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IntroducingSocial Capital Value Add
Value Based Management for the Networked Age
Proposed by:MichaelCayley,BPR, APMCP, MBA
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Withinthefieldofsocialcapitalstudy,concernshavebeenexpressedthatdeviationsfromafundamen-talunderstandingthatsocialcapitaliscapturedfromembeddedresourcesinsocialnetworksmayreducetheintellectualenterprisetoacatchallfad(Lin,Cook,Burt,1999).
Thispaperisanargumentthatsometimein2004,whenbroadbandinternetconnectionsbecamemoreprevalentthanthoseoflesscapacity,individualsbecameempoweredasourmostintenseformofme-dia.ScaledupeffectsoftheIndividualasMediumincluding:
•increasedinformationflow,
•exertionofinfluence,
•expansionofsocialcredentialsandreinforcementofidentityandrecognition,
areconsistentwithanetworktheoryofsocialcapital.Corporationsareexposedtonewrisksandoppor-tunitiesduetothesescaledupformsofsocialcapitalandtheyrequirenewmethodstomanagethem.
SocialCapitalValueAddisintroducedassuchanewmethod,designedtolinkthepioneeringintellectualen-terprisesofsocialcapitalandsocialnetworkanalysis(SNA)tovaluebasedmanagementandthepriori-tiesofmarketers.AplausibleSCVAvaluationmethodisproposedtodemonstratehowtheselinksmaybearticulatedinawaythatismeaningfulforinvestorsandcorporatemanagers.
Abstract
Acknowledgements:
IwouldliketothankOlavSorenson,theJeffreyS.SkollChairinTechnicalInnovationandEntrepreneur-shipattheRotmanSchoolofBusinessattheUniversityofToronto.OlavprovidedtheguidanceandencouragementrequiredtopersistwiththeSCVAargumentandconductedthefirstthoroughreviewofthepaper.Inaddition,IgreatlyappreciatetheencouragementandaccommodationofmyMBAprofes-sorsandclassmatesandmyfriendsatContextCreativeInc.Allindulgedmewithflexibility,inputandthelatitudetoletsocialcapitalinvadeeverydiscussionandassignmentduringtheformulationofSCVA.
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Contact:
MichaelCayley,BRP, APMCP, MBA
Principal,SocialCapitalPractice
www.socialcapitalvalueadd.commichael@socialcapitalvalueadd.commobile:647-407-9598office:416-462-1859ext.2SkypeID:mgcayley
Stanford’sMatthewO.Jackson,SethGodin,AlRies,MattIngram,EricHoffer,MarlaCranston,SuzanneWilliams,DougIreland,DeNelRehbergSedo,BrentKingandmywifeAndreaRedwayhaveallofferedideas,insightsoreditorialsuggestions,forwhichIamgrateful.TheonlinegroupsledbySethGodin,PaulWilmott,BarryWellman,FabioSabatiniandJohnMaloneyhaveeachprovidedhoursoflurkinganddozensofinteractionsthathavebeeninstrumentaltothedevelopmentofSCVA.ImetAdamHelweh,throughSeth’sonline“Triiibes”group.ThankyouAdamforreworkingtheeBookandmyblogs.Thestoryofhow“IntroducingSocialCapitalValue”hasbeendeliveredtoyouisagreatlittlecasestudyoftheideasintheeBookatwork.
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Summary• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 5
Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
TheGreatOz:TheUseofSymbols• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
YellowBrickRoad“OnRamps”:SocialCapital,SNA&theCorporation • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 11
We’reOfftoSeeBetheWizard:TheRiseoftheIndividualasMedium••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••15
InformationFlow • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16
ExertionofInfluence• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 18
CertificationsofSocialCredentials,ReinforcementofIdentityandRecognition• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 26
“Paynoattentiontothatmanbehindthecurtain.”:BrandandSocialCapital• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 31
OvertheRainbow:TheSCVAValuationMethod• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 40
1.FinancialAnalysis• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 43
2.SCxFactor(SCxF)• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 45
3.SCxInventory(SCxI) • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 48
FollowtheYellowBrickRoad:TheNeedforNewStructuralManagementMethods• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 51
C O N T E N T S
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Sometimein2004whenbroadbandinternetaccessintheUnitedStatesbecamemoreprevalentthanconnectionswithlesscapacity,therewasapointofinflectionthathaschangedhowcorporationsmaycreateandpreservevalue.Thispaperpresentsanargumentthatnewmanagementmethodsarere-quiredtoguideinvestorsandcorporatemanagersintheireffortstounderstandnewrisksduetothesechanges,toidentifycorporationsthataremoreorlessqualifiedtodealwiththeserisksandtotrackspecificperformanceintheseareasrelativetoothercompanies,historyandprojections.
The argument is based upon the following points:
1.Broadbandinternetconnectionshaveempoweredindividuals,makingthemthemostdisruptiveandintenseformofmedia(i.e.,theIndividualasMedium);thereareimplicationsthroughoutthecorporateecosystem.
2.Thisresultsinentirelynewscalesofsocialcapitalasevidencedbynewscalesoftheintrinsicelementsofsocialcapital:informationflow,exertionofinfluence,certificationsofsocialcredentialsandreinforcementofidentityandrecognition.Thisnewscalesocialcapitalisacriticalcorporateasset.
3.Corporationsneedtoadopttheoriesandpracticesthataredesignedtohelpthemmaximizeformation,accessanduseofsocialnetworksandsocialcapital.Inresponse,anewtheoryofvaluebasedmanage-mentcalledSocialCapitalValueAdd(SCVA)isintroducedtolinkNanLin’snetworktheoryofsocialcapitaldirectlytocorporatevalue.
4.Symbolicbrand’sshortcomingsinbuildingcorporatevalueintheeraoftheIndividualasMediumandtherequirementsofmemeticbrandingfurtherillustratetheneedfornewmanagementmethods.
5.AnewmethodofSCVAcorporatevaluationisintroduced.Theplausibilityofthismethodfurthersupportstheargument.
Summary
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MetaphorsfromtheWizardofOzhelptoillustratetheargumentandachievethepaper’saim,whichistolinksocialcapitaltheoryandsocialnetworkanalysiswithvaluebasedmanagementandtheprioritiesofmarketers.Anotherstylisticfeatureofthepaperisemployedtoachievethisaim.Itcontainsover200hyperlinksorhotareastoenablethereadertoquicklyexplorerelated,buttypicallyisolatedclustersofknowledgethataredrawntogetherinthepaper.Academics,financialanalysts,managersandmarket-ersmayeachdiscoverconceptshereforeigntotheirtypicalbailiwick.
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OnAugust9,1995Netscape,thecompanythatintroducedthefirstgraphicalinternetbrowser,andwasfoundedbyatwenty-somethingkidnamedMarcAndreessen,wentpublicat$28ashareandclosedthatdaytradingat$58.25.1ByNovemberof1998thecompanymanagedasuccessfulsaletoAmericaOnlineInc.atavaluationof$4.2-billion.2OnOctober24,2007Microsoftboughta1.6percentstakeinFacebookfor$240-million,placinga$15-billionvaluationontheonlinesocialnetworkapplicationcompanythatlaunchedinaHarvarddormroomin2004.Facebookhadestimatedannualrevenuesofaround$100-million.3Atage23,Facebook’sfounderandCEOMarkZuckerberghasbecometheposterboyforthenextgenerationofcontinuous,fast-movinginnovationincommunicationstechnology.Meanwhile,An-dreessenisbehindNing,hisownentryintothesocialnetworkapplicationmarket.
ManyinvestorsandmanagershavecometotermswiththechangesassociatedwiththeintroductionoftheInternetbrowserinthemid-1990s.However,since2004,whenbroadbandInternetconnectionsintheUnitedStatesbecamemoreprevalentthanthosewithlesscapacity,newforceshaveemergedthathavechangedhowvalueiscreatedanddefendedinbusiness.AsInternetaccesscontinuestoacceler-ate,goesmobileandbecomesmoreubiquitouslydistributed,corporationsneedtoevolve.
The Great Oz: The Use of Symbols
Assymbols,thesetwoinnovatorsexemplifyextraordinarycorporatevaluecreation.Muchliketheterm,“Web2.0”,coinedbyO’ReillyMediafora2004technologyconference,theyaredefactobrandsthathaveemergedtorepresentverycomplexshiftsinthebusinessenvironmentincludingtechnologicalinnova-tion,changesincommunicationsandwinningbusinesspractices.Recognizingsymbolslikethese,taunt-ingandteasingthemformeaning,isamuch-needed,massivelypopularremedialmovementowingmuchtopopularjournalism,agencycampaignersandtheechochamberthatistheblogosphere.
Introduction
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Social Capital
“Resources embedded in social networks”
Emerges as #1 factor of value
Enabling Technologies• cheap bandwidth/ broadband penetration• open IP standards• connectivity: WiFi, 3G, Firewire• RSS – Really Simple Syndication • XML – extensible markup language• desktop aggregators• (Google Reader, etc.)• flash memory• peer to peer
Corporate Value Inflection Point
2008 Market Factors
Social Factors• adoption of collaborative technologies (text messaging,
instant messaging, hypertext, social tagging, etc.)• consumer generated media (blogging, MySpace, etc.)• C2C trust > B2C trust• time constraints• multi-tasking
Individual as Medium• reach & frequency = or > broadcast • “roles” vs. work• rate, review & refer• demand for authentic exchange• foundation of trust• amateurs fill the void
Search• Google• Digg, del.icio.us • personal profiles (Facebook, MySpace, etc)
Mobile Communications Speed• globalization/dropping trade barriers• rapid product cycles• commoditization• cheap travel/shipping
Fig. 1
Focusingmanagementondeliveringresultsagainstmeaningfulperformancemeasuresintoday’sbusi-nessenvironment(SeeFig.1)isnotastrivial.
Thequestionaddressedinthispaperisthis:“Arenewsocialnetworkstructuralmanagementmethodsneededtodemonstratethevalueofsocialcapitalasanimportant—perhapsthemostimportant—corporateasset?”
Buildinguponexistingliteratureandtheoreticalrootsinseveralrelatedbuttypicallyisolateddisciplinesincludingsocial-economics,socialnetworkanalysis(SNA),finance/value-basedmanagement,
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marketingandmedia,Iwillintroduceanewtheory:SocialCapitalValueAdd(SCVA).Thistheoryisin-tendedtoprovokenewinsightsandmanagementpracticesthatmaybeappliedtoawiderangeofcon-fusingphenomenathatchallengetoday’scorporations.
ThemethodofbuildingtheSCVAmanifestobeginsbyextractingrelevanttheoriesfromexistinglitera-turesandapplyingthemtobetterunderstandtrendsinbusinessvaluecreationanddefence.TheworkelaboratesthecomplexitiesofthemarketfactorsintroducedinFig.1,utilizingMarshallMcLuhan’svi-sionofUnderstandingMedia(1964)toassertwhatformerIntelchairmanAndyGrovewoulddescribeasa“strategicinflectionpoint”4thatisattributableto“arevolutionaryriseofsocialcapital.”5
Themarketing/communicationsmixhasforeverchanged.Broadcast’smonopolyonattentionisdead.Thesymbolicbrand,whichhasbeenthefastestgrowingsourceofcorporatevalueforthelastquartercentu-ryhasreacheditspinnacle.Itisbeingabsorbedandreplacedbythememeticbrand.Technologieshaveevolvedandmappedsotightlytothewayhumanstransact,formrelationshipsandcreateself-identitythatitistimeforbusinessmanagementtoadoptthethinkingofleadersinsocialnetworktheory,suchastheUniversityofChicago’sRonaldBurt.
ThestrategicshifttotheIndividualasMedium6(I.A.M.)frombroadcastparadigm,examinedthroughBurt’sStructuralHolestheoryofthesocialstructureofcompetition,bringstolightimplicationsthroughoutthecorporateecosystem.Moreimportantly,examininghowStructuralHolestheory(1992)buildsupontheworkofMarkGranovetter’s“StrengthofWeakTies”idealaunchedtwentyyearsearlier,but“cap-turesthecausalagentdirectlyandthusprovidesastrongerfoundationfortheoryandclearerguideforempiricalresearch”7isablueprintforunderstandingtherelationshipbetweenbrandandsocialcapital(i.e.,explicitcontentvs.networkstructuralassets;TheOzvs.TheYellowBrickRoad).
ThepaperculminateswithaplausiblefirstoutlineofSCVA’scorporatesocialcapitalvaluationmethod.Themethodisaderivativeofvalue-basedmanagementthatdependsuponatheoreticalequationbe-tweenacompany’sdigitalfootprintanditseconomicprofit.TheattemptistodistinguishI.A.M.orientedsocialcapitalwithinthetraditionalboundariesofcorporategoodwill.
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Whatimpactmightafocusonsocialcapitaldevelopmenthaveonstrategicthinkingandcorporatedi-rection?Inconclusion,thepaperhighlightstheneedtoadoptstate-of-the-artthinkingaboutthechar-acteristicsandformationofsocialnetworkslikethatofStanford’sMatthewJackson.Recentlyreleasedresearch(October2007version)conductedatHarvardsuggestingthepossibilitythathighermarginsmaybesoughtthroughsocialnetworksandanassociatednewrationaleforcorporatesocialresponsibilityalsounderscoretheneedfornewsocialnetworkstructuralmanagementmethods.
