Economics, politics and business environment; Entrepreneurship
What should a CEO do to increase the social multiplier of a startup? What organizational strategy, in other words, should a manager adopt to shape informal social interactions among employees, so that they perform better in the office than if they telecommuted? We develop a network-based model that contrasts two opposing approaches. The first, consistent with Coleman’s vision of social capital, is embedding. Using an embedding strategy, the CEO fosters strong and dense ties among employees, and thus seeks to raise productivity by facilitating knowledge spillovers and creating social pressure. The second, keeping with White’s theory of social control, is decoupling. Using a decoupling strategy, the CEO promotes weak and sparse connections among employees, and so tries to increase productivity by minimizing distraction. Our findings indicate that, while embedding is generally preferable to decoupling for most kinds of organizations, decoupling is clearly preferable when two conditions are jointly met: the organization’s distribution of human capital is left-skewed and it is populated more by “slackers,” who “look down” in order to self-enhance, than by “climbers” who “look up” to self-improve. Our results also suggest that the zone of network irrelevance–that is, the space of possibilities over which the CEO’s efforts to rewire the network will prove inconsequential–paradoxically contracts as the firm grows: counter to a prevailing picture of small firms as inherently malleable, our model suggests that a CEO achieves less through shaping informal social interactions when the organization is not yet at scale. Implications for future research on networks and organizations are discussed.
With permission of the Academy of Management