.8 Procedure of research
In order to to find an answer to the main research question previously mentioned, a
multi-strategy research approach has been adopted, comprising both qualitative and
quantitative methodologies. Therefore, the research design used for this purpose has
involved two different research methods that have been mixed together. These methods,
consisting of a survey study and one focus group, form the detailed research design that
has been structured in the following way:
1) Firstly, a theoretical frame of reference served as generator of perspectives and
ideas on both, social capital and diversity issues.
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2) From this literature, gaps and lack of consistencies could be drawn upon to
delineate the corresponding problem statement, research questions and
hypotheses.
3) In a third stage, concepts taken from previous researches were transformed into
variables to be used for the creation of an appropriate questionnaire. In order to
realize an adequate instrument of research, constructs and ideas for questions
could be gained from a focus group workshop. After the realization of the
questionnaire, data administration and data collection followed.
4) Once data were gathered, factorial and item analysis were adopted in the
statistical process of summarizing and describing data. The interaction effects
between diversity in racial attributes and the dependent variables of social
capital could be individuated thus, giving an answer to the research hypotheses
and hence, to the main research problem. In this way, results could be obtained
by interpreting the statistical analysis.
5) Finally, the results were then compared with the theoretical hypotheses, and
more generally, with the initial theoretical framework by using a process of
induction. In this last stage, results were subjected to discussions and reflections,
made by the researcher with the help of previous theory and common sense. In
this way, adequate explanations of certain social phenomena, as well as,
suggestions and recommendations could be formulated for a further added value.
1.9 Significance of the study
With the steps delineated above, the intent is to grasp all the information needed for
valid and reliable answers. Both, deductive and inductive approaches serve the purpose
of measuring the magnitude of the social capital-diversity dilemma in South African
organizations (i.e. in the municipality of Tshwane).
The findings to be obtained thereof, will support a recasting of the cultural diversity
issues in terms of the social capital determinants and will serve to gain a better
understanding of the social processes that link the socio-demographic compositions of a
diverse workforce.
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Moreover, this study represents an attempt to make a scientific contribution to the
handling of problems of inter-group relations in South African organizations and why
not, as an example for other multicultural organizations operating in highly ‘diverse’
environments.
1.10 Demarcations
Before carrying out the research it is essential to demarcate the purpose of the study.
The research here into question shall be limited to important aspects that can support the
answer of the defined research problem. This is important to not get lost in the large
variety of topics that are, as a matter of fact, connected to the actual questions of this
thesis.
There are various important issues connected to social capital and cultural diversity that
are interesting and important. Many of these will, however, not be examined as that
would go beyond the scope of this study.
• One first demarcation pertains the choice of focus within the subject. The
interest here is to study the level of social capital within organizations in a
particular multicultural environment. Notwithstanding the importance and
richness of the inter-organizational perspective of social capital, the work of this
thesis gives an explanation of social capital that exists within firms and other
formal organizations. Therefore, an intra-organizational perspective of social
capital will be adopted for this study, thus contributing to a thorough
understanding of value creation of intra-firm networks.
• From the previous point, a further subtle demarcation is related to the context
analyzed in this thesis, which refers to inter-group and inter-personal
interactions rather than division (and/or organization) links to one another.
While much research on organizational social capital focuses on the
communication links that bind units or organizations together, within teams, as
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well as, between teams’ interactions are further important issues to be taken into
consideration.
• A third demarcation pertains the measurement indicators used for the social
capital assessment. Major importance has been given to Nahapiet and Ghoshal’s
theoretical model and Tsai and Ghoshal’s empirical study on social capital. Of
particular concern for this study is the way these authors operationally define
and measure social capital dimensions.
• One further demarcation relates to the diversity theories adopted as theoretical
framework of reference for this study. Social identity and social categorization
theories have been used as building frames for the study here in concern.
In fact it is often argued that the formation of relationships among employees of
an organization may be affected systematically by social identity processes. This
perspective is consistent with a broader body of research that highlights the
relationship between demography and social identity, and their effects on the
nature of social interactions. (Ibarra and Smith-Lovin, 1997) Social identity and
categorization theories are highly connected in the dialogue of diversity because
they provide dimensions along which the lines of social dilemma conflicts can
be drawn.
• Moreover, a fifth demarcation is the choice of research methodology applied.
A multi-strategy approach, by combining quantitative and qualitative methods,
has been chosen. Increasing, social science research, including economic
research, integrated both, quantitative and qualitative methods in the quest for
research designs best suited for assessing complex issues and concepts. Based
upon this fact, an integration of diverse methodologies is a fruitful strategy when
trying to analyze a complex and innovative concept such as social capital.