Fortunatelypioneershavebeenlabouringinthefieldofsocialcapitalsinceasearlyas19808(Bourdieu).Thelineageofsocialnetworkanalysiscanbetracedbacktothreemaintraditions(sociometric/graphtheorist,cliqueformation,structureofcommunityrelations)withrootsinthe1930s,eventuallybroughttogetheragainatHarvardinthe1960sand1970s,whencontemporarysocialnetworkanalysiswasforged.9Thepaperisnotanattempttorevieworevenproclaimacommandoftheexistingliterature;itisdesignedtobuildbridgesbetweentheseknowledgeclusters,value-basedcorporatemanagementandthepriori-tiesofmarketers.
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Aleaderamongthesocialcapitalpioneers,whoseworkbeganwithresearchintosocialnetworksinthemid-1960’s,isDukeUniversity’sProfessorNanLin.10ItisLin’scareful“structuralist”definitionofsocialcapital,“asaconcept,rootedinsocialnetworksandsocialrelations,andmustbemeasuredrelativetoitsroot”(Lin,1999,pp.35),thatisadaptedhere.Linnotes,“Thepremisebehindsocialcapitalisrathersimpleandstraightforward:investmentinsocialrelationswithexpectedreturns.Thisgeneraldefini-tionisconsistentwithvariousrenditionsbyallscholarswhohavecontributedtothediscussion(Bourdieu,1983/1986;Bourdieu,1980;Burt,1992;Coleman,1988;Coleman,1990;Erickson,1995;Ericson,1996;Flap,1994;Flap,1991;Lin,1982;Lin,1995;Portes,1998;Putnam,1993;Putnam,1995a)”(Lin,1999,pp.30-31).However,Lin’sdisambiguationofsocialcapitaliscriticaltothemissionofSCVA,whichistoempowerinvestorsandmanagementwiththeframeworktodifferentiatemorevaluablecorporateas-sets(i.e.socialnetworksmaximizedforsocialcapital)fromlessvaluableones,and,insodoing,enabletheestablishmentofmeasurablecorporategoalsandobjectives(inadditiontothecampaigndrivengoalsandobjectivesthatdominatecontemporarydiscourse11,suchasthebudgetaryterm“ROI”thatisoftenusedinamarketingcampaigncontext).
Lin’sanalysis(Lin,1999,pp.31-35)oftheperspectivesandcontroversiesinsocialcapitaltheoryisre-liedupontoarriveatthefollowingassertionsmadebySCVA:
•Socialcapitalisfundamentallyanindividualasset.(Note:acorporationisaformofindividual.)
•Theintrinsicelementsofsocialcapitalthatmakeitworkenhancetheoutcomesofactions(i.e.,bothinstrumental/gainandexpressive/preservation/defenseactions)are:flowofinformation,theexertionofinfluence,certificationsofindividualsocialcredentialsandreinforcementofindividualidentityandrecognition.
•Aggregationofindividualreturnsresultincollectiveassetsandpropertiessuchastrust,norms,reputation,authority,sanctions,culture,networkstructure(open,closed,density,clustering,diameter,averagepathlengths,degreedistribution,bridges,weakties,betweennessandother
Yellow Brick Road “on-ramps”: Social Capital, SNA & the Corporation
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formsofcentrality,etc.)andlocation(structuralholes,structuralconstraints,etc.),whichareex-trinsicvariablesthatcontributetotheformation,accessanduseofsocialcapital.
“Therefore,socialcapitalcanbe(moreaccurately)definedasresourcesembeddedinasocialstructurewhichareaccessedand/ormobilizedinpurposiveaction”(Lin1999,pp.35).IntheSCVAcontext,thatpurposeiscorporatevaluecreationandpreservation.
Towardsthisend,thebodyofsocialcapitalandsocialnetworkresearchisstillverymuchindevelop-ment.Moststudiesfocuseitheronindividualsocialcapitalinsuchcontextsashowpeoplefindjobsorsocietalsegmentssuchasfactoryco-workers,schoolsandcommunities/villages.SCVAreliesuponatheoreticalpremisethatoriginalmotivesfortheconceptionofthecorporationasindividualgivecomfortthattheconclusionsmadeinresearchregardingindividualscanbeappliedtocorporatesocialcapital.ResearchbyBrianUzzifromtheKelloggGraduateSchoolofManagementalsoprovidessomeevidencethatthereisagrowingbodyofworkthatcorroboratesthepresenceandsignificanceofcorporateso-cialcapital,deliveringasecondsourceofconfidencethatconclusionsmadeabout“ego”and“alter”inexistingsocialcapitalandsocialnetworkresearchmaybegeneralizedbetweenindividualsandcorporateindividuals.
Sincethecorporationwasoriginallydesignedtoenableagrouptotakeontheattributesofanindividualinsocialengagementincludingtransactions,accountability(contracts),liabilities,propertyrights,etc.,itislogicaltoassumethateffectsfoundinthestudyofindividualsocialcapitalandsocialnetworksmaybeindicativeofsimilareffectsincorporatesocialcapitalandcorporatesocialnetworks.
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In “The Sources and Consequences of Embeddedness for the Economic Performance of Orga-nizations: The Network Effect” (2000) Brian Uzzi notes:
“Thereisagrowingneedtounderstandhowsocialstructureassistsorimpedeseconomicperformance.Inparticular,the
successoforganizations’networkshasspawnednewconjecturesaboutthecompetitiveadvantageofsocialformsoforganiza-
tionrelativetomarket-basedexchangesystems(Powell1990;Inzerilli1991;Perrow1992).Centraltotheseconjecturesis
the“embeddedness”argument[definedassocialcapitalinSCVA],whichoffersapotentiallinkbetweensociologicaland
economicaccountsofbusinessbehavior.Embeddednessreferstotheprocessbywhichsocialrelationsshapeeconomic
actioninwaysthatsomemainstreameconomicschemesoverlookormisspecify[suchasbrandvaluation?]whentheyas-
sumethatsocialtiesaffecteconomicbehavioronlyminimally.”12
Uzzidrawsourattentionto“Larson(1992)andHelper(1990)[who]reportedthat‘thickerinformation’onstrategy,productionknow-how,andprofitmarginsistransferredthroughembeddedties,thuspro-motinglearningandintegratedproductioninwaysthattheexchangeofonlypricedatacannot.”(2000)
His findings that:
•“embeddedtiesperformuniquefunctionsandhavethreefeatures:trust,fine-grainedinforma-tiontransferandjointproblem-solvingarrangements...mutuallyreinforcing...counterpartstothefeaturesofarm’s-lengthties(seealsoUzzi1996),”
•“trust...facilitatedtheexchangeofresourcesandinformation,”and,
•“embeddedtiesdevelopprimarilyfromthird-partyreferralnetworksandpreviouspersonalrela-tionswhich(1)setexpectationsfortrustbetweennewlyintroducedactorsand(2)equiptheneweconomicexchangewithresourcesfrompreexistingembeddedties.”
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Along with the conclusions:
•that“embeddednessisauniquelogicofexchange...particularlybeneficialforreducingmonitoringcosts,quickeningdecisionmaking,andenhancingorganizationallearningandadaptation”and:
•“Consequently,knowledgeofafirm’sembeddedness:Itspositioninanetwork,thequalityofitstiestonetworkpartners,andthestructureofthenetwork,providethebasisonwhichtomakepredictionsaboutorganizationalperformanceandcapability,bothpositiveandnegative,”
notonlysuggestparallelsbetweenthecorpusofcorporateandindividualsocialcapitalbutalsoprovideacompellingcasefortheadoptionofSCVAbyinvestorsandmanagerswhoareinterestedin“increases(in)economiceffectivenessalonganumberofdimensionswhicharecrucialtocompetitivenessinaglobaleconomy(including)organizationallearning,risk-sharing,andspeed-to-market”(Uzzi,2000).“Oneoftheadvantagesofbeinginfinanceorbusinessvs.academicsisthatspeed.Ifthereisaneed...ifsomethingworks,ifitmakessense-youuseittoyouradvantage;youdon’twaitforamathematicalproof.”13
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In a culture like ours, long accustomed to splitting and dividing all things as a means of control, it is sometimes a bit of a shock to be reminded that in opera-tional and practical fact, the medium is the message. This is merely to say that the personal and social consequences of any medium – that is, of any extension of ourselves – result from the new scale that is introduced into our affairs by each extension of ourselves, or by any new technology.14
MarshallMcLuhan UnderstandingMedia: TheExtensionsofMan,1964
Letussetasideforanothertreatisethescalingeffectsthatamplifiedextrinsicsocialcapitalvariablesmusthaveontheaccessanduseofsocialcapital,nottomentionthepositivefeedbackloopthatariseswithnewscalesofsocialcapitalleadingtomoresuchcollectiveassetsandsoon.Forthesakeofbrev-itywecanrestourclaimthatcorporationshavehitavalueinflectionpointdirectlyuponanexaminationoftheintrinsicelementsofsocialcapital:informationflow,exertionofinfluence,certificationsofsocialcredentialsandreinforcementofidentityandrecognition.Whiletherecitalofamazingfactsdocumentingbewilderingtechnologicalchangeoftenfailstocutthroughournarcoticnumbness15,perhapstherealizationthateachunderscoresacorrespondingamplificationofanelementofsocialcapitalwillawakenusfromthetrance.
We’re Off to See BE the Wizard:The Rise of the Individual as Medium
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Information Flow
Inmid-2007,71%ofAmericanadultsusedtheinternetatleastoccasionallyfromanylocation;ofthese,94%hadaninternetconnectionathome.Amongadultswithahomeinternetconnection,70%wentonlineusingahigh-speedconnection,versus23%whouseddialup.16
Home Broadband & Dial-Up Penetration(% of adult Americans)
50%
45%
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35%
30%
25%
20%
15%
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5%
0%
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Broadband Dial-Up
Fig. 2
Corporate Value Inflection Point
Source: Pew Internet Project February - March 2007 survey of 2200 adults; 296 were home broadband users
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Percent of Internet Users Who Report Doing the Following Activities Yesterday (from any location)
Source: Pew Internet Project February - March 2007 survey of 2200 adults; 296 were home broadband users
Send or read email
Get news
Look for information about a hobby or interest
Do any type of research for your job
Read someone else’s online journal or blog
Look for information on Wikipedia
Look for religious or spiritual information
Create or work on your own online journal or blog
Take material you find online and remix it into your own artistic creation
Make a phone call online
All Internet Users
56%
37%
29%
23%
10%
8%
6%
5%
3%
2%
Home Dialup
43%
24%
21%
15%
5%
9%
4%
5%
3%
<1%
Home Broadband
65%
45%
34%
27%
12%
5%
7%
5%
3%
3%
Fig. 3
“Thenumberofhomebroadbandusersinearly2007isnowroughlyaslarge(onapercentagebasis)astheentireuniverseofinternetusersin...June2000”(PewJune2007).Inmostcases,householdswithhigherincomesaremoreattractivepotentialcustomersforbusinessesandtheytendtoexercisemoreinfluence.Morethan76%ofthesehouseholds,thosewithover$75,000perannuminincome,havebroadbandin-ternetaccess.Broadbandinternetaccesscorrelatesbothtomorefrequentuseandanexpansioninthewaysthatindividualsobtainanddistributeinformationflow.(SeeFig.3)(PewJune2007).
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Exertion of Influence
In2002,JohnHorriganandLeeRainieatThePewInternet&AmericanLifeProjectusedregressionanalysistodeterminewhatfactorsmostaccuratelyexplaintheintensityofaperson’sInternetuseandfoundthattheavailabilityofabroadbandconnectionisthelargestsinglefactor.17OtherfactorssuchasamountofexperiencewiththeInternet(whichisontherise)anddemographicsmatter,butavailabilityofabroadbandconnectionmattersthemost.Aswehaveshown,accesstobroadbandisscalingupandwithit,soistheinfluentialonlineactivityofInternetusers.
ReferagaintoFig.1.Ofthemorethan25marketfactorshighlightedascontributingtoastrategicpointofinflection,atleast18arefactorscontributingtoincreasinginformationflows.Numbyet?Trytobeawareonasubliminallevelthatforeachfactor,wearedescribingexponentialincreasesofinformationflow.Forexample,typicalbroadbandconnectioncapacitiesarefivetofiftytimesgreaterthan56kdial-upcon-nections.Mostofthistechnologydidnotexistordidnotmatterinthedecadewhenbrandvaluebegantosurpassbookvalueforcorporations.Therearemanymoreofthesekindsoffactorsnotaccountedforinthispaper.Forexample,wehavebettermapsthanweusedto.Considertheimplicationsoftheexistenceofamapofthehumangenomeforamoment.
Nevertheless,ofallfactorscontributingtotheexpandingflowofinformation,theglobalexpansionofaffordableconsumerbroadbandinternetaccessisthemostimportanttotheSCVAargument.Itthegreatestfactorcontributingnotjusttothescaleofinformationflow,butalsotoexertionofinfluenceandtheotherintrinsicvariablesofsocialcapital.
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Creating and posting content to the Internet is the...
