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Creating Value, Page 1:
The Social Capital of Leaders
Creating Value:The Social Capital of Leaders
The shift to less hierarchical companies and global markets has triggered a shift from vertical chains of command to horizontal linesof cooperation. Business leaders have a choice between two strategies for adding value: Brokerage is a strategy for creating value,cohesion is a strategy for delivering on a known value stream. This session is about the first strategy, brokerage. It is about successfulleaders who read organizations and markets to figure out what to do, and who to involve in getting it done. Such leaders have socialcapital. This session is about what it means to have social capital, and how having it is linked to value. The following sequence ofquestions will be addressed:
What is the structure of a high-value-add organization, and how does it depend on financial, human, and social capital?
What is the distinction between human and social capital, and how does each enhance leader performance? In other words, what iswrong about the following famous quote:
“If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he buildshis house in the woods, the world will make a beaten path to his door.”
How do leaders thrive even if they don’t have direct control over the resources needed to deliver on their ideas?
What is it about successful leaders like John Clendenin that most irritates (perhaps one could say “frightens”) the people around them?
Appendices:I. Network Metrics (page 16, from Structural Holes)II. Social Capital in Brief (pages 17-18, from Financial Times)III. Example Network Web Survey (pages 19-21)IV. Contingent Value (pages 22-23, from Brokerage and Closure)V. Personality (pages 24-25, from "Personality Correlates of Structural Holes")VI. National Differences in Business Culture (pages 26-28, from "The Social Capital of French and American Managers")
This handout was prepared by Ron Burt as a basis for discussion in executive education (Copyright © 2004 Ronald S. Burt, all rights reserved).To download work referenced here, or research/teaching materials on related topics, go to http://gsb.uchicago.edu/fac/ronald.burt. This
handout has benefitted from comments by Tracy Cox, Jay Dyer, Pati Lee-Motto, Holly Raider, and Bill Russell.
For text on this session,see Chapters 1 and 2 inBrokerage and Closure.
Creating Value, Page 2:
The Social Capital of Leaders
Aggregate value added by severalworking independently
Aggregate value added by severalworking together in your organization
FUNDAMENTAL QUESTION: Whatvalue does your organization add?
x
VA
VAaggregate
= f(x1) + f(x
2) + f(x
3) + . . .
VAorganization
= f(x1, x
2, x
3, . . .)
f(x1, x
2, x
3, . . .) > f(x
1) + f(x
2) + f(x
3) + . . .
Value Added by Leadership
Value added by an individual or groupworking outside your organization
VAgroup
= f(x)
HUMAN CAPITAL: competitive advantage due to individual abilities or skills
SOCIAL CAPITAL: competitive advantage due to surrounding organization
Creating Value, Page 3:
The Social Capital of Leaders
Performance
slump
associated
with
integrating
operations
across
mergers
and
acquisitions
data from www.hoovers.com
0
50
100
150
200
250
Nu
mb
er o
f E
mp
loye
es
(tho
usan
ds)
Allied Signal
McDonnell Douglass
Boeing
TI & Hughes
MartinMarietta
Loral
Raytheon (78)
Northrop (122.6)
Lockheed (130)
General Dynamics (67.6)
Rockwellockwe
Litton & Newport NewsNew
0
10
20
30
40
50
60
1990 1992 1994 1996 1998 2000 2002 2004
An
nu
al S
ales
(bill
ions
of d
olla
rs)
Boeing
Raytheon ($18.1)Allied Signal
Lockheed (31.8%)
Northrop ($26.2)
General Dynamics ($16.6)
-6
-4
-2
0
2
4
6
8
10
Boeing
Raytheon (2.0%)
Lockheed (3.3%)Northrop (3.3%)
General Dynamics (6.0%)
Allied Signal
An
nu
al P
rofi
t M
arg
in
(net
inco
me/
sale
s)
Creating Value, Page 4:
The Social Capital of Leaders
What structure?
What value added?
How controlled?
Information on Affymax can be found on the company website (http://www.affymax.com).
Assessing the Value of Affymax
1988 Affymax Research Institute founded by Dr. Alejandro Zaffaroni toaccelerate the drug discovery process.
1991 Affymax IPO as leader in the field of combinatorial chemistry
1995 Affymax and its holdings in spin-offs acquired by Glaxo-Wellcomein a buy-out valued at $485 million.
2000 Glaxo-Wellcome receives $500 million for reducing its 65%interest in spin-off Affymetrix to 16%.
2001 Affymax Research Institute re-emerges as an independentcompany when a syndicate of venture capital firms led byPatricof & Co. Ventures purchases GlaxoSmithKline's interest inAffymax.
