The Negative Effects of Social Capital in Organizations: A Review and Extension

In total, nine studies have addressed the negative effects of social capital on firm performance.

“In total, nine studies have addressed the negative effects of SC on the performance of firms.”

At the organizational level, these dysfunctional effects can fuel the non-rational escalation of commitment to failing courses of action.

“and fuel the non-rational escalation of commitment to failing courses of action”

Dilution of the intra-organizational dialectical process potentially fuels groupthink.

“and, potentially, fueling groupthink”

An important theoretical omission in prior research is the question of how social capital limits information processing and restricts adaptation to generate deleterious outcomes.

“An important theoretical omission, however, is the question as to how SC limits information processing and restricts adaptation and, in so doing, generates the deleterious outcomes alluded to at the outset.”

Identification processes have attracted only limited attention to date in explaining the negative effects of social capital.

“identification processes have attracted only limited attention to date in explaining the negative effects of SC, a surprising revelation, not least because, as indicated above, identification is arguably a fundamental process that is central to all three dimensions of SC.”

Dark-side effects of social identification can be observed at the interorganizational level, although the effect sizes are probably weaker.

“These dark-side effects of social identification can also be observed at the interorganizational level, although the effect sizes are probably weaker.”

• AssumptionRests on an assumption: The effect sizes of dark-side effects of social identification at the interorganizational level are weaker than at the intra-organizational level.

At the organizational level, these dysfunctional effects can result in the postponement of necessary structural adjustments.

“At the organizational level, these dysfunctional effects can result in the postponement of necessary structural adjustments”

At the interorganizational level, social identification can lead to a blurring of firms' boundaries.

“Finally, also at the interorganizational level, social identification can lead to a blurring of firms' boundaries.”

Social capital, in general, acts as a constraint upon individuals.

“In so doing, SC, in general, acts as a constraint upon individuals.”

• cites Durkheim ([1895] 1938)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Information restriction dilutes the intra-organizational dialectical process.

“diluting in turn the intra-organizational dialectical process”

Frequent interactions and being embedded in a dense, high-closure network can facilitate identification processes.

“Frequent interactions and being embedded in a dense, high-closure network can also facilitate identification processes (Ibarra et al. 2005).”

• cites Ibarra et al. 2005 sourceNot checked — no full text of the source

When actors over-identify with their network partners, social capital hampers synthesis by impeding the generation of antitheses.

“Hence, we maintain that, when actors over-identify with their network partners, SC hampers synthesis by impeding the generation of antitheses.”

• AssumptionRests on an assumption: Thesis and antithesis are necessary conditions for synthesis.

Social capital leads to a concentration of points in the wider space of beliefs.

“Hence, SC leads to a concentration of points in the wider space of beliefs.”

Two of the six negative effects, dilution of dialectical process and groupthink, have attracted some attention in the social capital literature to date.

“Two of these effects, dilution of dialectical process and groupthink, have attracted some attention in the SC literature to date (de Clercq et al. 2009;Villena et al. 2011).”

• cites de Clercq et al. 2009 sourceNot checked — no full text of the source
• cites Villena et al. 2011 sourceNot checked — no full text of the source

Such polarization leads to pressure to conform to the opinions of prototypical members of the group or network.

“We infer that such polarization will lead to pressure to conform to the opinions of prototypical members of the group or network, an assertion supported by the finding that less powerful individuals in organizations are likely to feel pressure to accept the perspectives and viewpoints of individuals who are more powerful (Walker 1985).”

• cites Walker 1985 sourceNot checked — no full text of the source

Social capital, via social identification processes, constrains the clash between thesis and antithesis, promoting adherence to extant collective belief systems legitimated through authority structures within the organization.

“Social capital, via social identification processes (i.e.primarily cognitive SC), constrains the clash between thesis and antithesis, promoting an adherence to extant collective belief systems, legitimated through authority structures within the organization.”

• AssumptionThe authors state this as an assumption: Knowledge creation is a dynamic, dialectical process wherein knowledge emerges by reconciling contradictions.

Dilution of the intra-organizational dialectical process inhibits collective level learning.

“thereby inhibiting collective level learning”

Relational social capital that engenders norms of obligation, commitment, and reciprocity can promote adherence to extant belief systems.

“relational SC that engenders norms of obligation, commitment, and reciprocity (Nahapiet and Ghoshal 1998;Villena et al. 2011) can also promote adherence to extant belief systems.”