“definingbehavioraldifferenceamonghomebroadbandusers...[Afewexamplesinclude]:havingablog[orvlog],making
onlinecomments,[producingapodcast,postingapersonalorprofessionalprofileonasocialnetwork],postingphotosonline,
orcontributingtochat-rooms,[forums,socialbookmarking,wikisorcitizenjournalismsites].Back[in2002]whenjust12%
ofadultshadbroadbandathome,itwaspossibletoimaginethattheuser-generatedcontentphenomenonwasmainlyanar-
tifactofearlyadopters.Somemodestfractionofleadingedgeuserswoulddemandbandwidthtopostcontentonlineandthat
wouldbeaboutit.User-generatedcontentdidnot,however,stopwithearlyadopters.Ashomebroadbandadoptiongrew,
postingandcreatingcontentfortheinternetbecamemorewidespread.ThePewInternetProjectreportedina2006survey
that44%ofhomebroadbandusershaddoneatleastoneofthefollowingactivitiesthatinvolveuser-generatedcontent:
havingone’sownblogorwebpage,workingongroupblogsorwebpages,remixingdigitalcontentandre-postingitonline,or
sharingsomethingonlinecreatedbytheuser(i.e.,artwork,photos,stories,orvideos).Althoughusergeneratedcontentis
dominatedbyyoungpeople,31%ofthoseoverage50withabroadbandconnectionathomehadengagedinatleastoneof
theseactivities.”18
Broadband Penetration Growth Trends for G7 Countries
25
20
15
10
5
02001 2002 - 2002 2003 - 2003 2004 - 2004 2005 - 2005 2006 - 2006
CanadaUKFranceJapanUSAGermanyOECDItaly
Fig. 4
Source: http://www.websiteoptimization.com
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SCVAarguesthattheaggregationofthesebehaviorscreatesocialnetwork-poweredideahabitats19,whereindividu-alsexerciseinfluenceonpreviouslyunobtainablescalesbecauseeachindividualnowhasthecontentproduc-tionanddistributioncapabilitiesthathavehistoricallyonlybeenavailablethroughtraditionalmassmediachannels(print,radio,television).Whereastraditionalmassmediacontentandchannelsareboughtwithfinan-cialcapitalorrented(withgreatflexibility)byadvertisers,I.A.M.isafunctionofsocialcapital.
ThePewInternet&AmericanLifeProject’sstudy“Buzz,BlogsandBeyond:TheInternetandtheNationalDiscourseintheFallof2004”20providesomegoodillustrationsoftheseconceptsinaction.ExaminingthePewstudyusingBergerandHeath’srigorouslyanalyzedandempiricallytestedfindings(theirpaperreportsonsevenstudiestheydidagainsttheirhypotheses)-thatfluctuationsandprevalenceofideahabitatshelpdeterminehowsuccessfullyanideaspreads-setsouttoachievetwoobjectives.First,weaimtofurtheradvancethecauseforSCVAbyelevatingthediscussionofthespreadof“Rathergate”versusotherideasduringthe2004Presidentialcampaignfromananecdotalreviewofbloggerinfluence,toanapplicationofBergerandHeath’sframeworkthatprovidesevidenceofgreaterscalestructuralassetsinaction.21Second,BergerandHeath’sframeworkisagreatexampleofthekindofstrategicthinkingthatSCVAaspirestoencourageinthecreationanddefenceofcorpo-ratevalue.
Intheirstudyof“IdeaHabitats:HowthePrevalenceofEnvironmentalCuesInfluencetheSuccessofIdeas,”BergerandHeath“defineanidea’shabitatasthesetofenvironmentalcuesthatprimepeopletothinkaboutanideaandcausethemtobelieveitmayberelevanttopassalong(Sperber&Wilson,1986).”Theyfoundthatfluctuations22andprevalence23ofthehabitatsinwhichideasmustthrivearefactorsthatdeterminethesurvivalandspreadofideas(Berger&Heath,2005).
ThePewstudysetsouttodeterminethedistinctiveinfluenceofblogsinthecourseofthe2004electioncam-paignbytracking“buzz”24.“Ifbloggers,ormedia,orpresidentialcampaigns,werebuzzmakersplenipotentiary,thatis,heavyweightagenda-settersandissue-framers,thentherewouldbearecurringpatterninwhichonechannelledandtheothersfollowed,”(Cornfield,Carson,KalisandSimon,2005).Thestudy“developedacompara-tivefour-channelframework,suchthatonanydaytopicsmentionedinblogscouldbecomparedwiththoseinmainstreammedia,thepresidentialandnationalpartycampaignorgans,andonlinecitizenchatforums”(Cornfield,Carson,KalisandSimon,2005).Thestudy’ssearchforasmokinggunacrossawiderangeofissues
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heldbyanindividualoracollectiveofbloggersovershadowsitstwosubstantiveconclusionsthathighlightapointinhistorywhenthereare“full-scalechangesinthewaybusinessisconducted,sothatsimplyadoptingnewtechnologyorfightingthecompetitionasyouusedtomaybeinsufficient”(Grove,1996).“Ablogisaremarkablysuitableplaceforbuzztoform.Abloggercansparkconversationwithchoicecom-mentsondocumentsdrawnfromtheinternet,andtheconversationcanbuildthroughthetoolswhichmaketheblogospherepossible”(Cornfield,Carson,KalisandSimon,2005).Therelativehistoryandfinancialcapitalbackingthefourchannelsstudiedarealsoremarkable:
Channel
Mainstream Media
Presidential &National Campaign
Online Chat
Blogs
History
Hundreds of years
Hundreds of years
Less than 10 years
Less than 3 years
2004 Costs
Billions
Greater than $500 million
Marginal
Marginal
Investment Annual
Billions
Greater than $100 million
Marginal
Marginal
Fig. 5
Arandomcheckofthe40blogsincludedinthePewstudyfoundthatmostwereestablishedin2002or2003,12to24monthsaheadofthestudyperiod,withvirtuallynocapitalinvestment.TwoPewsurveyscon-ductedinearly2005showthat16%ofU.S.adults(32million)[were]blogreaders...thebloggeraudi-ence...[wasarespectable]...20%ofthenewspaperaudienceand40%ofthetalkradioaudience.Mean-while,6%oftheentireU.S.adultpopulationhadcreatedablog.That’s11millionpeople,oroneoutofevery17Americancitizens(Cornfield,Carson,KalisandSimon,2005).
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Thefindingthat,“thepoliticalblogosphereseemslessanentityuntoitselfthanawellintegratedpartofthenationaldiscourse”(Cornfield,Carson,KalisandSimon,2005)isevidenceofanewformofinfluencethatisscalingupinexertiveforce.Itisself-referencing,permanentandgrowingexponentially.However,moreinterestingstillisthewaythePewstudydesignlendsitselftoBergerandHeath’sframework.Inad-ditiontothefourchannelsintroducedabove,thePewstudydatasetswerebrokenintoliberal,conserva-tiveandgeneralfortheBlogandCitizenChatterchannels.TheCampaignReleaseschannelwasdelin-eatedbytheKerryandBushdivisionsandtheMediaCoveragechannelwasapparentlygrantedstatusas“objective,”oratleastindiscriminatesincethesetwasnotdelineated(despitethepresenceofFoxNews!).Considerthismashup25ofthePew“Rathergate”andBergerandHeath26frames,anattempttoillustrateaninformationcascade.27
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Pew Framework
Mainstream Media
• objective
Presidential &National Campaigns
Bush - ConservativeKerry - Liberal
Online Chat
• liberal• conservative• neutral
Blogs
• liberal • conservative• neutral
CBS News
• objective
Dan Rather
• Dan Rather
Idea Habitats
Mainstream Media
Mainstream media (including CBS News)
• Primarily broadcast. multichannel. Embedded with a relative balance of liberal, conservative and topical environmental cues that encourage people to recall and transmit ideas• indiscriminate • rich with media cues
Liberal
• mulitchannel, interactive• rich with anti-media cues
Conservative
• multichannel, interactive• rich with anti-media cues
CBS News
• single broadcast channel• content neutral
Dan Rather
• single voice• nearly content neutral
Disposition or “Charge”
Mainstream Media
• inert state is neutral, but if other Habitats or self interest catalyze can be polarized quickly• competitive
Liberal
• collaborative• multi-channel
Conservative
• collaborative• multi-channel
Monolithic
• competitive
Isolated
• competitive
Outcomes
Mainstream Media
Attacks Rather and CBS News
Campaigns
Stays out of it
Liberal
Abandons Rather & CBS News
Conservative Attacks Rather & CBS News
CBS News Abandons Rather
Dan Rather brand irrevocably destroyed
Information Cascade:Structural assets, i.e. environmental cues about the media and the absence of neutralizing cues & opinion, destroy “Dan Rather” brand.
Fig. 6
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ThePewstudyoffersafascinatingblowbyblowaccountof“Rathergate.”Yetitschronological,playerbyplayer,contentpiecebycontentpiecereviewisfrustratedinthesearchforthesmokinggun.WithoutthebenefitofBerger&Heath,thePewteamintuitthatthestructuralsourcesofinfluencehave“somethingtodowithlocationwithinthemediascape(thegeneralideabehindourblog-positioninghypothesis),andsomethingtodowithnarrativefitasperceivedbyvoicesinallfourchannels,andasenactedbytheplayerscastinthecrucialroles(thegeneralideabehindthenotionoftheincriminatingmemeinRathergate)”(Cornfield,Carson,KalisandSimon,2005).UsingBergerandHeath’sframework,wecanspeculatethatDanRather,oneofthestrongestbrandsinnews,investedinbyCBSfordecades,nottomentionhispersonalrecordofdedicationandrelativeinnocenceinthisaffair,sufferedtheeffectsofwhatColumbia’sDuncanWattsmightcallaglobalcascade28thatinpart,“canbeexplainedintermsoftheconnectivityofthenetworkbywhichinfluenceistransmittedbetweenindividuals”(Watts,2002).Inbroadcastspeak,DanRatherratingsweredown.UnliketheothersevenideastestedinthePewstudy,RatherdidnothavethesocialcapitalrequiredintheeraofI.A.M.tocastenvironmentalcuesthatwouldneutralizethespreadoftheideacausinghimdamageandpreservehisbrandvalue.
SCVApostulatesthattheimplicitcontentrepositoryandtransmissioninfrastructureofideahabitatshasbeendescribedinsocialnetworkliteratureassmall-worlds,locallevelclustering(JohnsonandGilles2000,CaroyolandRoux2003,Galeotti,GoyalandKamphorst2004,HojmanandSzeidl2004bandJacksonandRogers2005)cliques(WarnerandLunt,1941:32),theislandsmodel(JacksonandRogers,2005)andseparatebutrelatedconceptsareexploredin“TheStrengthofWeakTies”(Granovetter1972)and“StructuralHoles”(Burt1992).Whilealldescribestructuralassets,SCVAadoptsthenotionofideahabitatsinthiscontexttotrytomoreaccuratelydescribetheimplicitcontentassetsthatimpacttheexertionofinfluence.Technologyhascharged“smallworlds”withgreaterscalesofimplicitcontent.Thechargecanrangeindispositiontowardscorporategoalsfrompositivethroughneutraltonegative,andthischargecanimpactearnings.Warlords,gangsters,kingsandpoliticianshavelongunderstoodthenetworkeffectsofpatronageandlargessintheaccumulationandmaintenanceofpower;religionshavetheir“MardiGras,”themilitary“softens”thebattlefield.
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Corporationswhoinvestinsimilarstrategies(seeFig.7foragenericexample29)thataredesignedtotrackandprimethepotentialofI.A.M.phenomenagivethemselvestheopportunitytoemergemorevaluable.Whichassethasmorelongtermresidualvalue?IsittheimplicitcarnivalatMacWorldortheexplicitSteveJobsaddress?Whilethe“don’twalkby,giveitatry”brandspectacleistheoverwhelmingsubjectofenviousmanagementdeliberation,SCVAisthereminderthatthecarrierwavefortheCarny’scall,themoreelaboratelyproducedmidway,indicatesfarmoreaboutacompany’sabilitytocreateandpreservevalue.
“AlltheeditorialcontentthathasbeengeneratedwithinthelastyearabouthowtheconsumerisnowinchargeandthatthemarketerismerelyalongfortheridebecomesmoreunderstandablegiventhatoneinthreeInternetusershashadapurchasedecisioninfluencedbycontentgeneratedbyanotherInternetuser.”30
Putting Your Marketing Plan in Perspective
8000
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0Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04
# o
f Mes
sage
s
Auto Show Debut
Magazine Award
Pricing Announced
TV/Print Ads Begin
In Dealerships
$5/Day Lease
Incentives
Recall
Model X SalesModel X BuzzPositive SentimentNegative SentimentNeither SentimentMixed Sentiment
Not only can CGM be quantified, it can be tracked and linked to specific marketing and ad campaigns, product launches, offers, news events and industry fluctuations. This exhibit shows how varying degrees of internet buzz – by volume, by sentiment, by model – correlate with key marketing events for an auto client.
Source: http://www.artsmarketing.org Fig. 7
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Certifications of Social Credentials, Reinforcement of Identity and RecognitionOnceagaintheneedfornewstructuralmanagementmethodsarehighlightedasweconsidertheseremain-ingcomplexandinter-relatedintrinsicelementsofsocialcapital.Fortunately,ourrequisitehereisnottodetermineifthemassivenewscaleofcertificationsofsocialcredentials,reinforcementofidentityandrecognitionispositive31ornegative(particularlywhenitcomestoeffectsduringadolescenceandissuesofgender)oreventorecommendwhichanalysismodelsshouldbethemosttalkedabouttopicsinmarket-ingtoday.Aworthwhilereviewoftheliteratureattheintersectionofinternetusageandthedevelopmentofself-identitycanbefoundinChinaMediaResearch,3(1),2007,Long&Chen,ImpactofInternetonAdolescentSelf-IdentityDevelopment.Therearedebates,differentschoolsofthoughtandmanydifferentframeworkstoconsider.Thereisnodebatethattheinternet,especiallygamesandrecentformsofsocialnetworkingsoftwareservices,provideentirelynewandexponentiallygreaterscalesofinteractionwiththeseelementsofsocialcapital.