Creating Value, Page 5:
The Social Capital of Leaders
James
Robert
1
23
54
6
7
A
B
C & D
25
1
0
100
29
Group A
Group B
Group C
Group D
Density Table
0
85
5
0
0Network Constraint(C = Σj cij = Σj [pij + Σq piqpqj]2, i,j ≠ q)
person 2: .265 = [1 / 3.5 + 0]2 + [.5 / 3.5 + 0]2 + [1 / 3.5 + 0]2 + [1 / 3.5 + 0]2
person 3: .402 = [.25+0]2 + [.25+.084]2 + [.25+.091]2 + [.25+.084]2
Robert: .148 = [.077+0]2 + [.154+0]2 + [.154+0]2 + [.154+0]2 + [.154+0]2 + [.154+0]2 + [.154+0]2
from Figure 1.1 in Brokerage and Closure
The Small World of Organizations & Markets
Creating Value, Page 6:
The Social Capital of Leaders from Figures 1.1 and 1.3 in Burt (1992, Structural Holes) and Figure 1.2 in Brokerage and Closure
Building for Information Benefits
Network A Network B Network C
YOU YOU YOU
Redundancy
by Cohesion YOU
Redundancy
by Structural
Equivalence
YOU
Contact
Redundancy
Creating Value, Page 7:
The Social Capital of Leaders
BEFORE
1
2
3
4
5
2
1
3
4
5
The employee AFTER is more positioned
at the crossroads of communication
between social clusters within the firm
and its market, and so is better
positioned to craft projects and
policy that add value across
clusters.
Here is the core network for a job BEFORE and AFTER the employee
expanded the social capital of the job by reallocating network time and
energy to more diverse contacts.
Research shows that
employees in networks
like the AFTER network,
spanning structural holes,
are the key to integrating
operations across functional
and business boundaries. In
research comparing senior people
with networks like these BEFORE and
AFTER networks, it is the AFTER networks
that are associated with more creativity, faster
learning, more positive individual and team
evaluations, faster promotions,
and higher earnings.
*Network scores refer to direct contacts.
It is the weak contact connections (structural holes) in
the AFTER network that provides the expanded social
capital.
AFTER
53.6constraint
20.0constraint*
from Figure 1.4 in Burt (1992, Structural Holes) and Figure 1.2 in Brokerage and Closure
(see Appendix I on network metrics; Financial Times article in Appendix II on social capital & structural holes)
To Create Value,Bridge
Structural Holes
STRUCTURAL HOLE
disconnection between twogroups or clusters of people
BRIDGE
relation across structural hole
NETWORK ENTREPRENEUR
person who creates value bycoordinating across a hole
Creating Value, Page 8:
The Social Capital of Leaders
The Small Worldof Supply Chain Managers
in a Large Electronics Firm
from Figure 1.4 in Brokerage and Closure
193
1
9
202
519
235
402
468
88
510
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634
219
406
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227
140378
268
113
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Creating Value, Page 9:
The Social Capital of Leaders
Predicting Supply-Chain Performance in a Large Electronics Company
-4.0
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Sa
lary
Re
lati
ve
to
Pe
ers
(s
tud
en
tize
d r
es
idu
al)
Discussion Network Constraint (C) Around Employee
Y = 1.023 - .026 C(-5.6 test statistic, black dots indicate Director or VP)
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E 0
0.1
0.2
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10 20 30 40 50 60 70 80 90 100
Probability "Outstanding" Evaluation(-5.0 logit test statistic)
Probability Promotion-Raise(-6.5 logit test statistic)
Probability "Poor" Evaluation(4.7 logit test statistic)
From Burt, "Structural holes and good ideas" (2004, American Journal of Sociology). These are graphs A and B on the next page.
Creating Value, Page 10:
The Social Capital of Leaders
Social Capital, Achievement, Rewardsmore constraint means fewer structural holes, less social capital, and so lower performance (z-score performance)
From Figure 1.5 in Brokerage and Closure.See Appendix III for association with personality, Appendix V for national differences in business cultures
D
15 20 25 30 35 40 45 50
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-2.0
-1.0
0.0
1.0
2.0
3.0
Early Promotionr = -.40t = -5.4
P < .001
Network Constraintmany ——— Structural Holes ——— few
(manager C above, mean C in team below)
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1.0
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r = -.41t = -5.6P < .001
Supply-Chain Salary
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
10 20 30 40 50 60 70 80 90 100
Probability of Promotion-Raise
(-6.5 z-score)
Probability of
Outstanding
Evaluation
(-5.0 z-score)
Probability of
Poor Evaluation
(4.7 z-score)re)
Network Constraintmany ——— Structural Holes ——— few
(C for manager’s network)
B
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
10 15 20 25 30 35 40 45 50
Probability of Poor Evaluation
(3.3 z-score)
Probability of
nOutstanding Evaluation
(-2.3 z-score)
C
Network Constraintmany ——— Structural Holes ——— few
(C for manager’s network)
Network Constraintmany ——— Structural Holes ——— few
(manager C above, banker C below)
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2.0
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4.00 10 20 30 40 50 60 70 80
Large Bonusr = -.30t = -3.7
P < .001
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French Salary
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Asia-Pacific Salaryr = -.42t = -4.3
P < .001
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Recognition of
TQM Team
Achievementsr = -.79t = -4.3
P < .001
Creating Value, Page 11:
The Social Capital of Leaders
Performance Increases with Brokerage, Especially at High Levels of BrokerageCircles are average z-score performance (Z) for a five-point interval of network constraint (C) within each study population.
