Using 'social capital' to attract and retain good people

Jan. 1, 2001

You're not alone. Information technology (IT) isn't the only industry with the challenge of attracting, keeping, and developing good people. That's the number one pressing problem of business today across all industries, according to a new survey of over 1,700 mid-level and senior executives conducted by the University of Michigan Business School.

So what's the solution? "Social capital." Social capital refers to the resources we find-such as new employees-through our professional, personal, and business networks. Social capital helps IT firms in two ways. Tapping your employees' networks via employee referral programs (ERPs) is the single most effective way to recruit new talent, according to a 1999 American Electronics Association (AEA) survey. But once you get them, you have to keep them. The sad truth is that many IT firms lose new employees due to poor management and lousy work environments, argues Wharton management professor Peter Cappelli in a new study of IT companies. Building the social capital of your firm is what keeps your employees there.

Every employee brings two resources to the job-what they know and whom they know. Too often, IT employers see only the first asset: an employee's knowledge or intellectual capital. Whom their employees know-their social capital-remains a hidden and untapped resource. That's where ERPs can help. "I definitely recommend that companies create an ERP," says Tom Caprel, chief executive officer of Caprel Computer Services Inc., a suburban Chicago firm that provides IT infrastructure, engineering, and support services. "My company is a better organization because of our ERP."

Employee referrals produce better, more appropriate job candidates than other means of recruitment. Your current employees know better than anyone does what it takes to be successful in your firm. Referrals produce good matches of people and jobs. ERPs also yield long-term benefits. Talent found through referral programs perform better and tend to stay in their jobs longer. Having an ERP boosts morale. It gives employees a greater sense of value to their employer as well as a feeling of pride.

Caprel's ERP is a model of the right way to tap employees' networks. First, they advertise their ERP. Everyone at Caprel knows about the ERP. Second, Caprel pays for successful referrals: $500 after a referral is hired and $500 more when the new hire has been with the firm for six months. Third, each candidate goes through a rigorous screening process to ensure a good fit-and to ensure employees don't refer just anyone. This process includes assessing a candidate's fit with the firm's culture, evaluating the person's technical skills, and conducting a background check and an interview with the person's direct supervisor.

So far, Caprel's ERP sounds like other effective ERPs. But they have a secret: helping their employees build better social capital. Your ERP is only as good as your employees' social capital. Small, closed, and internally focused networks can't produce referrals. Caprel helps their people externalize their networks. For example, he encourages engineers to build their networks while they enrich their technical knowledge, becoming active in the local groups associated with Novell and Microsoft certifications.

You can help your employees boost their networks by encouraging-or even requiring-that they participate in professional and business associations, community events, alumni groups, and so on. They can join charitable boards or take on civic responsibilities. Such network-building activities improve your employees' ability to meet new job candidates. Be creative. For example, one human resources director takes courses at the local technical college to get to know students before they graduate so he can recruit them for his firm!

Some IT leaders think money is the best way to lure new employees. It's true that you have to pay competitive wages, give bonuses, and even grant stock options. But if you use money as your main attraction, you get what you pay for: employees who leave at a moment's notice once better money dangles in front of them. Money is important, but smart IT leaders know that most people work for more than money. Stock options, for example, are only the fifth most effective retention factor, according to the 1999 AEA study. The top four are challenging work assignments, favorable work environment, flextime, and support for career/family values.

Social capital bonds people to your firm. It makes them want to come to work every day and stay with your company over time. It creates a high-performance culture where people get their psychological needs met: a sense of belonging, of mastery, of contributing to something bigger than themselves.

There are dozens of best practices you can use to build social capital. For example, collocation, open offices, and the absence of physical barriers facilitate internal networking. Involving everyone in the formal budgeting process, continuous improvement initiatives, quality programs, and organizational change efforts builds bonds and a sense of belonging. A well-planned and effective job-rotation program builds bridges across organizational units. Mandating continuous education creates intellectual capital and external networks. Basing compensation on group-level and company performance, not just individual performance, creates incentives for cooperation and collaboration.

By building rich social capital, you solve two problems at once. You help your people build networks that yield good referrals, and you give your people good reasons to stay with you.

Wayne Baker is professor of organizational behavior and human-resource management at the University of Michigan Business School. He also serves as director of research at Humax Corp. and can be reached at the company's Website,

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