Why Social Capital Drives Business Growth Twice as Much as Leadership Capability

Ⓒ 2026 Martin Tynan     email: martin@newtribeconsulting.com

Summary

Over 60% of the factors that drive organisational growth are internal to the organisation. Research has shown that only 15% of these internal factors are related to leadership and more than double that amount (35%) is related to social capital. The term social capital is the value that the organisation derives from the connections, relationships and interactions amongst individuals in the organisation. In this article, we explore the concept of social capital, break it down into its individual parts and in doing so outline what actions to take in your organisation to develop and build the social capital that will drive your business growth.

Introduction

Most organisations exist to grow, develop and prosper. As previous articles have mentioned most organisations fail to grow past a certain point (for start up companies, only 1 company in 100 make it to a Series C funding round).

That is not a challenge for organisations that don’t aspire to grow past that point, but a huge challenge for organisations that do. What is interesting for leaders, founders and investors to understand is why organisations that want to, fail to move past a certain point of growth. 

While organisational growth is more multi-dimensional and and complex than just one factor or one number, for the purposes of this article we will use revenue or sales growth as a proxy for organisational growth (as this is often the one factor or metric most used by stakeholders and analysts of companies).

Extensive research shows that a majority of the reasons (55-65%) that drive organisational growth is internal to the organisation rather than external. (Andrews & Meyer, 2023; Sharapov et al., 2023; Kohls et al., 2023). While organisations don’t have control over market conditions that affect their growth they do have control over how they adapt to those market conditions.

Research over the last 10-20 years has looked to understand what are the critical internal factors that influence organisational growth. A common one discussed is leadership capability. 

However, while it might be surprising, only 15% of the internal reasons for organisational growth is directly attributed to quality of leadership (Samina et al, 2021, Baquir et al, 2020). What also might be surprising, is that a little spoken of concept called social capital is responsible for up to 35% of the internal variance in organisational growth and performance (Dimitriadis & Koning, 2021; Camps et al., 2020). This is 2x the impact of leadership capability. 

Yet, when it comes to organisational growth and performance, how much do we speak about leadership?. And how much do we speak about social capital?

The focus of this article is to explore this concept of social capital in organisations and to outline some of the key ways in which you as a leader, founder or investor in an organisation can build and grow social capital to scale and grow your organisation.

Social Capital

At a simple level, social capital is the ‘network of relationships among people who live and work in a community or an organisation’ (Betterup, 2022). Or as McKinsey research (2022) puts it ‘ the networks, relationships, shared norms, and trust among individuals, teams, and business leaders, it is the glue that holds your organisation together’. These social networks enable societies and businesses to function effectively.

While it sounds similar to culture. and there is a link between culture and social capital, they are not interchangeable concepts. Culture can be described as how people think, act and behave in an organisation. Social capital is the value that is derived from how people are connected to each other, how they interact, how much they trust each other, how much they collaborate, how much they work together to achieve something.

Pierre Bourdieu developed social capital theory in the 70’s and 80’s. The concept was framed initially around social inequality and class conflict, the concept of ‘not what you know, but who you know’. 

Further research by James Coleman and Richard Putnam in the 90’s, reframed this as a potential opportunity to make communities and organisations stronger. The reframing being that we are stronger, more resourceful and more successful when we act in unison with other people than by ourselves. Which of course, rationally sounds obvious. Other researchers in the 2000s pushed the concept further into mainstream business management and practice. A simple framework to look at social capital in organisations is through three inter-related buckets.

• Bonding Social Capital: The value derived from connections within a specific team
• Bridging Social Capital: The value derived from connections between two or more teams or two or more different groups.
• Linking Social Capital: The value derived from connections between people at different hierarchical levels in an organisation. This can be manager/team member or team member with another more senior person in the organisation.

The value arising from the three types of connections is through the strength of the relationship.

Link between Social Capital and a High Performance Culture

Significant research over the last 20 years has demonstrated that there is a strong link between organisations that have high levels of social capital and those that have high performance culture. 2012 research from MIT, The Social Side of Performance Management, showed that higher social capital in organisations led to higher performing teams. 

Servaes & Tamayo (2017), analysed Finance firms during the 2008 financial crisis and showed that organisations with higher levels of social capital had higher stock returns over the next 10 years than those with lower levels of social capital (they were also more likely to actually survive the financial crisis). 