• cites Nahapiet and Ghoshal 1998 sourceNot checked — no full text of the source
• cites Villena et al. 2011 sourceNot checked — no full text of the source

Prior research has documented that over-embeddedness reduces the flow of new ideas into the group, resulting in parochialism and inertia.

“It has been found that over-embeddedness reduces the flow of new ideas into the group, resulting in parochialism and inertia (Gargiulo and Benassi 1999).”

• cites Gargiulo and Benassi 1999 sourceNot checked — no full text of the source

Social identification leads to group polarization, meaning that group norms are perceived as more stereotypically extreme.

“Researchers have also documented how social identification leads to group polarization, which means that group norms are perceived as more stereotypically extreme (Mackie 1986).”

• cites Mackie 1986 sourceNot checked — no full text of the source

Social capital essentially functions as a constraint by imparting order and structure to the distribution of beliefs.

“Our argument is that SC essentially functions as a constraint by imparting order and structure to the distribution of beliefs.”

The negative effects of social capital in organizations arise mainly from dysfunctional social identification processes, which restrict information processing and acceptance of novel insights.

“We maintain that these negative effects arise from fundamental (dysfunctional) processes of social identification (Ashforth and Mael 1989), restricting in turn the processing of new information by directing attention inward to selected aspects of the information environment.”

• Also stated in: § Introduction · plain

  “We maintain that social identification is the main generative mechanism that ties together the various negative effects highlighted in this review, directing actors' attention and restricting the processing and acceptance of potentially novel insights that would otherwise stymie those effects.”

• cites Ashforth and Mael 1989Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

At the intra-organizational level, information restriction, as a function of social identification processes, inhibits individual learning.

“At the intra-organizational level, we maintain that information restriction, as a function of social identification processes, inhibits individual learning”

Social capital at the interorganizational level, through integrating firms along the supply chain, has the potential to detract from the decision making efficiency of the buying firm via inward focus and inefficient resource allocation.

“Social capital at the interorganizational level, through its effects in integrating firms along the supply chain, has the potential to detract from the decision making efficiency of the buying firm, via a similar dynamic of inward focus and inefficient resource allocation.”

• cites Coase 1937 sourceNot checked — no full text of the source
• cites Mullainathan 2001 sourceNot checked — no full text of the source

Under higher levels of participative leadership, team reflection is encouraged and the dialectical process required to promote individual and collective learning will probably occur irrespective of social capital.

“Under higher levels of participative leadership, in contrast, team reflection is encouraged and the dialectical process required to promote individual and collective learning will probably occur irrespective of SC.”

Excessively high levels of social capital can lead to homogenization in the interpretation and utilization of resources, thereby impeding learning.

“Here, too, excessively high levels of SC can lead to homogenization in the interpretation and utilization of resources, thereby impeding learning.”

In such situations, decision makers will probably favor policies that are mutually beneficial to all organizational subunits, rather than adopting choices that maximize outcomes for some units at the expense of others.

“In such situations, decision makers will probably favor policies that are mutually beneficial to all of the organizational subunits concerned, seeking to optimize potentially conflicting priorities, rather than adopting choices that maximize the outcomes for some units at the expense of others.”

Blurring of external boundaries is a further danger for organizations seeking to amass social capital, because wider institutional networks in which they become embedded benefit the network at the expense of the focal firm.

“The foregoing analysis demonstrates that a further danger for organizations seeking to amass SC is the consequential danger of the blurring of their external boundaries, to the extent that the wider institutional networks in which they become embedded benefit the network at the expense of the focal firm (cf.Pfeffer and Salancik 1978).”

• cites Pfeffer and Salancik 1978Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

High levels of social capital will hinder the effectiveness of new decision makers in attenuating non-rational escalation.

“Given the role of new decision makers in attenuating non-rational escalation, the presence of high levels of SC will hinder their effectiveness in two ways.”

A significant danger posed by greater levels of social capital is the fueling of confirmation bias.

“On the basis of this body of work as a whole, we reason that a significant danger posed by greater levels of SC is the fueling of confirmation bias (Jonas et al. 2001).”

• cites Jonas et al. 2001 sourceNot checked — no full text of the source

Social capital in the form of social identification mediates the effects of external influences on the decision processes of the focal firm, such that social capital leads to an unhealthy blurring of the focal firm's boundaries.

