The simplest description is that it is the value or the capital gained from the relationships, networks and level of collaboration between groups of employees between team A and team B and team C, or between business division Europe and business division Asia. If they can learn to work well together, to share experiences, ideas and knowledge, then it is likely that they will achieve greater success in their aims. In the age of the individual, where leaders are developed and raised on to a pedestal, it is easy to forget that no superstar can work alone. No matter how brilliant they are, they depend on a host of people to bring their ideas and actions to fruition.
The philosophy of social capital is that an organisation will gain greater value, and deal better with the uncertainties and challenges of the global market, if it learns how to develop a greater level of connection between all employees. The strength of the many must be bolted on to the brilliance of the few.
Patricia Seeman, currently on the group management board of the Swiss-based insurance company, Zurich Financial Services, has spent the past year testing out her theories on social capital. The company, founded in Zurich in 1872, now employs 70,000 people world-wide. Its services include non-life insurance, life insurance, reinsurance and asset management, and its principal markets are in Europe, the US and Asia. Three years ago, it merged with the financial services division of tobacco giant BAT.
Seeman has co-written a report on social capital with Zurich Financial Servicess CEO and chairman, Rolf Hppi, and is planning a book on intellectual capital, Wild Knowledge, with Susan Stucky, chief executive of the Strategic Practices Group.
Seeman is an unusual person to have popped up as a communications director in an insurance firm. A Canadian citizen now in her late 40s, she graduated in medicine from the University of Heidelberg in 1981. She worked in orthopaedic surgery for four years before switching in 1986 to the corporate world, to companies operating in the healthcare market. She worked in product management and corporate regulatory affairs for Sandoz AG in Basle and, later, Ares Serono in Geneva. In the mid-to-late 1990s Seeman moved into knowledge management, working first for Hoffmann La Roche Pharmaceuticals and then Ernst & Young.
Focusing on knowledge management, Seeman set up the Group 21 consultancy to advise senior executives on intellectual capital and one of her first clients was Zurich Financial Services.
In those days, the dotcom boom was at its peak and most business people believed that speed, innovation and risk-taking were the essential prerequisites for corporate success. High-tech companies like Microsoft elevated the importance of people, but more particularly intellectual capital, to new heights. Many asserted that they would do well only if they could manage and develop their intellectual capital.
Seemans report on social capital argues that the new economy was like a tornado, unpredictable in its direction, destroying existing structures and systems, whirling the players at such a speed that orientation becomes almost impossible. It continues: Suddenly you need to be able to rely on the smarts of the organisation, on its collective capability and knowledge, its intuitions and agility.
The new economy may seem a little tarnished in 2002 but the fact remains that intellectual capital or human capital will continue to drive performance and growth.
Intellectual capital, says Seeman, comprises three elements: structural (the processes and systems that support people); human (the individuals and all the HR policies that attract, develop and keep them); and social (the way in which individuals work together). She believes that you cannot raise the level of social capital by directive. You need to embed social capital, she says, in the everyday processes of the business, including the budgetary processes.
Before looking at how Seeman has started to embed the social capital into Zurich Financial Services we need to understand why it matters so much. The companys HQ in Zurich, a huge, solid, grey and fairly unmemorable building, suggests a certain reliability that you expect from an insurance company. Nonetheless, the financial services market is a highly unpredictable and competitive one. And the company has recognised since the early 90s that scale is not enough. Seeman argues that the business, like most others in the 21st century, must move with agility. It must respond quickly to customers needs and provide what they want before competitors do. Staff have to be able to make decisions without reporting up through a traditional command-and-control structure.
Not so long ago, Seeman admits, Zurich employees had to wait to be told what to do. And when theyd finished one task they had to wait again. Seeman cites the US army as an example of how to move beyond this. In the past, as recently as the Vietnam war, every rank-and-file soldier had to get permission to fire his weapon. In theory, no soldier acted until someone in the Pentagon gave the go-ahead.
In her report Seeman writes: By contrast, when US troops went to Bosnia as a part of the peace-keeping force, the rules of engagement specified that if any soldier felt threatened, he or she could use deadly force immediately and without reference to higher authority because the army can now rely on that person thinking about the problem in the same way as the people in the Pentagon. In other words, the people closest to the frontline made the decision when it needed to be made. None of this is rocket science the mantra throughout the 1990s has been employee empowerment. Seeman, however, places this into her model for social capital.
How then do you get to the stage where individual employees understand how to put their decisions into a wider context? How do you get to the point where more employees have a shared understanding of the business and its changing goals?