A 2020, HBR article, Social Capital Is as Important as Financial Capital in Health Care, showed that the elements of social capital (higher levels of trust, shared norms and strong connections across the organisation) led to a higher performing culture. The data and research is quite extensive on showing the link between high performance cultures and high levels of social capital. Yet, it is still something that organisations don’t put enough emphasis on. Outlined below are five tangible ways in which organisations can build social capital. 

5 ways in which you can build social capital in organisations

1. Appreciate that social capital has immense value

Often organisations fail to appreciate the value that social capital brings to an organisation, particularly in a world where more value seems to be put on AI alone, than on the connected network of people in an organisation who will create the value from AI.

To bring this alive, let’s briefly explore the three buckets of social capital through an example of a typical sales deal happening in an organisation. An SDR/BDR is part of a team with a sales account manager, and is responsible for sourcing sales leads for that account manager. The relationship between them can be viewed as bonding social capital, as they are on the immediate same team. For the initial sales meeting with the potential client (that the SDR has set up), the sales account manager brings along an engineer as a technical expert to help address the technical questions that potential client might have. This is bridging social capital as it connects people from two separate teams. For the final sales meeting, to get the deal over the line, the Sales Account Manager brings along the Chief Product officer to outline to the potential client the future features that will enhance the product. This is linking social capital, connecting people from different levels in the organisation.

All of the individuals in the sales process bring their own capability and skills to the organisation but it is the connected, collaborative and trusting nature of the working relationships that they build through these interactions and alignment that enables the organisation to derive value from them. If the sales person does not have a good working relationship with engineer, they are unlikely to bring them into the customer meeting, perhaps the deal might not happen and the organisation will not derive value from the team effort. This is social capital in action and by understanding and appreciating this value in the first place, this helps prioritise the need for organisations to constantly build and develop social capital in order for organisations to grow.

2. Hiring for Social Capital

When an employee joins an organisation their skills, knowledge, and expertise become an asset to the company. The organisation then has the opportunity to derive value from that employee in two different ways. 

• One is the individual's skills, knowledge and expertise. 
• However, the employees are also able to add significant value to the organisation in another way. By bonding, interacting, collaborating and by working with other employees either in a formal team or through an informal network of people in the organisation. This can then add more value to the organisation than just the individual themselves. The old adage that the sum of the parts is greater than each individual one. Employees in organisations who build strong working and effective relationships with their coworkers have high social capital and hence have a higher value to the organisation. Hiring not just for technical capability but social capital capability to build connections and relationships within and across teams and across the organisation.

Michael Watkin’s book on successful onboarding of employees (The First 90 Days) has become a go to book on onboarding people and executive leadership into organisations. You could argue that this first 90 days in an organisation is essentially about building up social capital in the organisation.

As a new employee or new leader you start with a certain amount of social capital (from the interview process and the relationships you have made through this process). The first 90 days is essentially about investing in your individual social capital to not only enhance your own capability (ability to deploy your expertise in this particular organisation and particularly context) but also to enhance the overall social capital of the organisation. 

2020 research from the Journal of Applied Psychology looking at over 50 studies (Building Social Capital in Onboarding) and demonstrated that structured onboarding specifically focused on building relationships and social capital in the organisation directly drove higher performance, lower attrition rates and role clarity compared with unstructured or non relationship focused onboarding. As you think about your own company’s boarding plan, how much of the plan is focused on building up company knowledge and how much is focused on building up company relationships. 

Ensuring you do both is vital to a high performing organisation.

3. Promoting internally (mostly)

Organisations often face the dilemma of growing talent or buying talent. Research overwhelmingly shows that promoting from within has a better chance of success. Matthew Bidwell’s study from 2012 (Paying More to Get Less), shows that internal promotions have higher performance levels two years after taking on the role versus external peers (For those of a financial angle the research also shows they also often paid less!). Bidwell’s assessment was that the higher level of social capital that internal hires have built up in the organisation allowed them to have a quicker and bigger impact on organisational and team performance.

There is a balance here. It can also be a strategic decision to not hire internally and to bring in external leadership hires to ensure the talent pool in an organisation is as deep as possible, so the best person gets the role and not just the only person available.