Peoplehavealwaysmaintaineddifferentpersonas:professional,personal,private,public,social,family,etc.Thesimplefactthateachofthesepersonascomeswithitsownsocialcredentialsandformsofrec-ognitionandisnowoftendevelopeddialogically,inpublicandaspartofaniterativelypublished,poten-tiallypermanentrecordintext,photos,audioandvideoconfirmsgreaterscale.However,toreinforcethepoint,letusbrieflyhighlightthecommonfeaturesofonlinesocialnetworkservicesthatincorporatesocialcredentialsandrecognitioninthedevelopmentofidentityandthenofferasnapshotoftheirstartlingadop-tion.
Fig8:Evidenceofgreaterscaleofthreeintrinsicelementsofsocialcapital:identity,socialcredentialsandindividualrecognition.Illustratedbyanalysisoftypicalsocialnetworkservicefeatures.
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Identity x 16 Social Credentials x 16 Recognition x 17Legend:
Fig. 8
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Online Social Network Services scale with Home Broadband Access32
Launch Dates of Major Social Network Sites
Six Degrees.com
AsianAvenue
LunarStorm (SNS relaunch)
Ryze
Fotolog
Skyblog
Tribe.net, Open BC/Xing
Orkut, DogsterMultiply, aSmallWorld
Catster
Yahoo! 360
Cyworld (China)
Ning
QQ (relaunch)Windows Live Spaces
Six Degrees closes
Couchsurfing
LiveJournal
BlackPlanet
MiGente
Cyworld
Friendster
HI5
Flickr, Picza, Mixi, Facebook (Harvard only)Dodgeball, Care2 (SNS relaunch)
Hyves
MySpaceLast FM
Facebook (corporate networks)
Cyworld (U.S.)
MyChurch, Facebook (everyone)
Youtube, Xanga (SNS relaunch)
AsianAvenue, BlackPlanet (relaunch)
Bebo (SNS relaunch)Facebook (Highschool Networks
‘97
’98
‘99
’00
‘01
’02
‘03
’04
‘05
’06
Fig. 9
Corporate Value Inflection Point
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OnJanuary21,2007at4:30p.m.EST,thislistofonlinesocialnetworksites,whichlaunchedwith12itemsatwww.wikipedia.orgonOctober10,2005at2:36p.m.,isnoweditedaroundadozentimesadaybyunpaidcontributorsandhas100“notable”siteswithoveronebillionmembers.Onceagain,thedramaofanauthenticpointofinflectionforbusinessbecomesapparentaboutmid-waythroughthefirstdecadeofthe21stcenturywhen,forthefirsttimemoreinternetusersareusingbroadbandthandial-upcon-nections.
IaminthepositionofLouisPasteurtellingdoctorsthattheirgreatestenemywasquiteinvisible,andquiteunrecognizedby
them.Ourconventionalresponsetoallmedia,namelythatitishowtheyareusedthatcounts,isthenumbstanceofthe
technologicalidiot.Forthe‘content’ofamediumislikethejuicypieceofmeatcarriedbytheburglartodistractthewatch-
dogofthemind.Theeffectofthemediumismadestrongandintensejustbecauseitisgivenanothermediumas‘content’.
Thecontentofamovieisanoveloraplayoranopera.Theeffectofthemovieformisnotrelatedtoitsprogramcontent.
The‘content’ofwritingorprintisspeech,butthereaderisalmostentirelyunawareeitherofprintorspeech.33
WehavearrivedatapointinhistorywheretheeffectofI.A.M.hasbeenmadethestrongestandmostin-tense34formofmediaweexperiencebecauseithasbeengivenallothermediaasitscontent.Themovie,theplay,theopera,thenewspaper,thetelevision,theradio,commercialmusic,printandphotographs,eventhebrand,haveallbeengivenovertotheIndividualtobereincarnatedastheYouTubevideo,theprosumerindie,theblog,theblogcomment,theforum,theTweet35,theIMchat,rating&review,theFlickralbum,thepodcast,theviralemailandthemashup.
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SCVAarguesthatthiseffectisanewscaleofsocialcapitalthatmarksapointofinflectionforbusinessanditisthisnewscaled-upversionofsocialcapital(abbreviatedhereintoSCx)forwhichSCVAisdeterminedtohighlightthevalue.
Doesitnotseemnatural?Projectandscaleupthepoweroftheindividual,andthatvalueofhumanconnectionofwhichweareallsoinstinctivelyaware,emergesinamplifiedformsaswell.Inadditiontothenewscalesofintrinsicsocialcapitalelementsdetailedabove,SCVAurgescorporationstoexaminetheextrinsicvariablesofsocialcapitalsuchastrust,andmostimportantlynetworkstructure,forsimilarevidenceofnewscaletounderstandfurthersocialcapitalformation,accessanduse.
Scaled Up Social Capital = SCx
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Beforethispoint,brandwasthefastestgrowingindicatorofcorporatevalue.SCVApredictsthatfromthispointon,socialcapitaliscorporatevalue’sleadingsource.Overcenturiesbrandevolvedasanintegralpartofbusiness,gainingweightinrelationtootherfactorssuchastalent,fixedassets,distribu-tionandcapital.Itbrokeoutastheleadingindicatorofsustainablecorporatevalueaddedperformancebecauseitwasparticularlysuitedtoguideinvestors,managers,employeesandconsumersinanerawhenbroadcastmedia–radio,televisionandprint–werethemostdisruptivetechnologiesanddomi-nantformsofmedia.Intime,brandhascometobeunderstoodastheperceptionthatemanatesfromallactivitiesofthecompany.Justasproduction,humanresourcesmanagementandfinancehaveremainedcriticaltobusinesssuccessthroughoutthebrandera;brandwillcontinuetoplayastarringroleasI.A.M.,drivenbysocialcapital,emergesasthedominantmediaformtransmittingbrand.SCVAisnotachallengetobrand;itismerelyareflectionofbroadcast’serodingcommandofhumanattention(seeFig.10).“Therehasbeenaclearfalloffintheuseoftraditionalnewspaperandbroadcastmediaandariseinuseoftheinter-net...”.36
Anewfocusonsocialcapitalwillbringaboutanimprovedunderstandingofbrand.Thesymbolicbrandevolvedfromthepracticeofliterallyburningasymbolintothesideofabarrelorbeasttoidentifythecommoditybyitsownerormanufacturer.37Itwasconceivedtorelatealotofinformationwiththeleastamountoftimeandspace.Botharepreciouswithinthebroadcastparadigm.Whetheryouarecopingwiththeconstraintspresentedbyaredhotironandamovingsideofbeeforthe30-secondtelevisionspot,abrandisasubliminationofaproductorcompany’svalues,slogan,pricing,stories,personality,tastes,smells,sounds,appearancesandemotionalandphysicalbenefits.
Pay no attention to that man behind the curtain”: Brand and Social Capital
“
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Consistency,conformityandcontinuity–thesebrandmantrasmaypersistintheeraofI.A.M.butbroad-cast’smonolithicbrandidentitiesandthemethodsthatbuiltthem(symbolicbrand)arebeingreplaced,absorbedbyporous,malleableimitationswithnarrowcastmutationsovermillionsofchannels(i.e.Individuals),eachwithuniquefrequency38butinaggregatebeyondthereach39ofanyadvertisement(memetic40brand41).
SCVAisaspin-out42ofbrandmanagement.Itisdesignedtobringtalentandresourcestotherelativelyunexploredstructuralvaluedriversofsocialnetworkthroughoutthecorporateecosystem.Inthepastbrand’smostimportantrolewassublimination,mostlybecausecommunicationswereexpensiveandspacewasprecious.Nowbrand’smostimportantroleisrootedinthemorestructurallyorientedideaoffindability43.Onthispointitishelpfultomakeadistinctionbetweenthenotionsofmarketpositioningandinformationretrieval.
Fragmented Media Environment(% of all Americans who “regularly” go to news source: PRC People/Press)
70
60
50
40
30
20
10
01994 1996 1998 2000 2002 2004
Local TVNational TV NewsCable NewsNewspapersRadioOnline News
Fig. 10
Source: http://www.artsmarketing.org
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Marketpositioningisacognitivegoal,atheorynowthoroughlyadoptedbymarketingprofessionalsthatwasintroducedin1969byJackTroutandAlRies.Sincehumanscopewithoverwhelmingtechnol-ogy,changeandinformationflow(includingbrandnoise,theproliferationofthousandsofbrands)bysubliminatingalmosteverythingweencounteruponreception;wehavecometounderstandbrand’sroleasbeacon.Brandsignalsthat“ah-ha!”momentwhenaconsumerremembersaproduct’snameorpreviousmessagesthathavebeenassociatedwithit.Traditionalbrandmanagementisstillcriticalwherespaceistight.Broadcastmediaasyet,dominatethemarketcommunicationsmix.Packagingandproductdesignarekeyinstoreandonshelf.
Howeverinanetworkedworld,thesymbolicbrand’smissionofdistillationiscontrarytotheambitionoffindability.Theultimategoalofthememeticbrandisnetworkomnipresence.WithintheI.A.M.paradigm,spreadingyourcorporatepresenceaspositivelyandwidelyaspossibleisakeyobjective.Understand-ingtheenvironmentalcueswithinasmanyideahabitats(i.e.context)aspossibleandtheirsupportingnetworkinfrastructurearethemethodsofachievingthis.Syndicationofyourcorporateandproductpresencecanbeinstigatedbycorporationsandtheiragencies,buttheymustactivateI.A.M.throughsocialnetworkstoachievemaximumreachandthatactivationisafunctionofsocialcapital.OntheWorldWideWebwearedescribingalargedigitalfootprintembeddedwithfavourablereferencesandlinks.Unlikebrandcontentdistributedoverabroadcastnetwork,brandcontentonthewebhasgreaterresidualeffects.ItispermanentlystoredforretrievalandwhengeneratedbyI.A.M.ithasanassociatedgeography,thuseliminatingthedistancebetweenthesocalled“virtual”andrealworlds.Acorporation’srealworldsocialnetworkpositioningandthedispositionofideahabitatsarejustasimportantastradi-tionalmarketingpositioning.
Infactfornewcompanies,productsandservices,whicharethemostexcitingopportunitiesforgrowthincorporatevalue,thesestructuralconcernsareevenmoreimportanttotheirearlysuccessconsider-ingthetime,costandwaningimpactoftraditionalmedia.Whereastheachievementofsymbolicbrandisaboutarrivingatapointofdifferentiationintheconsumer’smind,theachievementofmemeticbrandisaboutaligningyourbusinessbehindamaximthatmayresonate44acrossmanydiverse,existingidea
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habitats.ThinkhereofclaimslikeTheBodyShop’s“AgainstAnimalTesting”orGoogle’sunofficialmotto,“Don’tbeEvil”45thatperhapsrailagainstanentrenchedestablishment’sworldview,butareblatantattemptstoconformtoconsumersensibilitiesaboutwhatideasareworthpassingontoothers.
Uponthemomentofretrieval,sincecommunicationsarecheapandspaceisunlimited,theneedistofullysatisfythesearch.Timeandattentionaretoday’srarecommodities,butprioritytrumpsboth.Whenconsumersretrieveabrand,theyprovidepermissiontousetheirtimeandattentiontosatisfytheirsearch.Theirsearchmodeorvigilanceforinformationchangesfromtruncated(continuouspartialattention)toelongated(deepdivesbyamateurexperts)46.Again,thesymbolicbrandisatoddswithcorporatevaluecreationatthispoint.Theneedisforelaborationofaproductorcompany’svalues,slogan,pricing,stories,personality,tastes,smells,sounds,appearances,emotionalandphysicalbenefits,notsublimi-nation.Thecannedmessagecannotsatisfytheseneeds.Corporationssimplydonothavetheinternalresourcestoanticipatethecontingenciesofallsearchesortoarticulatehowtheyrelatetothesearchaccountingforthesubtlecomplexitiesofuniquelanguageandculturalsensitivities.
ThecaseofEncyclopediaBritannicaprovidesanextremeillustrationofthedynamicsfacingallcorpora-tionstosomedegree.Oneofhistory’smostrelied-uponbrandsinreferencesincethe1700semploysfewerthan100people.Howcanthisforcecompetewithaplatformlikewww.wikipedia.org,poweredbymorethan28,000volunteercontributors...allwithnearlythesametechnicalcapabilitiesasthetraditionalcompa-ny?Inanyevent,mostconsumersseekandtrustthereferencesofotherconsumersmorethanthecorpo-ration’sbrandclaims47.Mostimportantly,anyconsumermaynowhavebroadcastcapabilitiesthatcansurpassABCorCNNorNBCundertherightconditions,soitismoreriskytoleavesatisfyingeachtothesymbolicbrand.Thecorporationneedspeopleinvolvedoritwillbeoverwhelmedbythecoordinatedactionof“connectedcustomers”48.