Dashed line goes through mean values of Z for intervals of C. Bold line is performance predicted by the natural logarithm of C.
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5 15 25 35 45 55 65 75 85 95
Z = 2.78 - .82 ln(C)
r = .53
Network Constraint (C)many ——— Structural Holes ——— few
Av
era
ge Z
-Sco
re R
ela
tive P
erf
orm
an
ce
(co
mp
en
sa
tio
n, e
va
lua
tio
n, p
rom
otio
n)
from Figure 1.8 in Brokerage and Closure
Creating Value, Page 12:
The Social Capital of Leaders
Evidence Categories on Bridging Structural Holes
from Burt, "The social capital of structural holes" (2002, The New Economic Sociology).
Bridging structural holes increases the probability of accidental learning, which increases
the odds of distinguishing valuable bridges from trivial bridges (else bridges are merely
socializing or costly bureaucracy). Network entrepreneurs are a guidance system that
deploys corporate and market resources to places in which the resources create value.
Brokerage
across
Structural Holes
Creativity & Learning(What should be done?)
Achievement & Rewards(What benefits?)
Adaptive Implementation(Who should be involved?)
Awareness (knowing concrete intra-cluster reasons for difficult coordination between two clusters can facilitate coordination; Coast Guard rescuer into the water calms victims, which facilitates rescue)
Best Practice (something they think or do could be valuable in my operations)
Analogy (something about the way they think or behave has implications for how I can enhance the value of my operations; i.e., look for the value of juxtapositioning two clusters, not reasons why the two are different so as to be irrelevant to one another — you often find what you look for)
Synergy (resources in our separate operations can be combined to create a valueable new idea/practice/product) Cre
ate
L
ea
rn
Creating Value, Page 13:
The Social Capital of Leaders from Figure 2.1 in Brokerage and Closure
Creativity & Learning — Brokerage and "Best Idea"
^
Network Constraint (C) on Manager Offering Idea
Ma
na
ge
me
nt
Ev
alu
ati
on
of
Ide
a's
Va
lue
Y = a + b ln(C)
Pro
bab
ilit
y
". . . for those ideas that were
either too local in nature,
incomprehensible, vague,
or too whiny, I didn't rate them"
P(dismiss)
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1.5
2
2.5
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3.5
10 20 30 40 50 60 70 80 90 100
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C
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C C
C
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a
6.42
4.08
5.51
b
-1.04
-.63
-.91
t
-5.8
-3.9
-7.4
Judge 1
Judge 2
Combined
^ P(no idea)
11.2 logit test statistic
^
^
5.5 logit
test statistic
Creating Value, Page 14:
The Social Capital of Leaders
Adaptive Implementation — John A. Clendeninat Xerox
The case for discussion is Clendenin’s management of the Multinational DistributionCenter (MDC). After a stint in the Marine Corps and graduation from business school,Clendenin joined Xerox in 1984. A series of successful projects earned Clendeninpromotion in December 1984 to administrative manager for the parts and supplyarea. He found, hidden away within his domain a small subunit, the MultinationalSystems Development Center (MSDC), which was responsible for developing andmaintaining systems to improve communication between the logistics and distributionoperations within each of Xerox's worldwide operating units. Though not viewed asan important part of Xerox’s operations, the MDSC was responsible for tracking the distribution of Xerox’s $8 billion per year in copiersand spare parts from 23 manufacturing plants in 15 countries. Analyzing the existing system, Clendenin calculated that the MSDC hadthe potential to reduce operating costs by approximately $100 million per year.
Clendenin builds the social capital of the MDC and himself over the subsequent years. Managing through the self-interest ofothers, he nurtures subordinates in a lively, competitive work environment, and adds value to internal clients with cost reductionprograms that coordinate across the structural holes between Xerox’s regional logistic operations. The result is a quotable successstory: The MDC grows from four to 42 people before Clendenin is rotated in 1989 into a new management position in logistics. TheMDC’s budget grows from $400K to $4.3M. Over Clendenin’s tenure, his organization is credited with taking $700M in inventory costsout of Xerox’s operating expenses, reducing the company's $2.6B supply-chain spend down to $1.9B.