• One last important demarcation refers to the independent variable selected for
this study. Although, the general concept of diversity comprises different socio-
demographic variables – such as, gender, ethnicity and age for instance – this
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study puts its time and efforts on the analysis of one peculiar attribute, referred
to as, racial identity. Despite of the importance of the other variables mentioned
beforehand, the peculiar context in which, this study was carried out made this
choice easier. Indeed, this is partly justified by the fact that race, among others,
is clearly the biggest divide in social ’networks’ in South Africa.
The research here into question was launched as a problem oriented research program.
Despite of the empirical orientation of the investigation, no specific and politically
oriented recommendations were made in regard to the improvement of inter-group
relations on the basis of the findings. It was considered that this field did not pertain to
the object of this study. On the other hand, this investigation does not pretend to be
unaware of the intensive and dynamic debate and reflection taking place in South Africa
at present.
1.11 Structure of the thesis with chapter outline
The current chapter introduced the reader to the problem to be investigated, the purpose
of the study, the research questions, the procedure of research and its significance and
demarcations. The rest of this thesis, will immerse the reader into the deepness of this
fascinating topic. In this respect, the following chapters have been divided in three
fundamental parts defined as: the background, the own work and the synthesis parts.
1) Background chapters
These chapters will contain the review of the literature of both, social capital and socio-
demographic diversity, as well as, a description of the study area in which, the research
is conducted. More specifically, :
Chapter 2: The rise of social capital in organizations will develop a general
conceptual framework of social capital. History and definition, organizational
competence and importance, as well as, benefits and downsides of social capital will be
discussed.
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13
Chapter 3: Current theory and practice on organizational social capital will present
a framework for the measurement of organizational social capital. Previous theories and
models applied for the research of this intangible asset will be introduced, as well as, the
dimensions and indicators thereof.
Chapter 4: Introducing diversity in a social capital framework introduces the
concept of diversity in a social capital framework. Social identity and social
categorization theories will be treated and the costs and benefits of diversity will be
elucidated.
Chapter 5: South Africa: an interesting context for the study of Social Capital in
organizations
This chapter will be devoted to the environment in which the empirical research will be
conducted. It will explain why South Africa is a particularly suitable area for study in
the realm of organizational social capital. It will include a brief historical and general
perspective of the country, it will discuss past and present organizational trends and
finally, it will concentrate on South African diversity issues and the challenges these
bring about in the leverage of social capital in organizations.
2) ‘Own work’ chapters
These chapters refer to the own work of the author. In substance:
Chapter 6: Research problem and methodology of research will provide a
description of the research problem, the research questions with the relative hypotheses
to be tested in the study. At the same time, the type of methodology will be delineated,
thus justifying the approach adopted in the research process.
Chapter 7: Research design and procedure will be discussed with special reference
to the survey population and the sampling technique used. The method and research
techniques adopted for this study will be described in a subtle manner, as well as, the
measuring instrument with its purpose, content and qualification of variables. Finally,
the proposed statistical analysis will be explained.
Chapter 8: Analysis and interpretation of the results will present the findings of the
survey study ranging from general research findings to more specific results. The results
will be reported in a factorial approach, firstly, for the total sample and will then be
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broken down into results per identity group observed – historically disadvantaged and
advantaged people. In this latter instance, results will be reported on a question-by-
question format with direct feed-backs to the research propositions (hypotheses) set
beforehand in chapter 6.
3) Synthesis chapters
The synthesis chapters will contribute to the state of knowledge and understanding of
the topic and are aimed to the development of new theory. Basically:
Chapter 9: Discussion, reflections and suggestions will discuss the major findings of
the survey study and what is more, it will try to let new theory emerge with possible
solutions and suggestions on organizational social capital and its development in
multicultural organizations.
As the chapter heading suggests, this chapter will be divided in three main parts:
• The ’I Part’ entitled as ’Discussion’, will compare the results obtained from the
previous analysis chapter with previous existing theory, this in turn, to let new
insights emerge.
• From this, a series of ’Reflections’ will be drawn in the ’II Part’ , which will
broaden readers understanding of the issues emerged from the previous
discussion of the findings.
• Last but not least, a series of ’Suggestions’ will be given to top-management
and executives alike, in the ’III Part’ of this chapter.
Fianlly, Chapter 10: Conclusions and recommendations for future research will
firstly respond directly to the aim of the work as stated in chapter 1 and 6; then, it will
be concluded with the limitations of the study and recommendations for future research.
The rational of this structure is to write a clear and comprehensible thesis that will
allow the reader to understand the relationship between social capital and
diversity in organizations.
The four main parts to which, these chapters refer are illustrated in a concise but
coherent way in the following graph. (See Figure N. 1.1).
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