SCVAcontendsthatthenarcoticnumbness(seefootnote14)describedbyMcLuhanexplainswhythevastmajorityofcorporationsinsistonusingthesameoldhammeroftraditionalbrandmanagementwhennewtoolsandmanagementmethodsfocusedonmaximizingsocialcapitalmustbeferventlydevelopedandemployed.
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ThetransitionrequiredisnolessabruptthanthatmomentwhenthesearchofDorothy,theTinMan,ScarecrowandLionreachesconfrontationwiththeGreatOzfaçadeandthecurtainispulledbacktorevealameremortal.Thecorporationisatriskofbeingthe“humbug”caughtshoutingintotheloudspeakersandpullingatthemechanisticleversofthepast.
IfSCVAisbroughtintovogueasacompass,thebrandestablishmentneednotfear.Theyare“cleverenoughwizards”toquicklytransformfromGreatOzintoleadershipofgreatcourage,heartandbrains.Playingaroleinpersonalidentityformationbyrecognizingtheirsocialnetworkconnectionswithcerti-fications(theScarecrow’sdiploma),testimonials(theTinMan’stickingheart)andmedalsofhonour(theLion’scourage)willbefamiliaraspectsoftheirstrategies.
Nevertheless,SCVAmanagementisnotametaphoricexercise.Forexample,homophilyorbondingandheterophilyorbridgingareconcepts,welldevelopedinsocialcapitaltheory,thatmayaddgreatvaluetocorporatesymbolicandmemeticbrandingeffortsintheageofI.A.M..Evenaquickflipthroughthefollowingremedialslideshowdemonstrateshowpowerful,existingworklikeBurt’sStructuralHolestheory,isusefulinunderstandingtoday’sbusinessenvironment:
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Socialnetworkstructuralanalysis(Burtisjustoneexample)cantakebusinessmanagementandvaluecreationstrategyfarbeyondsuchsimpleillustrations.Beginningwiththepremisethatsocialcapitalisacompetitive“factorasroutinelycriticalasfinancialorhumancapital”,“allthemoretruewhenfinancialandhumancapitalareabundant–whichinessencereducestheinvestmenttermintheproductionequationtoanunproblematicconstant”(Burt,1992)(i.e.theforcesbehindrapidcommoditizationhigh-lightedinFig.1),StructuralHoletheoryelaboratesthekindsofadvantages,substanceofadvantagesandthesocialstructuralconditionresponsibleforadvantages,providingaframeworkthatmayguideactionsintendedtomaximizesocialnetworksforbetterreturnsoninvestment.(SeeFig.1649)
Understanding the Shift ThroughBurt’s Structural Holes Theory
Created by Michael Cayley, BPR, APMCP, MBA
Network images courtesy of Valdis Krebs.
Figs 11 to 15 from “Introducing Social Capital Value Add”
Broadcast Paradigm To The Individual As Medium
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Competitive Advantage of Structural Holes
Kind of Advantage
Information Benefits
Control Benefits
Substance of Advantage
Access, Timing and Referrals
Tertius Gaudens, Entrepreneurial Motivation
Social Structural Condition Responsible for the Advantage
Contact Redundacy & Structural Holesnetwork trust, size & diversity cohesion & structural equivalence efficient-effective networks structural holes & weak ties
Structural Autonomyholes & entrepreneurial opportunityprimary holes & constraintsecondary holes & constrainthole signature & structural autonomy
Conclusion: Players with contact networks optimized for structural holes – players with networks providing high structural autonomy – enjoy higher rates of return on their investments because they know about, have a hand in, and exercise control over more rewarding opportunities.
}
A Question of Opportunity
Profit = Investment + Rate of Return
A Question of Production
Fig. 16
Forexample,throughBurt’svision,businessmanagementmaycometoseehowtheageofI.A.M.markstheendofbroadcast’s“tertiusgaudens50”positionbetweenthecorporationanditscustomers,questiontowhombroadcast’serodingcontrolandprofitswillaccrueandbringtotheforeinvestments,plansandactionsthatarefocusedonachievingthepowerinnetworks51.Developingexpertiseinsuchnewstructuralmanagementmethodsrequiresunderstandingthattraditionalbrandmanagementwasdevelopedforthebroadcastparadigmandsoisinexorablyfocusedonbroadcast-drivenstrategy.
WhyintroduceSCVAwhenbrandvaluationandotherschoolsofvalue-basedmanagementsuchasEco-nomicValueAdded52(genericallyknownaseconomicprofit)arealreadywellknownanddonotrequiredelvingintoentirelynewareasoftheoryandcomplexity?
Thefirstanswertothisquestionis,asdescribedearlierinthispaper,andmoredirectlyinmypreliminaryinvestigationofthistopic,“IsThereMotiveforCorporateSocialCapitalValuation”(2007),clearlybusinesshasreachedavaluecreationpointofinflection.CompanieslikeGoogleandAmazonhavebrandvaluationsamongthe100mostvaluableintheworld,overtakingdecades-oldbrandswithafractionofthetimeandmoneyinvested.Byanyexistingdefinition,thepremiumvaluationspaidforFacebook,MySpace,YouTube
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andmanyothercompaniesincludingeBay’sUS$2.6billionacquisitionofSkype(sincewrittendownbyUS$900-million,aninterestingmoveworthfurtherstudy),arenotattributabletobrand.Onaproductlevel,theexpectationsofconsumersthatholdabrandaccountableforquality,priceandothermarket-ingfactorsandenableacorporationtochargeahighermarginforbrandedproductsarescaledupintheI.A.M.eratonewlevelsofinfluence.Brandrelatedvalueaddedearningsaresubjectedtonewrisks.Inshort,delvingintoentirelynewareasoftheoryandcomplexityisexactlywhatisneededforcorporationstosurviveandmaybeeventhriveinthenewcompetitiveenvironment.
LikeSCVAcomingafterbrand,StructuralHoleswasintroducedtwentyyearsafterthesimplerandwellknown“StrengthofWeakTies”argumentintroducedbyMarkGranovetter.“Weaktiesandstructuralholesseemtodescribethesamephenomenon”(Burt,1992),justasInterbrandhasmeasuredGoogle’ssuccessrightalongsideoftraditionalbrandstorieslikeCoca-ColaandHonda.
LetusavertelaborationhereoftheStrengthofWeakTiesargument,althoughitshouldbeausefulmodelforunderstandingmemeticbrandwithinanetworkedparadigm(i.e.theeraofI.A.M.)andtouchonlyuponBurt’sreasonsforpersistingwiththeStructuralHolesargument.Firstly,hearguesthattieweaknessisacorrelate,notacause.Example:Googlebecomesoneofthemostvaluablecompaniesontheplanetandthereforeappearsasnumber20onthelistoftheworld’smostvaluablebrands(Interbrand,2007),yetGoogle’svaluehasnotbeencreatedbybrand.
Secondly,“byshiftingattentionawayfromthestructuralholeresponsiblefortheinformationbenefits,tothestrengthofthetieprovidingthem,theweaktieargumentobscuresthecontrolbenefitsofstructuralholes”(p.28,Burt,1992).Bingo!
Therearemanyinspiringexamplesofcompaniestakingastructuralapproachtostrategy,includingtheworkofWendiBackleratBostonConsultingGroupandtheclientsofValdisKrebsandJohnMaloney.TheInternationalNetworkforSocialNetworkAnalysis,foundedin1978byBarryWellman,bringsto-getherabout1000members,primarilyacademics,manyofwhomconsultwithcorporations.PopularbookandblogauthorSethGodinhasobservedaclassofafewmillion“Digerati”whoarededicatedto
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“usingthelearningtoolsbuiltintotheNettogetsmarter,faster”(Godin,2005)andhehimselfevangelizesmarketingmethodsalignedwithSCVA.HoweverGodinalsonotestheminoritystatusoftheseexamples.Hedescribesanewdigitaldivideseparatingsuchearlyadoptersfromtherestofbusiness’investorsandmanagers.
SCVAisanattempttoappealtothesensibilitiesoftheearlymajority,shiftattentionawayfrombrandinbusinesscirclesandbringattentionandinvestmenttoradicallynewmethodsofvaluecreation.ThereisnotmuchherethatwillimpresstheDigerati.ThomasFriedmanhasattemptedtodrivebottom-upadop-tionwithagiganticmetaphorandeducationalefforttargetedatindividualsinTheWorldisFlat.MalcolmGladwellpicksuponassociatedtacticalmarketingcommunicationsdynamicsinTheTippingPointandDuncanWattsisprovocativeatthelevelofproduct/ideapositioninganddesign.SCVAwouldliketofacilitatethiscrossingofthechasmbyplacingthetypicallyunseenstructuralsourcesofcorporatecontrolinthenetworkedagedirectlyontheboardroomtableusingthecarrotofincreasesincorporatevalueandthestickofperformancemetrics(alongwithaWizardofOzmetaphortokeepthemarketingfolksawake!).
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SCVAisbasedonthepremisethatsocialcapitalisprimaltohumaninteraction.Itthereforeconcernseveryindividual,everysocialconnectionandisthenapplicabletoeverycorporation.Themethodislikelytobetestedearlybyitsusefulnessinevaluatingonlinesocialnetwork-orientedcompanieslikeFacebookandMySpacewhichderiveallormostoftheirrevenuesfromsocialcapital.IntheeraofI.A.M.,allcompa-niesarealreadydirectlyimpactedbytheeffectsofnewscalesofsocialcapitalortheyhavetheopportunitytotakeadvantageofit.Concurrentwiththisindividualempowermentorperhapsconsistentwithit,isourarrivalatatimeofawarenessrelatedtoourcollectiveimpactonuniversalqualityoflifeandourenviron-ment,alongwithanaccompanyingsenseofaccountability.Socialcapitalmatterstoeverybusiness,bigorsmall,localorglobal,B2CorB2B.Itispredictablethenthatthemethodmayalsobevaluablewhenappliedtoanycorporationinsuchdiverseindustriesasthemindcanimagine,includingretail,fast-mov-ingconsumerproducts,oil&gas,transportation,entertainment,hospitalityandhealthcare,tonameafew.SocialcapitalmeansfarmoretoCoca-ColathanCoca-Colameanstosocialcapital.
ThegoaloftheSCVAvaluationmethodistoplaceadollarvalueonacompany’smostpromisingsocialcapital,calculatedasnetpresentvalue(NPV),ortoday’svalueofearningsthatacompany’sSCxisaccount-ableforinthefuture.ThisnumberwillbecomethebesttoplinemeasureofhowSCxisdrivingacompany’seconomicperformance.AswithallvaluationmethodsSCVAisasnapshot,basedoncontextatapointintime,oftheoverallworthofacompany’sSCxthatenablesinvestorsandmanagerstocomparethecom-panytoitscompetitors,itshistoryandtotrackitsactualperformanceagainstprojections.
Theoverarchingprinciplesofthemethodaretransparency,simplicityandaboveallconsistency.
Whilethemethoditselfiseasilyunderstood,canbeexecutedwithavailableorcheaplydevelopedtech-nologiesandisbaseduponacceptedaccountingandfinancialmanagementpractices,themajorimpedi-menttoadoptionofSCVAisthatitcannotbederivedwithouttheco-operationofthecompanybeingvalu-ated.Socialcapitalisaproductofsocialconnections.Toobtainanaccuratesnapshotofacompany’s
Over the Rainbow:The SCVA valuation method
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socialcapital,wemusthaveanaccuratereportdetailingwithwhomthecompany(eithercorporatelyorviaitsagentsandemployees)isengagedinmeaningfulinteraction(i.e.interactioninvolvingtheintrinsicandextrinsicelementsofsocialcapital).FutureworkonSCVAwillfocusonthedevelopmentof:
•atechnologysolutiondesignedtoeasethevaluationprocessbyremovingbarrierstodataex-changewhileaddressingtheprivacy,securityandcompetitiveconcernsoftheparticipatingcorpo-rationsandindividualsinvolved,and:
•aconsistentapproachtodeterminingwithwhomthecompanyisconnectedbaseduponpubliclyavailablesources,andthenaugmentsthiswithamodeltoestimatetheunknowns,perhapsprovidinganaccompanyingaccuracynotationthatisfamiliaralongwithmostsample-basedsurveyresearch.
Thesemayseemlikediscouraginghurdles.HoweverreflectionupontheadoptionofthebrandvaluationtechniquesadvancedbyInterbrandprovidesperspectiveonthecontextinwhichtheymaybeovercome.
In1988,London’sInterbrandconductedtheworld’sfirstbrandvaluationforRHMGroupintheUK53,afoodcompanyfightingoffahostiletakeoverbid.AyearlaterInterbrandwashiredbyGrandMettoconductavaluationofthePillsburybrandportfolioaspartofa$5.2billiontakeoverbid.“Itwasthewaveofbrandacquisitionsinthelate1980sthatexposedthehiddenvalueinhighlybrandedcompaniesandbroughtbrandvaluationtothefore.”54InthecontextofMicrosoft’s$45-billionhostiletakeoverbidforYahoo!,thetimeandmoneythatwillberequiredtosolvetheproblemsoutlinedabovedonotlooksodaunting.UsingtheSCVAargument,Yahoo’sboardmaypresentaplantorefocusitsbusinessontheassetsthatoriginallymadeitaleaderandoutlinehowamergerwithMicrosoftwoulddilutethequalityofitsfutureearningsandperhapsencumberanystructuralassetsithastocompetewithGoogle,i.e.socialnetworksthataremaximizedforsocialcapital.Microsoft,ontheotherhand,maybeabletojustifyahigherbid.AsthevolumeoftransactionsliketheacquisitionofYouTube,thewritedownofSkype,theinvestmentinFace-bookandmanylowerprofiledealsincreases,opportunitiesexist.IfSCVAhasmerit,itmayemerge.