Case Discussion Questions*
1. Clendenin seems to be a master at creating resources where none existed before (for example, thegrowth of the MDC). How does he do it?
2. Would you want to work for someone like Clendenin? What are the benefits? Disadvantages?
3. Would you hire someone like Clendenin to work for you in your organization? How do you managethis kind of talent?
*Photo is from the video shown during the session.More detail can be obtained from “Managing Xerox’s Multinational Development Center” (Harvard Business School Press, case number 9-490-029).
Creating Value, Page 15:
The Social Capital of Leaders
Three Session-Summary Points1. THERE IS A SOCIAL ORDER TO ORGANIZATIONS & MARKETS
For reasons of opportunity (largely location), shared interests and experience, and simple inertia, organizations andmarkets drift toward the bridge and cluster structure illustrated on page 5. This is the social structure across whichbusiness leaders strategize about what to do and with whom to do it.
2. VISION ADVANTAGE OF BROKERAGE CONCENTRATES VALUE AROUND THE BRIDGES
Structural holes are the metric for social capital. Brokerage across holes creates a vision advantage (better see whatto do, who to involve). The result is that social capital increases with the diversity of your contacts. If everyone youknow is well-known to one another, you don’t have social capital. Ceteris paribus, BROKERS DO BETTER (asillustrated on page 10).
3. REPUTATION IS CRITICAL, WHICH CREATES A MANAGEMENT PROBLEM
Uncertainty is the primary impediment to exercising social capital (and a focus this afternoon). Top managementdepends on able employees using social capital to search out and implement ways to add value for the organization,but too much puts the enterprise at risk. Company chains of command broken in service of company interests can justas easily be broken in service of personal interests, or in service of well-intentioned but strategy-eroding interests.* Thetwo cases this morning illustrate reputation effects:
Zaffaroni case illustrates the importance of reputation within and beyond the team for establishing connectionsbetween groups within a team,
Clendenin case illustrates the importance of reputation for overcoming the suspicions with which brokers are viewed(recall Les Elstein and the distrust of Clendenin's motives expressed in this session).
Creating Value, Page 16:
The Social Capital of Leaders
from Figure 2.2 in Burt (1992, Structural Holes)
Appendix I:Network Metrics
Constraint measures the
extent to which a
network doesn't span
structural holes
Note:
pij = proportion of i's relations allocated to j
= zij / Σ Σ Σ Σ Σk zik (where zij is the strength of i's
relation to j, here simplified to 0 versus 1).
A
B
C
DE
F
contact-specificconstraint (x100):
= aggregate constraint (C = Σj cij)
network data
A . 1 0 0 1 1 1B 1 . 0 1 0 0 1C 0 0 . 0 0 0 1D 0 1 0 . 0 0 1E 1 0 0 0 . 0 1F 1 0 0 0 0 . 1 1 1 1 1 1 1 .gray dot
A 15.1 B 8.5 C 2.8 D 4.9 E 4.3 F 4.3
total 39.9
cij = (pij + Σq piqpqj)2 q ≠ i,j
100/36
Network constraint measures the extent to which your network is concentrated
in a single contact. There are two components: (direct) person consumes a large
proportion of your network time and energy, and (indirect) person controls
other people who consume a large proportion of your network time and energy.
Creating Value, Page 17:
The Social Capital of Leaders
Recent years have seen a dramaticshift in the way companiesorganize. The shift is away frombureaucracy. Layers of formalcontrol within and across functionsare being replaced with fewerlayers of negotiated informalcontrol.
The shift away frombureaucracy means that managerscannot rely as much on directivesfrom above. They are now morethan ever the authors of their ownwork. The upside is that firms canidentify, and adapt more readily to,needed production changes andmarket shifts. The downside isnew costs for managers. Thecoordination costs once borne bycorporate bureaucracy — eachperson having responsibility forcoordination within a limited
develop needed skills in a broaderrange of younger managers, (c)identify the right people to managecross-functional teams andtransitions from the old to the new,(d) understand diversity issues, and(e) anticipate catalysts andbottlenecks to organization change(i.e., how reengineering,downsizing, merging, acquiring,and the like will be received by theorganization).
There are two ways tounderstand social capital; relativeto human capital, and as a form ofnetwork structure.
SOCIAL CAPITAL RELATIVETO HUMAN CAPITALHuman capital and social capitalarguments explain why some
capital refers to opportunity.Managers with more social capitalget higher returns to their humancapital because they can identifyand develop more rewardingopportunities.