Much of this, Seeman argues, is part of the companys communications task. She adds a warning that companies must be as transparent as possible. If, for instance, they have diverse views about the way forward, they should tell their employees what the various choices are. Any mixed messages about strategic direction, she says, just leads to confusion.
Seeman admits that Zurich has had to confront this issue in deciding which of its services to focus on. She says, The biggest mistake you can make is to try to take those differences in goals and not talk about them. So the thing we are trying to do here is elicit those differences and to make them visible.
The best way to manage for social capital, Seeman believes, is to design it into the everyday working life of people in the business. As she explains in her report: It is in the course of real, day-to-day work that meaning gets negotiated and ambiguities get worked out, experiences and mental models become visible and understandable to everyone in the same way. For this reason, she has used the companys performance and management review process to tie the various business divisions together.
Zurich was reported as having about a dozen business divisions a few years ago. Now the company has made efforts to reduce the number to five: four of them regional Continental Europe, UKISA; Asia Pacific; North America Consumer/Latin America; and North America Corporate and one of them, Global Asset Business, product-based. They are baronies in their own right, properly focused on their specific markets.
So why would, say, the CEO of Farmers Insurance, US care about a business division in the UK? Until now, there was no reason. It would have seemed remote and frankly irrelevant. Having a sense of the whole thing was surely the responsibility of the people at the centre? Now, each divisional CEO is brought directly into the review process for every other division.
Do these barons feel uncomfortable having rival barons judge the performance of their fiefdoms? Probably. But they have no choice. And, slowly, the divisional CEOs gain a greater knowledge of the other businesses and ultimately the whole business. The foundation for greater social capital has been laid. In the past the company achieved scale through acquisitions. Now, Seeman believes, it is starting to achieve scope through social capital.
Most firms know how to leverage scale, says Seeman. But to leverage the scope of the group breadth and variety of knowledge and experience that is the real trick. She has started to do this in two ways: through the performance review process and the work of practice boards, the horizontal links between the divisions.
The aims are threefold: to systematically and reliably share knowledge, experience and business practice; to have joint strategies across the business divisions; and, third, to create a shared understanding of the businesses and what drives performance at senior management level.
The performance review process aims to engender a constant debate between the centre, the business division under review and another CEO from another division. Each divisional CEO is rotated so that they participate in the review of all five divisions. A review will involve group CEO Hppi and other senior board executives, the top team from the business division and one external divisional CEO.
The process is about learning not control, says Seeman. There are three learning stages modelled on methods used by the US army: before (what do you think you want and what do you need to learn?), during (what are we learning, what was anticipated, what is missing?) and after (what was supposed to happen, what did happen, what can be improved next time?).
Seeman is pleased so far. Now, you get someone looking into someone elses business division and suddenly they have a shared understanding of what the life insurance business in Europe is like, for example. This group actually starts to build a lot of social capital.
Egos can be ruffled, she points out, though she doesnt say how heated things become when one outside CEO is part of the review of another division. She admits that meetings do get interesting but believes that the results make it all worthwhile.
You get a level of transparency and a level of familiarity and people are able to challenge each other all of which are critically important for social capital, Seeman says. But it was difficult to get to this point. Some would feel, Im a big shot and Im not going to have this other guy look into my stuff. But, she adds, Its working surprisingly well because everyone has to go through it.
The practice boards were set up to enable senior managers to share knowledge and experience, to pool resources, seek out and spread innovation and sometimes generate group-wide strategies. They meet two to three times a year. They are comprised of functional practice boards (HR, communications, IT and finance) and customer segment practice boards (retail, small business, commercial, corporate and wholesale). Once a year all functional and customer segment practice boards come together to promote further debate.
Seeman has already seen managing for social capital reap impressive results. One division gained key information on an e-business model from another and hijacked it and built a similar thing in North America. In a similar case, one division was so impressed by anothers customer care model that they adopted it. And the practice boards have already produced 32 new best practices. The next big challenge, says Seeman, is to design new management information systems to measure the impact of these horizontal processes.
A final word of warning. This soft stuff cannot be managed by nice Mary Jo, says Seeman. It would be a horrendous mistake to think that social capital should be managed by nice people because it is about relationships. On the contrary, it is so complex and crucially important that it must be managed by the brightest people you have, by those with immense self-confidence and analytical skills who can persuade and cajole their senior executives.
Would you go to a philosophy debate at Oxford University with half-baked ideas? Youd be massacred, Seeman says. This stuff, possibly one of the greatest challenges in business today, needs tough people. A bit like Seeman, then.
Further reading
- Social Capital: Securing Competitive Advantage in the New Economy by Rolf Hppi and Patricia Seeman, Financial Times Executive Briefing Pearson Education (2001)