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Inaddition,workingfromtheinsightthat“knowledgediffusionassociatedwithscience-basedinnova-tionstemsfromthenormofopennessandincentivesforpublication”55,SCVAwillpursueanopenandpublication-focusedstrategy.PublicationhasbeenakeyfactorcontributingtothediffusionofSternStew-art&Co’sformulaofEconomicValueAddedandInterbrand’sbrandvaluationmethod.In1988,SternStewartlaunchedTheJournalofAppliedCorporateFinanceanditsprincipalshavereleasedanumberofbooksandarticlestoadvancetheirconcepts.ThroughsevenyearsofpublishingtheirBestGlobalBrandsstudy,mostofthemincollaborationwithBusinessWeekmagazine,Interbrand’sworkhasrisentoberegardedasthethirdmostsought-afterbenchmarkamongthetop500CEOsandCFOsintheUSaccordingtoastudybyPRWeek(Interbrand,2006).Giventhedramaticchangesinpublicationdynamicsthataredetailedinthispaper,ifSCVAhasmerit,itispossibleitsbasicideaswillspreadandbeeffec-tivelydevelopedveryquickly.CanyouDigg56it?CanyouhelpmeChangeThis?
SCVA’svaluationapproachisaderivativeofbrandvaluationtechniquechampionedbyInterbrandandeconomicprofitadvancedbySternStewart&Co.’strademarkedformulaofEconomicValueAdded,bothofwhicharederivativesoftheoverallpracticeofvaluebasedmanagement57.ThethreecomponentsoftheSCVAformulaareFinancialAnalysis,SCxFactorandtheSCxInventory.
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1. Financial Analysis
Humancapitalistheprimarysourceofcompetitiveintangibleearningsfortoday’scorporations.SoamajorchallengeforSCVAistoproposeaconsistentapproachthathighlightsonlytheportionofhumanactivitybehindSCx,anewdriverofcorporategrowthandvaluethatdeservesparticularmanagementattention.
Afterall,atelephonecallisaformofsocialmedia(albeitsynchronicandonlyrarelypublished58)andmostem-ployeeactivityistakenupbyaplethoraofessentialpreoccupations(learning,meetings,planning,selling,reporting,routinecorrespondence,checkingFacebook,talkingtosomeoneabouttheweekend!,etc.)Coor-dinatingmanufacturinginvolveshumaninteraction.Brandevolvesoutoftheconnectionsbetweenowners,managers,employees,agenciesandcustomersofthecorporation.Socialcapitalisinvolvedinalloftheseactivitiesandthereforeallrevenuesofthecompany.
Recognizingthesocialcapitalinvolvedinalloftheseage-oldoperationsofthecompany,SCVAmain-tainsthatmostofthisactivityisalreadymeasuredbytraditionalaccountingmethods,andperformancealongthesemetricsisbestmeasuredandtrackedbyaccountingprofit.Burtmightdescribetheseaspectsofthebusinessasinvestmenttermsintheproductionequationthatareanunproblematicconstant.
Forexample,thetangibleassetsofcorporationsareincreasinglysubjectedtoglobalforcesofcommod-itization.Competitiveadvantagesattributabletoassociatedlowercostsmayerodequickly.ParticularlyindevelopedeconomiessuchastheUnitedStates,managementoffixedassetsiscriticalasfreertradeandcheaptransportationandlogisticshasbroughtincrediblecompetitivepressurestobear.Inthiscontext,fixedassetsaretypicallynotviewedasthemostpromisingsourceofgrowthincorporatevalue.
GettingatSCxbeginsbycalculatingacompany’seconomicprofit(EP)59,whichisawell-knownprocesswidelyacceptedbyfinanceexpertsandfirmlyrootedincorporatefinancetheory.Economicprofit’smajorcontri-butionistoaccountforthecostsofcapitalrequiredtofundtheearningsandgrowthofthecompany.Inaddition,economicprofitisthe“bigbucket”thatcatchesallofthecashflowingfromthe“valueadded”
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performanceofthecompany(i.e.performancethatprovidesreturnsoverandabovethecostofcapi-tal).Partsofthisstreamareattributabletotangibleassetssuchasequipment,materialsandlandandthemanagementneededtooperatethemeffectively(superbsupplychains,speedydistributionmethodsandthriftyoperations).Otherpartsofthestreamflowfromthetalentedhumancapitalrequiredtomarket(brandisincludedhere),developanddirectthecompanytowardsthedeliveryofexceptionalperformance.
SCVAsetsouttodistinguishaparticularstreamofcashflowingintotheEPbucket,sothestartingpointforcalculatingSCVAisasix-yearprojection60ofeconomicprofitbaseduponaconsensusviewfromasuf-ficientsampleofqualifiedanalysts.
Asweshallseeinthefollowingsections,SCVAassertsthatintheageofI.A.M.,oneofthemostimportantsegmentsofearningsthatcorporationsmustcometounderstand,developandtrackarethosesubjectedtofluctuationduetoformsofscaled-upsocialcapital(SCx)likethememeticbrand.Ideally,SCxwillbethefastestgrowingsegmentofearnings,itsuniqueroleinB2Bbusinesseswillrequireuniqueman-agementanditisessentialtotheeffortsofallcompaniesdefendingbrandsestablishedduringthebroadcastera(like‘DanRather’or‘Dell,’(see“DellHell”)orlaunchingrelativelynewbrands(likeAgentProvocateurwho,whencountedinJulyof2007foraTimesOnlinearticle,hadreceived360millionviewsoverfiveyearssincereleasingthisKyleMinoguevideo).SCVAleavesalloftheotherearningsgeneratedbythecorporationintheEP“bucket”,includingthoseattributabletothe“realworld”andbroadcastmarketingtechniqueslikethesymbolicbrand,whicharematuringbusinessactivitieseventhoughtheyarelikelytobethelargestportionofearnings,particularlyinestablishedconsumerfacingcompanies.
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2. SCx Factor (SCxF)
TheobjectiveofSCxFistobringintofocustheportionofearningsthatarenotattributabletothefungibleresourcesofthebusiness.
Economicprofitisalsothestartingpointforbrandvaluation(BV),whichthenoutlinesaseriesofad-justmentsthataresubjectivelyarrivedatthroughconsultationwithanalystsandsurveywork.ThefirstadjustmentsBVmakesaretoaccountforcashflowsthatareattributabletocertainlegalintangibleassetssuchascopyrights,patentsandtrademarks.Next,brandvaluationtechniquereliesonthedevel-opmentofaproprietary“roleofbrand”factortodeterminewhatpercentageofintangibleearningsaregeneratedbythebrand,baseduponsurveyworkstudyingthebrandsandthecategoriesexamined.Thesurveyworkisanestimateoftheminds’ofbuyersastheyreflectupontheirdecisionmadeatthetimeofpurchase.Forexample,if60%reportbrandwasafactor,BVattributes60%ofintangibleearningstobrandandtheremainderofintangibleearningsistypicallyattributedtomanagementexpertise.
SCVA,ontheotherhand,reliesonaseriesofauditsandratiostomakeitsdeterminations.
Digital Footprint Audit–Thisisacustomizedsearchoftheentireinternettoidentifyeverypieceofcontentthatcontainsareferencetothecorporationbeingvaluated.ASeptember13,2006reporten-titled,“TheForresterWaveTM:BrandMonitoring,Q32006”evaluatessevenleadingvendorswhoarecapableofperformingthisauditincludingBiz360,Brandimensions,Cymfony,Factiva,MotiveQuest,NielsenBuzzMetrics,andUmbria.TheoutcomeoftheDFAuditistheTotalDigitalFootprint(TDF).
Social Identity Audit–ThisisananalysisoftheDigitalFootprintresultstodistinguishallofthecon-tentthatisattributedtoanindividualidentityandcreatealistofallassociatedidentities.TheSIfactor.
Social Engagement Audit–Thisisacollectionandanalysisoftherecordedcorrespondencethatthecor-porationhaswithindividualidentities.Thisincludesemail,ontheWebandthroughsubscriptions,billing,warrantyregistrations,administrationandallcustomerlists.TheSEfactor.
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Social Capital Opportunity–IdentitiesdiscoveredduringtheSocialIdentityAuditarethensearchedformatchingidentitiesfromtheSocialEngagementAudit.ThesematchesprovidethesumSocialCapitalOpportunity(SCO).
SCO/TDF=SCxF
SCxF(EP)=earningssubjectedorexposedtoSCx.
SCxFdoesnotdelveintothequalitiesofthesocialcapitalortheassociatedearningsthatitisidentifying(SCxInventorydoes).Itreliesontwobasicassumptions:
i. An account of a company’s total digital footprint (i.e. its entire existence on the web) is equal to an account of a company’s total value added earnings.
Obviously,thisassumptionneedsfurtherresearchandmodeling.Itisnotvalid,asatJune2007whenbroadbandpenetrationrates,eveninOECDcountries,standatroughly19per100inhabitants61.Itislesstrueofacompanythatdealsinthetradeofcommoditiessuchassugarorsugarydrinks,thancompaniesborninthewakeoftheinternetbrowserandwhosefortunesaremoreclearlylinkedtobroadband.SCVAwillbenefitfromamethodtomakeadjustmentstomorecloselyalignTDFanditsproportion-ateshareofeconomicprofit.ItisimportanttokeepinmindthatEPisfundamentallyameasureofacompany’sabilitytoproducestable,valueaddedperformanceandthiskindofperformanceoftenrequiresmanagerstomakedecisionsinanticipationoffuturetrends.Theusefulnessofthisassumptionisdepen-dentuponhowitcontributestoSCVA’smission.Trendsareconvergingintherightdirection.Thisassump-tioncontainsabiasthatisgoodforcorporations.ItistruethatmanycompanieslikeGoogleandAmazon,whichhaverecentlyshownthemostremarkablestoriesofgrowthincorporatevalue,trendinthedirec-tionofTDF=EP.ItistruethatthesegmentofbusinessrepresentedbyTDF,givenitscorrelationtoattrac-tiveandinfluentialconsumers,isaveryimportant-perhapsthemostimportant-segmenttotrack.Itistruethatallcompaniesareexposedtothesamedynamicsandneedtolearntocopewiththesetrends.
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Acompany’spresenceinthe“realworld”anditspresenceontheInternetarebeginningtobecomeone.SCVAprojectsthatwearemovingtowardstheconvergenceofTDF=EPasbroadbandpenetrationcontin-uestoproliferate,I.A.M.continuestoemergeandcorporationsbecomeincreasinglyconnectedthroughconcurrentandrelatedtechnologytrends(forexample,throughgeotagging62andinventorycontrolsenabledbyradio-frequencyidentificationtagsoneveryitematWal-Mart,etc).
ii. The portion of a company’s web presence that is a product of meaningful social interactions correlates to the portion of value added earnings that are subjected to these interactions.
Thisassumptionissubjecttothesameforcesasdescribedabove,exceptitzeroesinontheportionofdigi-talfootprintthatisaproductofSCx.Unlikeapproximationsbaseduponsurveywork,adirectlinktosalescanbeestablishedinthecaseofSCxF,sinceSEfactorisdevelopedfromcustomerlists(whichcouldbetrackedasasubsetwithintheSEAudit).ItmaybeusefultobreakouttheportionofSCxFthatisdirectlylinkedtosalesformanagementpurposes,butSCVAarguesthatwholeSCxF,asdetailedhere,isthebestforarrivingatthetopmeasureweareseekingbecauseitencompassesalmostalltheinfluencesofSCxandthereforeaddressesalmostallearningsthatareexposedtofluctuationsduetoSCx.
WhetherportionsofSCxarepositivelyappliedtodevelopearningsorareanegativedragonearningsisnotdeterminedbySCxF.Forexample,aGooglesearchfor“Wal-Mart”returnsmorethan55millionwebpages.AGooglesearchfor“AgentProvocateur”returnslessthan2.5millionwebpages.Forthemostpart,Wal-Martisabusinessthatwasbuiltpriortotheinflectionpointinvaluethatwehavedescribedabove.Wal-Mart’svalueaddedearningsmayprovetobehighlyexposedtoSCxFand,intheabsenceofstrategiestofocusonthisexposure,mayexperiencegrowingrisksastheeraofI.A.M.emerges.AgentProvocateurhasadoptedmethodsandtacticsdesignedtoleverageSCx.ItsbusinessmayalsobehighlyexposedtoSCxF.However,thisexposurecouldbeastablesourceofhighmargin,rapidgrowth.SCxFsimplyillustratestherelativeexposurethatanycompanyhastoSCxinawaythatisconsistent,mean-ingfulovertimeandpowerfulforinvestorsandexecutivemanagement.
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3. SCx Inventory (SCxI)
TheobjectiveofSCxIistobringintofocustheriskstoearningsthatareattributabletoSCx,i.e.,aspe-cific,newassetdiscountratethatisnototherwiseaccountedforincorporatemanagement.