SOCIAL CAPITAL AS A FORMOF NETWORK STRUCTUREStructural hole theory givesconcrete meaning to the socialcapital metaphor. Hole theorydescribes how the structure of anetwork is a competitive advantagefor certain people over others. In aperfect market, one rate of returnclears the market. In an imperfectmarket, there can be multiple ratesof return because disconnectionsbetween individuals, holes in thestructure of the market, leave some
structures rich in disconnectionsbetween people are rich in theentrepreneurial opportunities ofstructural holes.
People better connectedacross structural holes are betterpositioned to broker otherwisedifficult or unlikely exchanges, andso are likely to enjoy higher returnsto their human capital. Specifically,managers with contact networksrich in structural holes are theindividuals who know about, have ahand in, and exercise control over,more rewarding opportunities.They have broader access toinformation because of their diversecontacts (information access benefitof holes). That means they aremore often aware of newopportunities, and aware earlierthan their peers (information timing
James
Robert
1
2
3
4
5
2
1
3
4
5
Robert took over James' job. Entrepreneurial Robert expandedthe social capital of the job by reallocating network time and energyto more diverse contacts.
Research shows that peoplelike Robert, better positioned forentrepreneurial opportunity, are thekey to integrating across functions andacross the people of increasingly diverse backgrounds in today's flatterbusiness organizations. In research comparisons between managerslike James and Robert, it is the people like Robert who get promotedfaster, earn higher compensation, and perform more successfully on teams.
It is the weak connections (structural holes) between Robert's contacts that provide his expanded social capital. Robert is more positioned at the crossroads of communication between social clusters within his firm and its market, and so is positioned to craft business policy to add value across clusters.
The Social Capital of Entrepreneurial Managers
From 5/10/96Financial Times(EuropeanEdition)
Ronald Burt is theHobart W. WilliamsProfessor ofSociology andStrategy at theUniversity of ChicagoGraduate School ofBusiness. His theoreticalwork describespreference formationand entrepreneurialopportunities incompetitiveenvironments. Applications focuson the contactnetworks of high-performancemanagers (how peopleof diversebackgrounds createsocial capital) and thenetwork structure ofmarket profits (howthe structure ofproducer, supplier,and customer relationsdefines competitiveadvantage amongproducers).
Appendix II: Social Capital in Brief
Creating Value, Page 18:
The Social Capital of Leaders
domain of responsibility — arenow borne by individual managerswho have responsibility forcoordination across broaderdomains of business activity.
Which is why the adageabout working through others istaking more concrete form atleading business schools. Socialscience has made striking advancesin theory and research over the lasttwenty years on the principles ofadding value through other people.The core concept is social capital,the University of Chicago is at thefrontier of theory and research onthe issue, and the GSB is at thefrontier of crafting courses thatbring the work to the classroom.
Managers differ in theirability to survive and thrive withoutbureaucracy. What is anopportunity for some managers, isdistress for many others.Coordination tasks are nowbroader, with a correspondingincrease in uncertainty, stress, andpotentially disruptive conflict.New issues emerge for humanresource management.
Which is why social capitalanalysis can be useful. In socialscience terms, the shift away frombureaucracy is a shift to socialcapital as a critical performancefactor. Social capital refers to thewealth of a manager’s relationshipswithin and beyond the firm. Thisform of capital can be measured,and enhanced, so analysis can be apowerful tool in human resourcemanagement. Specifically, socialcapital analysis has been useful to:(a) understand how a companyreally works (how peoplecommunicate, how informationflows, and so on), (b) identify and
managers add more value to theircompanies. Both arguments beginwith inequality. Some managersenjoy higher incomes. Some arepromoted faster. Some are leaderson the more important projects.The human capital story is thatsuch inequalities result fromdifferences in individual ability.The more rewarded managers aresmarter, or better educated, or moreexperienced.
Social capital focuses on thevalue a manager adds through otherpeople. The social capital story isthat inequalities result fromcontextual differences betweenpeople. Returns to intelligence,education, and seniority depend ona manager’s location in the socialstructure of an organization. Someportion of the value a manager addsto a firm is his or her ability tocoordinate other people, wherecoordination refers to identifyingopportunities to add value withinan organization, and getting theright people together to takeadvantage of the opportunities.Certain network structures ofrelationships — deemed socialcapital — can enhance a manager’sability to identify and developopportunities.
The summary points aretwo: (a) Social capital differs fromhuman capital. Social capital is aquality created between peoplewhile human capital is a quality ofindividuals. Investments thatcreate social capital arefundamentally different from theinvestments that create humancapital. (b) Social capital is thecontextual complement to humancapital. Where human capitalrefers to individual ability, social
managers unaware of the benefitsthey offer one another. Certainmanagers are connected to certainothers, trusting certain others,obligated to support certain others,dependent on exchange with certainothers.