“Here, too, we find SC in the form of social identification mediating the effects of external influences on the decision processes of the focal firm, such that SC leads to an unhealthy blurring of the focal firm's boundaries.”

Social capital acts as an inertial force, impeding structural adjustments.

“Our argument is that SC, too, acts as an inertial force, impeding structural adjustments.”

High levels of social capital inhibit individual learning within organizations.

“Closely allied to the role played by high levels of SC in diluting the dialectical process is its role in inhibiting individual learning within organizations.”

Participative leadership moderates the relationship between team heterogeneity and team reflection, such that the relationship is stronger in teams characterized by participative leadership.

“has been shown to moderate the relationship between team heterogeneity and team reflection, such that the relationship is stronger in teams characterized by participative leadership (Somech 2006).”

• cites Somech 2006 sourceNot checked — no full text of the source

Social capital experienced as constraints imposes structure on thoughts and beliefs (theses), which prevents the generation of antitheses, a necessary condition for syntheses.

“The foregoing arguments point to the conclusion that SC experienced as constraints imposes structure on thoughts and beliefs (theses), which, in turn, prevent the generation of antitheses, a necessary condition for syntheses.”

• AssumptionRests on an assumption: Thesis and antithesis are necessary conditions for synthesis.

Social capital is likely to accentuate the deleterious selective processing effects of identification, inhibiting the development of counterfactual thinking.

“It follows from this view that SC is likely to accentuate the deleterious selective processing effects of identification, in turn inhibiting the development of counterfactual thinking.”

The role of social capital in hampering the generation of new ideas and their reconciliation with existing modes of thought is particularly consequential in dynamic environments.

“The role of SC in hampering this process is, we maintain, particularly consequential in dynamic environments.”

Team reflection is central to the dialectical process.

“Hence, team reflection is central to the dialectical process discussed earlier.”

Social identification, by strengthening the process of avoiding uncomfortable questions out of consideration for others, constrains double-loop learning.

“Hence, social identification, by strengthening the process of avoiding uncomfortable questions out of consideration for others, constrains double-loop learning.”

• cites Argyris 1994Not checked — no full text of the source

An excess of social capital inhibits learning by creating conditions inimical to critical questioning.

“In addition to inhibiting learning by reducing exposure to divergent viewpoints, an excess of SC inhibits learning by creating conditions inimical to critical questioning.”

Social identification, and as a consequence social capital, is related to group homogeneity, an antecedent of groupthink.

“It follows that social identification, and as a consequence SC, is related to group homogeneity, one of the most significant antecedents of groupthink.”

• cites Scott 1997 sourceNot checked — no full text of the source

Greater levels of social capital arising from membership of dense networks likely exacerbate groupthink effects, both within and across organizations, leading to poor decisions.

“In these circumstances, greater levels of SC arising from membership of dense networks likely exacerbate these effects, both within and across organizations, leading to poor decisions.”

As bonding social capital increases, the network becomes more insulated as an information processing unit.

“Consequently, as bonding SC increases, the network will become more insulated as an information processing unit.”

A key danger as organizational collectives amass greater levels of social capital is that their constituent member firms could over-identify with one another, forming an in-group whose norms undermine innovation and change.

“A key danger as these sorts of organizational collectives amass greater levels of SC is that their constituent member firms could potentially over-identify with one another, thus forming an in-group whose norms undermine innovation and change.”

As actors become more deeply embedded in the extant social networks of their organizations, the extent to which they are exposed to new sources of information and ideas will diminish, thus limiting opportunities for learning.

“It follows from the social learning perspective that, as actors become more deeply embedded in the extant social networks of their organizations, the extent to which they are exposed to new sources of information and ideas will diminish, thus limiting opportunities for learning.”

• cites Nicolini and Meznar 1995 sourceNot checked — no full text of the source

Social capital exacerbates the incidence of self-justification through over-identification with the relevant in-group.

“We maintain that SC exacerbates the incidence of such self-justification through (over-) identification with the relevant in-group.”

Threatening events in the marketplace will be framed and perceived in terms that maintain an overall sense of strong group identity.

“Threatening events in the marketplace, such as changes in technology or aggressive moves by competitors, will be framed and perceived in terms that maintain an overall sense of strong group identity.”