UsingtheWal-Mart/AgentProvocateurexamplecitedabovewehavenotedthatSCxFdemonstratesthatbothcompanies,indeedallcompanieswillhaveaportionoftheirvalueaddedearningsexposedtotheeffectsofSCxastheageofI.A.M.emerges(alongwithothertechnologicaladvancementsthatleadtoTDF=EP).ThequestionthatSCxIaddressesistherelativeriskoftheseSCxexposedearningsmaterializingovertheprojectionperiod.Inderivingnetpresentvalueofforecastedearnings,thestandardpractice,ac-ceptedbyfinanceprofessionalsandrootedinfinancialtheory,isthedevelopmentofadiscountratethatrepresentstherelativeriskprofileofearnings,inthiscasevalueaddedearningsthatareexposedtoSCx.Ofcourse,thediscountratemusttakeintoconsiderationthetimevalueofmoney.ThecalculationofeconomicprofitrequiredasastartingpointforSCVA,presupposesthecalculationofWeightedAver-ageCostofCapital(WACC)63.Consultingwithanalystsandmakingadjustmentstoarriveatacompany-specificprojectedWACCthatcoverstheprojectionperiodisacommonpracticeandprerequisitetoarriv-ingatameaningfulfactorhere.
ThemorechallengingrequirementistodevelopamethodofSCxquantificationwithconcreteterms.Finaldevelopmentofthismethodandthesetermsisbeyondthescopeofthispaper;however,itisimportanttoestablishboththetheoreticalandpracticalpossibilitiesthatsupporttheSCVAargument.
“Themeasurementofsocialcapitalwithafocusonindividuals’‘access’tosocialcapital,consideringadiversityofmeasuredresources,andincludingresourceavailabilityindicators,has...beenpursuedfollow-ingtwomethodologicalpaths.Theoldestmethodisthe“namegenerator/interpreter’approach(McCal-listerandFischer,1978)”64.“Asecondmeasurementinstrumentthathasbeenusedtocollectaccess-typesocialcapitaldataisthe‘positiongenerator’(LinandDumin,1986;Linetal,2001)”(p.6,Snijders,VanDerGaag,2004).Bothmethodshaverelativestrengthsandweakness.“Toovercomethesedisadvantages
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Snijders(1999)proposedtocombinethepositiveaspectsofthepositiongenerator(economy,internalvalid-ity)andthenamegenerator/interpreter(detailresourceinformation)bymoreclearreferraltospecificresources,andomittingnameidentificationfromnamegeneratorquestions.Theresultinginstrument,the‘ResourceGenerator’,asksaboutaccesstoafixedlistofresources,eachrepresentingavivid,con-cretesubcollectionofsocialcapital,togethercoveringseveraldomainsoflife”(p.7,Snijders,VanDerGaag,2004).
OnceagaintheexistingworkinthestudyofsocialcapitalwillprovidefertilegroundforthedevelopmentofSCVA.Areliable,consistentSCxIwillbebuiltontheexperiencesofthenamegenerator/interpreter,positiongeneratorandresourcegeneratorapproaches.ApreliminaryreviewsuggeststhatdesigningsuchaSCxIisfeasible:
•Goalattainmentisclearandcommonacrosscorporations,i.e.thedevelopmentandpreservationofcorporatevalue;
•common“domains”ofbusinessactivitiessuchasproductdevelopment,humanresourcesman-agement,marketing&sales,etc.mayassistindevelopingthe“fixedlist”ofsocialcapitalresourcesthataresourcegenerator-likeapproachwouldrequire;
•thenarrowscope,i.e.developingafixedlistthatisspecificallydesignedtomeasureSCx,willalsoassisttheassessmentdesign;
•employmentofonlinesurveytechnologycangreatlyreducethecostandtimerequiredtogeneratethe“fixedlist”ofresources,tomeasureandmaintainit65;
•ideallytheassessmentcanbeconductedthroughanalysisofSCO(i.e.theresultsoftheauditsnotedabove),however,evenifasurveyisrequiredtocompletetheassessment,again,timeandcostsshouldbegreatlyreducedbyreadilyavailabletechnology.
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Inverypracticalterms,SCxIcanbeenvisionedasaverticalspecializationorextensionofthetalentman-agementpracticedbymanyleadingfirmssuchasGE,EDSandmanybanksandconsultingcompanies.66SAPalreadyintegratestalentinventorymanagementand“visualizationcapabilitiestoenhanceandex-tendtheSAP(R)ERPHumanCapitalManagement(SAPERPHCM)application”.67ThedifferenceisthatSCxIwillspecificallytrackSCxresourcesavailablethroughconnectionsamongbothemployeesandassetsoutsidethetraditionalboundariesofthecorporation(vendors,consumers,resellers,analysts,etc).
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“There’s less to Facebook and other social networks than meets the eye.”
“Silicon Valley’s craze for the ‘social graph’ ... is overdone.”
“For bigger companies such as Google, the (social) graph is simply the web of links among its many users.”68.
QuotesfromtheOctober18th,2007issueofTheEconomist.
How should a global investor or senior business executive evaluate this information?
TheaboveoutlineoftheSCVAvaluationmethodisafirstdraft.Theplausibilityofthisfirstdraftisintendedtosupportademonstrationoftheneedfornewsocialnetworkstructuralmanagementmethods.ThepointhereisthatthevastmajorityofcorporationsdonotunderstandhowtotapintotheextraordinaryvaluecreationdynamicsrepresentedbyMySpaceandGoogle.NordotheyunderstandhowthebusinessfactorsliftingMySpaceandGoogleareexposingtheirsacredcashcowstonewrisks.Thispaperisacallforinvestmentinunderstanding.
InIssue12.10-October2004ofWiredMagazine,ChrisAndersonwrotea5,200-wordarticlecalled“TheLongTail”.Thisarticlecommercializedpowerlaw.Powerfulconceptswereillustratedwithcontempo-raryexamplessothatthe“restofus”couldstarttoputthemtoworkinourbusinessplans.
Follow the Yellow Brick Road: The need for new structural management methods
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AsonereviewsMatthewJackson’s2005paper“TheEconomicsofSocialNetworks,”thethoughtoc-cursthatthereisanurgentneedtolockChrisAndersonandMattJacksoninaroomtogether.HereisaquotefromJackson:
“Anotherapplicationofobviousimportanceinunderstandinghownetworkstructureimpactsbehavior,istounderstandhow
informationpropagatesthroughanetwork,andinparticularhowpeopleinasocialnetworklearnfromeachother.Taking
aBayesianperspectiveisastandardapproachineconomicmodeling,andanobviousstartingpoint.ThemodelofBala-
Goyal(1998)buildsfromthisperspective(seealsoAllen(1982)andEllisonandFudenberg(1993,1995)).
BalaandGoyal(1998)makeaverysimplebutimportantpoint.Consideraseriesofagentsconnectedinasocialnetwork
whoallfacethesamestationary,butrandom,environment.Thenetworkisfixedandtimeprogressesindiscretedates
whereagentseachchooseoneofafinitesetofactionsateachdate.Thepayoffstotheactionsarerandomandtheirdistri-
butiondependsonanunknownstateofnature.Theagentsareallfacedwiththesamesetofpossibleactionsandthesame
unknownstateofnature.Theyallhaveidenticaltastesandfacethesameuncertaintyabouttheactions.Overtime,eachagent
observeshisorherneighborschoicesandoutcomes.
Themainconclusionisthateventuallytheagentswillconvergetochoosingthesameaction,basedontheobservationthatover
timeplayerswhoobserveeachothersactionsandpayoffsshouldeventuallycometochoosethesameaction.Theintuition
isasfollows.Weneedonlyreasonthatanytwoneighborsearnthesamelongrunutility,asthisimpliesthesamemust
betruenetwork-wide.Ifoneneighborisdoingbetterthananother,thentheneighborwiththepoorerpayoffwilllearnfrom
observingtheotheragent,andeventuallychangebehaviortoobtainasimilarpayoff.Notethatthefactthatallagentsend
upwiththesamelongrunutilitydoesnotmeanthatallagentsconvergetochoosingtherightaction.However,Balaand
Goyalshowthatifthenetworkislargeenough,andthereareenoughagentswhoareoptimisticabouteachpossibleaction
spreadthroughoutthenetwork,thentheprobabilitythatthesocietywillconvergetothebestoverallactioncanbemadear-
bitrarilycloseto1.Theideaisthattherewillbesufficientlymanyexperimentsbytheoptimisticagentssothatthetruepayoff
ofeachactionwillbelearnedandthenthesocietywillconvergetotherightaction.”
Thatishowanetworkeconomistexplainshope.Ithink.
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Allreadersareaskedtosavethequoteabovesothattheymayeasilycutandpasteitintothecommentssectionofanyblograntaboutthedangersofbringinggreatercorporateattentiontothatgreatbastionoffreedomofexpression,democracyandanonymity–theInternet.Thatshouldjustaboutshut“theconversa-tion”down(inmorewaysthanone!).
Jacksonisoneofacademia’sbestcommunicatorsonthestate-of-the-artofthescienceofsocialnetworks,yethisworkneedsfurthertranslationforbusinesspeople,moresotheworkofmanyofhiscontemporaries69.“Themanyregularitiesinnetworkstructureacrossapplicationsmakesascientificstudyofsocialnetworksapossibility.Thedeepandpervasiveimpactthatnetworkshaveonbehaviormakessuchastudyanecessity.”70
Forexample,arecentstudyconductedatHarvardUniversitymayprovidealternativeinsightintohowtocompetewithApple,acompanythatisabletomaintainhighmarginsinconsumerelectronics,anindustrysymptomaticofrapidproductcyclesandcommoditization.StrengthofbrandanddesignaretypicallygivenmostofthecreditinApple’scase.
Thestudy“HowMuchisaFriendWorth?DirectedAltruismandEnforcedReciprocityinSocialNetworks”(originallytitled“SocialCapitalinSocialNetworks”)findsthat“decision-makers...passatleast50percentmoresurplustofriendsasopposedtostrangerswhendecision-makingisanonymous.Undernon-anonymity,transferstofriendsincreasebyanextra24percentrelativetostrangers,butonlyingameswheretransfersincreasesocialsurplus.Thiseffectincreaseswiththedensityofthesocialnetworkstruc-turebetweenbothplayers.”71
Cancorporationsbefriendswithindividuals?Theycancertainlytakegreatsteps,particularlyintheageofI.A.M.,toreducethelevelofanonymityandsocialdistancebetweenthemandtheircustomers.Perhapsaninvestmentinastrategytoreduceanonymityandincreasethedensityofsocialnetworkstructurewillcostlessandleadtohighermarginsthanabrandcampaignortheadditionof4Gofmemorytoanmp3player.
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Perhapsmostcompellingtoourargumentthatnewsocialnetworkstructuralmanagementmethods,likeSCVA,areneededisthemethodologyemployedinthisstudy.Alloftheexperimentswereentirelyweb-basedandforpartofthestudy,informationonsocialnetworkswascol-lectedthroughanonlinetriviagameatwww.facebook.com.Morethan90percentofHarvardunder-graduatesaremembersoftheservice(Leider,Mobius,Rosenblat,Do,2007).Facebookisaservicethatenablesuserstoposttheironlineprofiles,broadcastupdatesoftheiractionsandinterestsandpostbiographicalinformation,aswellasconnectwithfriends.Ithasallofthecharacteristicsenablingnewscalesofsocialcredentials,socialrecognitionandidentitythatwehighlightedasevidenceofnewscalesofsocialcapitalearlyinthepaper.FacebookuseisnotlimitedtothestudentsatHarvard.ItisnowthemostpopularwebsiteintheU.S.for17to25yearolds.72Demographically,thetrendsofnewscalesinsocialcapitalandI.A.M.aregrowing.TwooutofeverythreeCanadiansareactiveonsocialmediasites.73
Shouldtheintroductoryargumentherepassthetestsofreviewers,manynextstepsintheresearchagendaaresuggested.Asnotedabove,muchworkwouldberequiredtomaketheformulaforSCVAvaluationcredibleandworkable.Inaddition,acompleteexaminationofnewscalesoftheextrinsicele-mentsofsocialcapital,inparticulartrustandsocialnetworkstructure,wouldbeusefulformarketingprofessionalsregardlessoftheacceptanceofSCVA.Itishowever,moreinterestingtoendoffwithsomehopeforfuturestudyofthe“transfersthatincreasesocialsurplus”(Leider,Mobius,Rosenblat,Do,2007).
“Economictheorysuggestsatleastthreemechanismswhichinducethedecision-makertotreatthepartnermoregenerouslywhenthereisaprospectoffutureinteraction.First,thedecision-makercangrantfavorsbecausesheexpectsthepartnertorepaytheseinthefuture(enforcedreciprocity)...Second,thepossibilityoffutureinteractiongivesincentivesforthedecision-makertosignalheraltruistictypetothepartner(BenabouandTirole2006).Third,psychologicalgametheoryhasmodeledpreference-basedreciprocitywheredecision-makersbehavegenerouslybecausetheyexpectthepartnertobehavekindlytowardstheminsomefutureinteraction,andbecausetheyderiveutilityfromrewardingkindbehavior(Rabin1993,DufwenbergandKirchsteiger2004)”(Leider,Mobius,Rosenblat,Do,2007).
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Thedefinitionofsocialsurplusthatmost“iPodkiller”strategiesemployisgreater“utility.”TheyseektobeatiPodbybuildingabettermousetrapwithbetterproductfeaturesandbetterdesign.Rebatestrate-giesandtypicalloyaltyprograms(earningpointsforrewards)arealsowidelytriedmethods.
