20 February 2012 Measuring the effect of organisational social capital

As New Zealand increasingly moves towards being a service economy, roles in sectors such as tourism and professional services are becoming more dominant. Tourism, as an industry, is now New Zealand's largest foreign exchange earner, employing one in ten workers.

Dr Anthony Brien and Dr Nazmun Ratna are leading research which aims to benchmark organisational social capital in a service-intensive part of the tourism industry - major hotels - in order to investigate the relationship with organisational performance.

Dr Brien says increasing organisational effectiveness in terms of productivity is paramount for any economy to progress.

“Compared to other OECD countries, New Zealand organisations struggle to compete in terms of productivity,” he says. “As of March 2008, New Zealand's productivity was 60 percent of that of the United States and 80 percent of Australia's.

“Research shows the inability to attract and retain a highly skilled workforce is a major contributing factor to New Zealand's low productivity,” he says.

Dr Brien says major hotels are a critical part of the tourism industry and are particularly labour and service intensive. He says this research project specifically considers the 'people' component of the industry and the impact they have on organisational performance.

“Popular research suggests once the maximum investment in systems and technology has been made, it is up to the employees and their skills to increase productivity,” he says. “The level of increase may, however, be dependent on the level of organisational social capital and subject to the Baumol Effect, which suggests there is a limit to the amount of productivity enhancement possible before the service being provided changes from what it is intended to be.

“Assuming this effect will always prove to be true, enhanced levels of social capital within an organisation could lead to increased innovation, workforce loyalty and reduced error rates. These factors should, collectively, help increase productivity and profitability.

Dr Ratna thinks in an increasingly globalized world, an understanding of social capital is crucial. “Investing in social capital is more crucial for service-intensive sectors like tourism, which attracts people from diverse socio-economic backgrounds. Trust or communication within an organization will be a vital component of business management, in the coming years with second generation or third generation immigrants entering the labour market,” she says.

“This study will make a significant contribution to the knowledge bank on organisational social capital in New Zealand. It will provide businesses with a deeper understanding of their organisation's social capital, and enable them to adjust their business practice for better performance,” says Dr Brien.

Dr Brien says the research will provide a useful base for other service-intensive organisations and a constructive tool for the general service industry to gauge organisational social capital and report back results against organisational effectiveness measures such as productivity, increased innovation, reduced employee turnover and profitability.

Project: The Effect of Social Capital in Service-Intense Organisations on Organisational Performance: A Longitudinal New Zealand case study.

Researchers: Dr Anthony Brien, Dr Nazmun Ratna

Funder: Lincoln University Research Fund