In the above diagram, Jameshas a network that spans onestructural hole (the relatively weakconnection between a clusterreached through contacts 1, 2, and 3versus the other cluster reachedthrough contacts 4 and 5). Thestructural hole between the twoclusters does not mean that peoplein the two clusters are unaware ofone another. It simply means thatpeople in each cluster are sofocused on the press of businesswithin their own cluster that theypay relatively less attention to theactivities of people in other clusters.
Robert took over James' job.Robert preserves connection withboth clusters in James' network, butexpands the network to a morediverse set of contacts. Robert'snetwork, adding three new clustersof people spans ten structural holes.
These structural holesbetween people are entrepreneurialopportunities for third parties tobroker the flow of informationbetween people on opposite sides ofthe structural hole, and control theform of projects that bring togetherpeople on opposite sides of thestructural hole. Structural holesseparate nonredundant contacts.Each hole is a buffer, like aninsulator in an electric circuit. As aresult of the structural hole betweenthem, two contacts provide network(information and control) benefitsthat are in some degree additiverather than overlapping. Social
benefits). They are also more likelyto be the people discussed assuitable candidates for inclusion innew opportunities (referralbenefits). They are also more likelyto have sharpened and displayedtheir capabilities because they havemore control over the substance oftheir work defined by relationshipswith subordinates, superiors, andcolleagues (control benefits). Thesebenefits reinforce one another atany moment in time, and cumulatetogether over time.
Through theirentrepreneurial opportunities,managers with contact networksrich in structural holes can addvalue above and beyond the valueof their human capital. Theymonitor information moreeffectively than bureaucraticcontrol. Gossip moves faster, andto more people, than memos.Entrepreneurial managers know theparameters of organizationproblems early. They are highlymobile relative to bureaucracy,easily shifting network time andenergy from one solution toanother. Entrepreneurial managerstailor solutions to the specificindividuals being coordinated,replacing the boiler-plate solutionsof formal bureaucracy. To thesebenefits of faster, better solutions,add cost; entrepreneurial managersoffer inexpensive coordinationrelative to the bureaucraticalternative. In short,entrepreneurial managers operatesomewhere between the force ofcorporate authority and thedexterity of markets, rushingcoordination to disconnected partsof the firm that could beproductively brought together.
Creating Value, Page 19:
The Social Capital of Leaders
Appendix III: Example Network Web Survey
Creating Value, Page 20:
The Social Capital of Leaders
Creating Value, Page 21:
The Social Capital of Leaders
Creating Value, Page 22:
The Social Capital of Leaders
Appendix IV: Contingent Returns
J
J
J
J
J
J
J
B
B
B
B
B
B
B
B
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
Isolates
193
0
0
—
Employee's Bridge Relations
Supply-Chain Manager
Salary (page 9)
Banker
Salary and BonusC
om
pen
sati
on
Rela
tive t
o P
eers
(stu
de
nti
ze
d r
es
idu
al)
0
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4.1
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198
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26
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2
79
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32
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3
49
6.1
25
58.8
4
21
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28
43.5
5 - 9
15
8.7
95
50.7
10 - 14
0
—
50
46.2
15 or
more
0
—
53
64.9
Number Managers (673)
Mean Network Size
Number Bankers (345)
Mean Network Size
Mean is 8 bridges,
median is 6
Mean and median
are 1 bridge
Creating Value, Page 23:
The Social Capital of Leaders from Figure 3.8 in Brokerage and Closure
0.0
0.2
0.4
0.6
0.8
1.0
0 50 100 150 200 250 300 350 400 450 500
Number (N) of Managers at Rank in Division
Va
lue
(v
) o
f
Bro
ke
rag
e S
oc
ial
Ca
pit
al
Network Constraint (C)
Per
form
ance
Network Constraint (C)
Per
form
ance
EEEE
E
E
E
EEE
EE
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E
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EE
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EE
E
E|r| = .96
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EE
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|r| = .11
(D) v = 8.40(N)-.43
(A) v = 4.85(N)-.43
(C) v = 79.26(N)-1.41
D. Managers in a
hypothetical network firm
dc
c'
(B) v = .23(N)-.22B. Function A managers,
brokerage in authority network
C. Managers in
the supply chain
of a leading electronics
company (Figure 1.5A)
A. Managers across functions in a leading
computer manufacturer (Figure 1.5D)
Creating Value, Page 24:
The Social Capital of Leaders
Appendix V:Personality
1. When evaluating opportunities, I am likely to look . . .
A. for a chance to be in a position of authority
B. for the long-run implications
2. My strength lies in the fact that I have a knack for . . .
A. being easygoing
B. getting a point across clearly
3. In discussions among peers, I am probably seen as . . .
A. an outspoken advocate
B. motivating people to my views
4. I believe that people get into more trouble by . . .
A. being unwilling to compromise
B. not letting others know what they really think
5. In a leadership role, I think my strength would lie in the fact that I . . .
A. won people over to my views
B. kept everyone informed
6. In evaluating my aims in my career, I probably put more emphasis on . . .
A. my ability to create an aura of excitement
B. being in control of my own destiny
7. As a member of a project team, I . . .
A. seek the advice of colleagues
B. closely follow the original mandate of the group
8. Others are likely to notice that I . . .
A. let well enough alone
B. let people know what I think of them
9. In an emergency, I . . .
A. take the safe approach
B. am quite willing to help
10. I look to the future with . . .
A. unshakable resolve
B. a willingness to let others give me a hand
Network Entrepreneur
Personality Index
Select the phrase under each item that better describes you (circle A or
B). Select only one phrase per item. If you disagree with both phrases,
select the one with which you disagree less. With so few questions, it is
important to select phrases that describe how you actually operate, rather
than how you feel you should or would like to operate. There are no
right or wrong answers. When you are finished, you should have a total
of ten phrases circled. To get your score, see the answer key at the
bottom of page 27, then use the graph below to determine your personal
disposition toward being a network entrepreneur.
from Figure 1.6 in Brokerage and Closure
0 1 2 3 4 5 6 7 8 9 10
1.0
0.8
0.6
0.4
0.2
0.0P(n
etw
ork
entr
epre
neur
per
sona
lity)
Network Entrepreneur Personality Index
Creating Value, Page 25:
The Social Capital of Leaders
Personality
differences are
associated with the
networks built by
these staff officers,
but only below
managerial rank
(clerical and
technical staff),
where there is no
social capital
association with
performance
For the purposes here,
an employee has an entrepreneurial network
if his or her network constraint score is no
more than the average for all respondents.
Network Entrepreneur Personality Index(number of positive choices)
P(e
ntr
epre
neu
rial
net
wo
rk)
P(entrepreneurial network) = ; f = -2.706 + 2.519S + (.591 - .587S)INDEX1�1 + e-f
Clerical and Technical Staff�(slope = .591)
(2.7) (2.5) (-2.4)
J
J
J
J
J
J
J
J
J
JJ
J J J J J J J J J J J
0.0
0.2
0.4
0.6
0.8
1.0
0 1 2 3 4 5 6 7 8 9 10
Directors, Managers, and Associates�(slope = .004)
from Burt, Jannotta, and Mahoney, "Personality correlates of structural holes" (1998, Social Networks)
S is a dummy variable
distinguishing employees in senior ranks.
Creating Value, Page 26:
The Social Capital of Leaders from Burt, Hogarth, and Michaud "The social capital of French and American managers" (2000, Organization Science)
Colleague Relations Predating Entry into the Firm
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3010 25201550
French Manager Years in the Firm
3010 25201550
American Manager Years in the Firm
Yea
rs A
cqu
ain
ted
wit
h C
on
tact
30
10
25
20
15
5
0
30
10
25
20
15
5
0
Years in
the Firm
0 to 10
11 to 20
Over 20
Total
Number
Colleagues
105
160
391
656
French Managers
% Known
Before Firm
26%
15%
5%
11%
Mean Years
Known
5.2
8.2
10.3
9.0
Number
Colleagues
691
875
129
1695
American Managers