At the intra-organizational level, participative leadership aids the dialectical process by promoting dialogue and debate within the organization, thereby fostering individual and collective learning.

“At the intra-organizational level, participative leadership aids the dialectical process, by promoting dialogue and debate within the organization, thereby fostering individual and collective learning.”

Increased social capital, primarily relational and cognitive, is related to five of the antecedent factors of groupthink.

“Increased SC, primarily relational and cognitive, is related to five of the antecedent factors described above.”

Network arrangements can lead to decision biases because managers align their firms' future activities with the past to preserve social capital, believing that conservative actions will be perceived as fairer by counterparts in partner firms.

“Such network arrangements can also lead to decision biases, not least because managers choose to align their firms' future activities with the past, in an attempt to preserve SC, believing that their conservative actions will be perceived as fairer by their counterparts in partner firms (Samuelson 1993).”

• cites Samuelson 1993 sourceNot checked — no full text of the source

Social identification, by constraining double-loop learning, provides the antecedent conditions that give rise to groupthink.

“In so doing, like dilution of dialectical process, discussed in the previous section, it provides the antecedent conditions that give rise to groupthink.”

Actors' attitudes toward fairness inform resource allocation decisions that are not necessarily in the best interests of the focal firm.

“Actors' attitudes toward fairness inform resource allocation decisions that are not necessarily in the best interests of the focal firm.”

• cites Samuelson 1993 sourceNot checked — no full text of the source

Network ties facilitated by similarity and homophily can generate perceptual homogeneity, thereby fueling groupthink.

“Network ties are facilitated by similarity and homophily (Milton and Westphal 2005), which again can generate perceptual homogeneity, thereby fueling groupthink.”

• cites Milton and Westphal 2005 sourceNot checked — no full text of the source

Increased social capital likely accentuates information processing errors characteristic of groupthink.

“Especially in the context of other antecedent factors such as recent failures or time constraints, which are ubiquitous facts of existence in the modern corporate world, increased SC likely accentuates information processing errors characteristic of groupthink”

Norms of reciprocity, commitment, and obligations can influence the resource allocation decisions of the focal firm.

“In addition to identification, norms of reciprocity, commitment, and obligations can also influence the resource allocation decisions of the focal firm.”

Firms operating in highly turbulent environments will be more willing to impose the pain of structural adjustments on employees and partners relative to those operating in more stable environments, because when environmental change is pervasive, frame-breaking or difficult to predict, the organization must be capable of rapid change to survive.

“Firms operating in highly turbulent environments will be more willing to impose the pain of structural adjustments on employees and partners relative to those operating in more stable environments because, when environmental change is pervasive, frame-breaking or difficult to predict, the organization must be capable of rapid change to survive (D'Aveni 1994).”

• cites D'Aveni 1994Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The effect of social capital on the blurring of firms' boundaries is likely to be stronger when the focal firm enjoys greater relative power.

“Hence, the effect of SC on the blurring of firms' boundaries is likely to be stronger when the focal firm enjoys greater relative power.”

In highly turbulent environments, piecemeal, incremental adaptation is inadequate.

“In these circumstances, piecemeal, incremental adaptation is inadequate.”

Social identification is foundational to all three forms of social capital (structural, relational, and cognitive).

“we see social identification, the primary mechanism through which the processes enumerated in the foregoing sections operate, as foundational to all three forms of SC (cf.Ibarra et al. 2005;Kilduff and Cor-ley 1999;Kilduff and Tsai 2003;Tsai and Ghoshal 1998).”

• cites Ibarra et al. 2005 sourceNot checked — no full text of the source
• cites Kilduff and Corley 1999Not checked — no full text of the source
• cites Kilduff and Tsai 2003 sourceNot checked — no full text of the source

Transaction-specific investments' redeployment entails considerable switching costs, rendering more likely the postponement of major structural adjustments.

“Hence, their redeployment entails considerable switching costs (Erramilli and Rao 1993;Heide 1994), rendering more likely the postponement of major structural adjustments.”

• cites Erramilli and Rao 1993Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

• cites Heide 1994Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

When the focal firm has lower capabilities relative to its partners, it is more susceptible to the latter's influence, irrespective of the level of social capital.

“Conversely, however, when the focal firm has lower capabilities relative to its partners, it is more susceptible to the latter's influence, irrespective of the level of SC.”

