One tool for family businesses to improve innovation and use it to lessen the gaps between success and possible failure, is to develop social capital. Family businesses can do this by using what is known in the academic realm as social capital. Social capital is depicted as an important enabler for innovation. Family businesses are familiar with social capital, which play a critical role in their one-to-one and group relationships, not only in interpersonal relationships, but also, in influencing behavior of both subordinates and executives. Social capital is different from human capital in that human capital focuses on individual behavior and knowledge while social capital emphasizes relationships and the assets created by these relationships. Family businesses can develop interactions and relationships needed for creating social capital for employees to explore new ideas and knowledge. The reason for the shift from human capital to social capital is based on the empirical studies that indicate that human capital focuses on individual behavior and knowledge while social capital emphasizes relationships and assets created by these interpersonal exchanges with people both above and below them. Family businesses can aggregate human capital into social capital so as to provide further information and opportunities for employees, and subsequently contribute to innovation through developing relationships and link individual interests to the business collective-interests.
At this point, you’re probably asking why social capital is so important. Just as human resource is a huge component of family businesses, social capital is the resource that keeps the culture together and builds upon the foundations that helps family businesses prosper. Social capital focuses on developing relationships to create valuable resources. Some family businesses may not be as interested in social capital as much as scholars are but there is a kernel worth looking it in this theoretical framework for family businesses. For example, social capital enables family businesses to improve innovation and help close the gap between success and possible failure. Many family businesses see innovation as an outcome of various factors such as interactions and communications, formal policies and rules, and a climate inspiring innovation and creativity in family businesses. Business knowledge cannot merely be described as the sum of individual knowledge, but as a systematic combination of knowledge based on social interactions shared among employees. Thus, family businesses need to see business knowledge as the knowledge that exists in the business as a whole and use social capital to convert individual knowledge into a collective mind for their business to close the performance gap and help family businesses prosper. Family businesses need to consider a range of other factors such as social capital that is also reflective of their innovation. Therefore, this article supports that family businesses build and spend social capital to generate new ideas and innovative solution generation. As a result, family businesses can develop social capital and facilitate knowledge.