% Known
Before Firm
81%
42%
6%
55%
Mean Years
Known
12.6
13.5
14.9
13.0
AppendixVI:
NationalDifferences
inBusinessCulture
Creating Value, Page 27:
The Social Capital of Leaders
Distinctions Between Kinds of Relations(relations close together reach the same contacts)
J
J
J
J
J
JJ
J
J
J
J
J
J
J
J
J
J
difficult
distant
socialize
discussexit
discusspersonal
daily
espclose
10+
less thanmonthly
subordinate
supervisor
1-2
lessclose
weeklyclose
3-9
American
Managers
J
other
J
knewbefore
monthly
J
J
buy-in
valued
from Figure 1.7 in Brokerage and Closure
J
J
J
J
J
J
J
J
J
J
JJ
J
J
J
J
J
J
J
difficult
distant
socializediscussexit
discusspersonal
daily
espclose
10+
less thanmonthly
monthly
subordinatesupervisor
1-2less
close
buy-in
weekly
close
valued3-9
French
Managers
J
other
J
knewbefore
Answer key to page 24 — Add 1 for each of the following you circled: 1A, 2B, 3A, 4B, 5B, 6A, 7A, 8B, 9B, 10A
Creating Value, Page 28:
The Social Capital of Leaders from Burt, Hogarth, and Michaud "The social capital of French and American managers" (2000, Organization Science)
Dimensions of National Business Culture(nations close together have similar business cultures)
12
3
4
7
8
9
10
11
12 13
14
15
16
17
18
20
21
22
23
24
26 27
29
30
31
33
34
35
36
38
39
40
ID. Country
1. Argentina 2. Australia 3. Austria 4. Belgium 5. Brazil 6. Canada 7. Chile 8. Colombia 9. Denmark 10. Finland 11. France 12. Great Britain13. Germany (F.R.)14. Greece 15. Hong Kong 16. India 17. Iran 18. Ireland 19. Israel 20. Italy 21. Japan 22. Mexico 23. Netherlands 24. Norway 25. New Zealand 26. Pakistan 27. Peru 28. Philippines 29. Portugal 30. South Africa31. Singapore 32. Spain 33. Sweden 34. Switzerland 35. Taiwan 36. Thailand 37. Turkey 38. USA 39. Venezuela 40. Yugoslavia
X axis
0.24-0.89-0.680.250.51
-0.730.790.98
-1.59-0.630.17
-1.13-0.420.870.260.120.12
-0.97-0.81-0.200.530.99
-0.99-1.01-1.050.600.851.361.03
-0.360.320.25
-1.31-0.530.580.550.56
-0.921.300.97
Y axis
0.340.451.190.680.020.18
-0.500.19
-0.75-0.420.300.520.490.65
-0.91-0.53-0.200.54
-0.010.691.240.37
-0.68-0.880.30
-0.22-0.22-0.04-0.390.25
-1.520.09
-1.050.55
-0.28-0.500.020.440.32
-0.68
519 28
37
USA
Singapore
JapanAustria
Denmark
Sweden
Philippines
Yugoslavia
Hong Kong
India
Norway
NetherlandsFinland
Portugal
Venezuela
GreeceGreatBritain
Colombia
Mexico
BelgiumItaly
Germany
Switzerland
Argentina
SpainBrazil
Turkey
Peru
Canada
Thailand
Taiwan
Iran
South Africa
Israel
Chile
NewZealand
Ireland
-0.1
-0.8 -2.0 0.6 0.8 -0.6 0.6 0.7 -1.7 -0.9 0.8 -0.8 -0.8 0.4 0.8 1.2 0.3 -1.2 -1.9 -0.1 0.1 1.4 -0.7 -1.0 -1.5 0.2 0.6 2.1 0.6 -0.1 1.1 0.3 -1.0 -0.9 0.3 0.6 0.7 -0.6 1.4 1.2
Pow
erD
ista
nce
0.9
-0.6 0.2 1.2 0.5 -0.7 0.9 0.7 -1.7 -0.2 0.9 -1.2 0.0 2.0 -1.5 -1.0 -0.2 -1.2 0.7 0.4 1.2 0.7 -0.5 -0.6 -0.7 0.2 0.9 -0.9 1.7 -0.7 -2.4 0.9 -1.5 -0.3 0.2 -0.0 0.9 -0.8 0.5 1.0
Unc
erta
inty
Avo
idan
ce
Scores on Hofstede's four dimensions of business culture are listed as z-scores at the extreme right.Two countries are close in the multidimensional scaling above to the extent that they have the sameprofile of scores on the four culture dimensions (countries can be located by the X and Y coordinateslisted to the right). Maximum and minimum scores on each dimension are highlighted.
France
32
25
6
-0.2 1.6 0.2 1.0 -0.5 1.2 -1.1 -1.5 1.0 0.5 0.8 1.6 0.7 -0.6 -1.0 -0.1 -0.4 0.8 0.2 1.0 -0.2 -0.8 1.2 0.8 1.2 -1.5 -1.4 -0.7 -0.9 0.6 -1.2 0.0 0.8 0.7 -1.3 -1.2 -0.5 1.6 -1.5 -0.9
0.3
0.6 1.5 0.2 -0.0 0.1 -1.1 0.7 -1.7 -1.2 -0.3 0.8 0.8 0.4 0.4 0.3 -0.3 0.9 -0.1 1.0 2.3 1.0 -1.8 -2.1 0.4 0.0 -0.4 0.7 -0.9 0.7 -0.1 -0.4 -2.3 1.0 -0.2 -0.8 -0.2 0.6 1.2 -1.4
Indi
vidu
alis
mM
ascu
linity
Individualism(R2 = .81)
PowerDistance(R2 = .81)
UncertaintyAvoidance(R2 = .53)
Masculinity(R2 = .65)