This research is wonderfully backed up at the executive level in a 19 year study of CEO succession planning. (PWC, CEO Success Study, 2020) This study showed that internal CEO’s promotion had a higher level of shareholder returns and had a higher employee retention rate. However, again there is not necessarily a singular approach to this. Often there might not be the talent pool of potential CEO’s available in an organisation and/or there might be a need for a different type of CEO depending on the organisational context and strategy. The study showed that the success or failure of the CEO succession was often linked to the amount of social capital that the leader had within the organisation. This is particularly important if the organisation is going through a tough or turbulent period, as stronger relationships and connections can often better weather a storm that organisational change brings. This study is backed up by research in the Harvard Business Review (High Cost of Poor Succession Planning, 2021)

The takeaway here is that if you do hire externally for new leaders, ensure you spend a significant amount of time enabling them to build up their social capital to have a bigger impact on organisational performance. This will pay significant dividends down the line.

4. Reframing WFH or Back to office 

While the author’s own personal instinct is a tendency to lean more into working from home, significant research shows that excessive work from home or remote work has a detrimental impact on the level of social capital in the workplace. Research from Yang (2022), Smite (2023) and Chodhury et al (2023), all point to the fact that extensive working from home or remote work lowers the level of social capital in organisations. This is particularly important in organisations where collaboration, relationships and connections are an integral part of a high performance workplace. There are significant polarising views on this topic, so I tend to approach this from a very pragmatic (or perhaps diplomatic!) perspective.

Where the research seems to land is on a ‘happy medium’ of 3 days of in office work to recharge and rebuild social capital and to balance this with 1-2 days of remote/home work where employees can benefit from the ability to do deep work and balance their own lifestyles. This of course is very much related to knowledge and office based workers. 

The trade-off here seems to be that no or very little ‘in person’ working leads to very weak social bonds in the organisation which can impact employee engagement and contributes to lower organisational performance. 

However, a full switch to being in the office full time (where people either have a personal or professional preference for some element of home working) also leads to lower employee engagement and slightly lower performance. 

We are social beings and social capital is important, but like all concepts in the work place, focusing on an employee-centric ‘what’s in it for me’ rather than a mandated approach is usually the better long term option and approach. 

5. Change and AI

Emerging research which looks at the role of AI in building or not building social capital seems to indicate that the way in which it has been mandated and sloppily introduced into many organisations is having a negative impact on social capital in organisations. 

Research from Tang (2023), (No Person Is an Island? Withering Workplace Relationships in the Age of AI), Fugner et al (2022), and Zhang et al (2024) seems to indicate that for employees who interact most with AI, this is having a damaging impact on inter team cohesion and collaboration. 

Zhang’s research in particular points to the fact that in an age of anxiety and stress about AI and its potential implications for change in job role or indeed job loss, employees are not sharing knowledge or collaborating as much, which is damaging social capital in organisations. 

Again, the research is only emerging here on this so perhaps as more research is done this will highlight more specific ways in which AI can build social capital and the ways in which it can negatively impact it. Like all aspects of workplace strategy, there is not one approach that fits each organisation and each specific context. By understanding the ways in which AI can impact social capital, this will give a travel of direction for how organisations might approach this in their specific context.

Conclusion

Organisations spend a large amount of time and resources on the visible aspect of hiring, growing and developing leadership capability in organisations, and rightly so.

However organisations should spend arguably more time and effort on enabling the building and strengthening of social capital within organisations. The ROI on this is at least 2x the investment in leadership capability.

This author feels that as organisations think about growing and scaling and creating a high performance culture, they should name what they are trying to do. That they are trying to build up the social capital in the organisation to ensure that they derive the value from the network of individuals in the organisation acting in a concerted way to achieve the goals of the company. While this is often looked at with a cultural lens (and that it is important), this should also be looked at from a very practical social capital perspective as well. 

Strategically thinking about how every individual in the organisation is actively connected, linked, bonded, andbridged to other people in the organisations. Ensuring that the individual members of the organisation are high performing and the entire organisation is high performing. This will be of benefit to all stakeholders in the organisation and as the research demonstrated will lead to organisations that are more likely to grow, develop and be successful.

About the Author.

Martin Tynan is an ex-Chief People Officer. He now works as a consultant and advisor with CEOs and Leadership teams in scaling companies to help them identify and navigate the organisational challenges to sustainable business growth. You can contact martin at martin@newtribeconsulting.com or via www.newtribeconsulting.com