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The Potential Downside of Social Capital

We’d like to close our discussion of social capital by addressing some of its limitations.
First, some firms have been adversely affected by very high levels of social capital because
it may breed “groupthink”—a tendency not to question shared beliefs.103 Such thinking may occur in networks with high levels of closure where there is little input from
people outside the network. In effect, too many warm and fuzzy feelings among group
members prevent people from rigorously challenging each other. People are discouraged from engaging in the “creative abrasion” that Dorothy Leonard of Harvard University describes as a key source of innovation.104 Two firms that were well known for their collegiality, strong sense of employee membership, and humane treatment—Digital Equipment (now part of Hewlett-Packard) and Polaroid—suffered greatly from market misjudgments and strategic errors. The aforementioned aspects of their culture contributed to their problems.

Second, if there are deep-rooted mind-sets, there would be a tendency to develop dysfunctional human resource practices. That is, the organization (or group) would continue to
hire, reward, and promote like-minded people who tend to further intensify organizational
inertia and erode innovation. Such homogeneity would increase over time and decrease the
effectiveness of decision-making processes.
Third, the socialization processes (orientation, training, etc.) can be expensive in terms
of both financial resources and managerial commitment. Such investments can represent a
significant opportunity cost that should be evaluated in terms of the intended benefits. If
such expenses become excessive, profitability would be adversely affected.
Finally, individuals may use the contacts they develop to pursue their own interests and
agendas, which may be inconsistent with the organization’s goals and objectives. Thus, they
may distort or selectively use information to favor their preferred courses of action or withhold information in their own self-interest to enhance their power to the detriment of the
common good. Drawing on our discussion of social networks, this is particularly true in an
organization that has too many bridging relationships but not enough closure relationships.
In high-closure groups, it is easier to watch each other to ensure that illegal or unethical acts
don’t occur. By contrast, bridging relationships make it easier for a person to play one group
or individual off another, with no one being the wiser.105 We will discuss some behavioral
control mechanisms in Chapter 9 (rewards, control, boundaries) that reduce such dysfunctional behaviors and actions.

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