With increased social capital, managers tend to postpone structural adjustments both at the interorganizational and the intra-organizational levels.

“As we have seen, with increased SC, managers tend to postpone structural adjustments both at the interorganizational and the intra-organizational levels.”

Transaction-specific investments increase buyers' dependence on the focal supplier.

“Second, TSIs increase buyers' dependence on the focal supplier (Ganesan 1994;John and Weitz 1989).”

• cites Ganesan 1994 sourceNot checked — no full text of the source
• cites John and Weitz 1989Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

When capability development is not feasible by means of partnerships, the firm is forced to develop its capabilities by recourse to the market.

“The latter situation will force the firm to develop its capabilities by recourse to the market.”

In the absence of transaction-specific investments, the theorized role of social capital in blurring the firm's boundaries is likely to manifest more strongly.

“However, in the absence of TSIs, the foregoing theorized role of SC in blurring the firm's boundaries is likely to manifest more strongly.”

There is an optimal level of social capital in a given situation.

“The presence of positive and negative effects leads us to believe that there is an optimal level of SC in a given situation.”

High levels of social capital can result in dilution of the dialectical process.

“We have proposed that high levels of SC can result in: (1) dilution of the dialectical process;”

The focal firm's capabilities moderate the effect of social capital on the blurring of its boundaries.

“Since the focal firm's capabilities influence its boundary decisions, they also moderate the effect of SC on the blurring of its boundaries.”

The negative effects of social capital arise primarily from dysfunctional social identification processes that restrict the processing of pertinent new information.

“We have argued that these negative effects arise primarily from dysfunctional social identification processes that restrict the processing of pertinent new information.”

Up to a certain point, the initial gains derived from social capital will outweigh the losses.

“Following the empirical findings reviewed earlier, we maintain that, up to a certain point, the initial gains derived from SC will outweigh the losses.”

The effect of social capital on the postponement of structural adjustments will be more pronounced in the absence of transaction-specific investments.

“In other words, the effect of SC on the postponement of structural adjustments will be more pronounced in the absence of TSIs.”

When environmental turbulence is low, the process whereby social capital inhibits structural adjustments is more likely to assert itself.

“When environmental turbulence is low, however, the process whereby SC inhibits structural adjustments, theorized earlier, is more likely to assert itself.”

All three aspects of strategic reorientation identified by Gordon et al. fall within the purview of structural adjustment.

“It can be seen that all three aspects of strategic reorientation identified by Gordon et al. (2000) fall within the purview of structural adjustment, as discussed earlier.”

• cites Gordon et al. 2000 sourceNot checked — no full text of the source

At higher levels, the negative effects theorized in the paper will assert themselves.

“However, at higher levels, the negative effects theorized in this paper will assert themselves.”

The boundary decisions of firms are determined, in part, by the capabilities of the focal firm relative to its potential partners.

“We infer that the boundary decisions of firms are determined, in part, by the capabilities of the focal firm relative to its potential partners.”

Environmental turbulence has a moderating effect on the links between social capital and structural adjustment.

“Following this line of reasoning, we maintain that environmental turbulence has a moderating effect on the links between SC and structural adjustment.”

The positive effects emphasized in the extant literature and the negative ones previously under-theorized can be conceptualized as a series of functional relationships, each of which takes the form of an inverted-U shape.

“Accordingly, the positive effects emphasized in the extant literature and the negative ones previously under-theorized, can be conceptualized as a series of functional relationships, each of which takes the form of an inverted-U shape.”

• AssumptionRests on an assumption: The positive effects of social capital in organizational contexts are well-documented.
• AssumptionRests on an assumption: The negative effects of social capital in organizational contexts have been previously under-theorized.

Such negative effects are less likely under higher levels of participative leadership, which enhances team interaction and aids deliberation.

“Consistent with the above line of reasoning, however, such negative effects are less likely under higher levels of participative leadership, which, by definition, will enhance team interaction and aid deliberation.”

The presence of transaction-specific investments moderates two of the negative effects of social capital identified at the interorganizational level.

“We maintain that the presence of TSIs moderates two of the negative effects of SC that we have identified at the interorganizational level.”

When turbulence is high, managers are more likely to initiate structural changes because there is greater pressure to survive, irrespective of social capital.

“When turbulence is high, managers are more likely to initiate structural changes because there is greater pressure to survive, irrespective of SC.”