Itisasocialsurplusdefinedasgreatersignalofaltruistictypethatmaybethemostinterestingtostudyfurtherifalinkbetweensocialcapitalandcorporateearningscomestobeaccepted.Thereissomeevi-dencethatsocialcausesarethekindofmaximbehindwhichbusinessmayaligntheiractivitiesastheydevelopmemeticbrands.Forexamplejustthetop5causesontheCausesapplicationonFacebookreachabout7.5millionpeople.74
Itbringswithitthepossibilityofnewmotivesforcorporatesocialresponsibility.Notonlywillthecor-porationbeaskedtobemoreaccountableforitsactions,perhapsthecorporationcanbeencouragedtoinvestinwaysforitssocialconnections–consumers,suppliers,employees,investors,owners,analystsandvalueaddedresellers–tomovebeyondfeel-goodCSRtacticstowardsarelationshipinwhichtheoppor-tunityisseizedbyeachforgingidentitiesbasedupongreatersocialcontribution.
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1PaulFesta,“KeyDatesinBrowserHistory”,CNETNews.com13Oct.2004,Dec.2007,<http://www.news.com/Netscape-Bowed%2C-but-not-broken/2100-1032_3-5406682.html?tag=st.nl >2SteveLohrandJohnMarkoff,“DealisConcludedOnNetscapeSaletoAmericaOnline”,TheNewYorkTimes25September1998,Dec.2007,<http://query.nytimes.com/gst/fullpage.html?res=9E03EEDA1739F936A15752C1A96E958260&sec=&spon=&pagewanted >
3AssociatedPress,“MicrosoftInvests$240millioninFacebook”,www.msnbc.com24Oct.2007,Dec.2007,<http://www.msnbc.msn.com/id/21458486/>4“atimeinthelifeofabusinesswhenitsfundamentalsareabouttochange.Thatchangecanmeananopportunitytorisetonewheights.Butitmayjustaslikelysignalthebeginningoftheend.”Grove,AndyS.,OnlytheParanoidSurvive,Preface,1996,Dec.2007,< http://www.intel.com/pressroom/kits/bios/grove/paranoid.htm>5Lin,Nan,“BuildingaNetworkTheoryofSocialCapital”©1999INSA,Connec-tions22(1):pp.456Mediumisatermrichinmeaning.Fordefinitionssee<http://dictionary.refer-ence.com/browse/medium>,February26,20087Burt,RonaldS.,StructuralHoles:TheSocialStructureofCompetition,(Har-vardUniversityPress;Cambridge,Massachusetts,1992)pp.27-288Lin,Nan,“BuildingaNetworkTheoryofSocialCapital”©1999INSA,Connec-tions22(1):28-51,seepp.28-31forcompacthistoryofsocialcapital.9Scott,John,SocialNetworkAnalysis,AHandbook,SecondEdition,(SagePublicationsLtd,London,2000)pp.7.SeeChapter2,pp.7-37forhistoryofdevelopmentofSocialNetworkAnalysis.10Lin’sresearchspansAsianandWesternculturesandisofpersonalinterest.Myownearlyinterestsintheapplicationofsocialnetworksinmarketingbeganwithmystudy(1994)oftheculturalandeconomicsuccessfactorsofnetworkmarketingcompanies(suchasAvon,AMWAYandMaryKay)inAsiacompletedbeforelivingandworkinginChinafrom1995to2000.11“Althoughonemighthavepredictedthatthisrumor(orthatsocialmediacampaignoranotherviralvideocontest!)succeededlargelybecauseofitsinher-entcleverness(somethingthatshouldstayconstantovertime)orthegreedofInternetcitizens(somethingthatshouldstayconstantorperhapsincrease),suchexplanationsprovidelittleinsightintowhythisrumorfluctuates.”Berger,JonahandHeath,Chip,“IdeaHabitats:HowthePrevalenceofEnvironmentalCuesInfluencestheSuccessofIdeas”,2005,CognitiveScience,29,pp.195-22112Uzzi,Brian,“TheSourcesandConsequencesofEmbeddednessfortheEco-nomicPerformanceofOrganizations:TheNetworkEffect”,AmericanSociologi-calReview,Ms.#94-289,pp.1
13OlavSorenson,JeffreyS.SkollChairinTechnicalInnovationandEntrepre-neurship,RotmanSchoolofManagement,Torontoduringearlystagediscus-sionsofSCVAwiththeauthor.14McLuhan,Marshall,UnderstandingMedia:TheExtensionsofMan,(FirstMITPressedition,1994,©1964,1994CorineMcLuhan)pp.715“ItisthiscontinuousembraceofourowntechnologyindailyusethatputsusintheNarcissusroleofsubliminalawarenessandnumbness...Wehavetonumbourcentralnervoussystemwhenitisextendedandexposed,orwewilldie.Thustheageofanxietyandofelectricmediaisalsotheageoftheuncon-sciousandofapathy.Butitisstrikinglytheageofconsciousnessoftheun-conscious,inaddition.Withourcentralnervoussystemstrategicallynumbed,thetasksofconsciousawarenessandorderaretransferred...theelectricagegaveusthemeansofinstant,totalfield-awareness.Withsuchawareness,thesubliminallife,privateandsocial,hasbeenhoicked(sic)upintofullview,withtheresultthatwehave‘socialconsciousness’presentedtousasacause...”(McLuhan1964,pp.46-47)16“HomeBroadbandAdoption2007”,PewInternet&AmericaLifeProject,Sur-veyof2,200adultAmericans,FebruaryandMarch2007,releasedJune2007,<http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf >17Horrigan,JohnandRainie,Lee,“TheBroadbandDifference:HowonlineAmericans’behaviorchangeswithhigh-speedInternetconnectionsathome”,PewInternet&AmericanLifeProject,June23,2002,pp.13-1418Horrigan,John,“Broadband:WhatisalltheFussAbout?”,ThePewInternet&AmericanLifeProject,October,18,2007,pp.119Berger,JonahandHeath,Chip,“IdeaHabitats:HowthePrevalenceofEnvi-ronmentalCuesInfluencestheSuccessofIdeas”,2005,CognitiveScience,29,pp.195-22120Cornfield,Michael,Carson,Jonathon,Kalis,AlisonandSimonEmily,“Buzz,BlogsandBeyond:TheInternetandtheNationalDiscourseintheFallof2004”,PewInternet&AmericanLifeProject,May200521i.e.,“Studyingthestructureoftheenvironment(thatideaspropagatewithin,i.e.theideahabitat)isadistinguished,butsomewhatrare,approachwithinthecognitivesciences(Anderson&Schooler,1991;Brunswik,1944;Gigerenzer,Todd&theABCResearchGroup,1999).However,understandingtheenviron-mentseemsfundamentalforassessingthelikelysuccessofculturalideas(brands,productmessages,etc);anideamayberecalledquitereadily,butifitiscuedonlyrarelybytheenvironment,itmayremainquiterare.”(BergerandHeath,2005).
Footnotes
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22“Thesuccessofculturalideaswillvarywithfluctuationsintheirhabitat(fluctuationhypothesis).Wheneveranidea’shabitatbecomesmorecommon,itwillbeusedmorefrequently,andwhenitshabitatbecomeslesscommon,itwillbeusedless;usageof‘AprilshowersbringMayflowers’shouldvarywiththenumberofdiscussionsofweatherinAprilorflowersinMay.”(BergerandHeath,2005)23“Habitatprevalencemayhelpdeterminewhichideassucceedincompetition(competitionhypothesis).Althoughhabitatsmayfluctuateovertime,certainculturalrepresentationsmayconsistentlyhavemorecues,andthusmoreprevalenthabitats,thanothers.Holdingotherfactorsconstant,ideaswithlargerhabitatsshouldbemoresuccessful.”(Berger&Heath,2005)24Buzzisthesoundheardinpublicwhenalotofpeoplearetalkingaboutthesamethingatthesametime.Somebuzzformsaroundtrivialtopics,astheYahoo!“BuzzIndex”illustratesinabundance.Butbuzzcanaltersocialbehaviorandperceptions.Itcanemboldenorembarrassitssubjects.Itcanaffectsales,donations,andcampaigncoffers.Itcanmoveissuesup,down,andacrossinsti-tutionalagendas(acrossbeingissuere-conceptualizationorre-framing).Whenthesechangesoccur,buzzcanshiftthebalanceofforcesarrayedinapoliticalstruggle,andsoaffectitsoutcome(Cornfield,Carson,KalisandSimon,2005).25Mashup-Jan.17,2008,<http://en.wikipedia.org/wiki/Mashup_%28music%29>26ThroughoutSeptemberandOctoberof2004“bloggerssparkedapublicout-cryagainsttheauthenticityofmemoscitedinaCBSNewsreportaboutGeorgeW.Bush’sserviceintheNationalGuard,abuzzwhichculminatedinanapologyfromthemediagiantandtheearlyretirementofitsmostprominentfigure,DanRather.”(Cornfield,Carson,KalisandSimon,2005)27“Phenomena...duringwhichindividualsinapopulationexhibitherd-likebehaviorbecausetheyaremakingdecisionsbasedontheactionsofotherindividualsratherthanrelyingontheirowninformationabouttheproblem.”Watts,DuncanJ.,“ASimpleModelofGlobalCascadesonRandomNetworks”ProceedingsoftheNationalAcademyofSciencesoftheUnitedStatesofAmerica,Vol.99,No.9(Apr.30,2002),pp.5766,January30,2008,<http://www.sociology.columbia.edu/pdf-files/Watts06.pdf>28i.e.verylargeinformationcascades(Watts2002)29Blackshaw,PeteandNazzaro,Mike,“Consumer-GeneratedMedia(CGM)101:Word-of-MouthintheAgeoftheWeb-FortiedConsumer”ANielsenBuzzMet-ricsWhitePaper,SecondEdition,Spring2006,January18,2008,<http://www.artsmarketing.org/marketingresources/files/Consumer-Generated%20Media.pdf>30“iProspectSocialNetworkingUserBehaviorStudy”,April2007,baseduponsurveyconductedbyJuniperResearchinJanuary2007,January18,2008,<http://www.iprospect.com/premiumPDFs/researchstudy_2007_socialnet-workingbehavior.pdf >31Ipersonallybelievethesetrendsarefarmorepositivethannegative.
32Boyd,d.m.,&Ellison,N.B.(2007).Socialnetworksites:Definition,history,andscholarship.JournalofComputer-MediatedCommunication,13(1),article11.Jan.21,2007,<http://jcmc.indiana.edu/vol13/issue1/boyd.ellison.html>33McLuhan,1964,pp.1834Intense–“havingorshowinggreatstrength,strongfeeling,ortension,asaperson,thefaceorlanguage;susceptibletostrongemotion;emotional:anintenseperson.”March12,2008,<http://dictionary.reference.com/browse/intense>35A‘tweet’isaformofmicro-blogentry.36LeeRainie,Director,PewInternet&AmericanLifeProject,6.7.06,“HowtheInternetisChangingConsumerBehaviorandExpectations”,SpeechtoThink-Tank06,SetonHallUniversity,January23,2008,<http://www.pewinternet.org/ppt/2006%20-%206.7.06%20ThinkTank%20Seton%20Hall.pdf>37January23,2008, <http://en.wikipedia.org/wiki/Brand#Etymology>38“Frequencyisameasureofthenumberofoccurrencesofarepeatingeventperunittime.”www.wikipedia.org,January23,2008,
<http://en.wikipedia.org/wiki/Frequency>39“reachisdefinedasthesizeoftheaudiencewholistento,read,vieworoth-erwiseaccessaparticularworkinagivenperiod.Reachmaybestatedeitherasanabsolutenumber,orasafractionofagivenpopulation(forinstance‘TVhouseholds’,‘men’or‘thoseaged25-35’).”www.wikipedia.org,January23,2008,<http://en.wikipedia.org/wiki/Reach_%28advertising%29 >
40“Ameme,asdefinedbymemetictheory,constitutesatheoreticalunitofculturalinformation,thebuildingblockofcultureorculturalevolutionwhichspreadsthroughdiffusionpropagatingfromonemindtoanotheranalogouslytothewayinwhichagenepropagatesfromoneorganismtoanotherasaunitofgeneticinformationandofbiologicalevolution.[1]Multiplememesmaypropagateascooperativegroupscalledmemeplexes(memecomplexes).Biolo-gistandevolutionarytheoristRichardDawkinscoinedthetermmemein1976.[2]Hegaveasexamplestunes,catch-phrases,beliefs,clothingfashions,waysofmakingpots,andthetechnologyofbuildingarches.Meme-theoristscontendthatmemesevolvebynaturalselection(similarlytoDarwinianbiologicalevolu-tion)throughtheprocessesofvariation,mutation,competition,andinheritanceinfluencinganindividualentity’sreproductivesuccess.Sowithmemes,someideaswillpropagatelesssuccessfullyandbecomeextinct,whileotherswillsurvive,spread,and,forbetterorforworse,mutate.”www.wikipedia.org,February4,2008,<http://en.wikipedia.org/wiki/Meme>41Thisseemstobearelativelyoriginaluseoftheterm.Itisexternallyorientedasdescribedinthispaper.Itisinterestingthatothershaveusedthetermasanelaborationoftheestablishedideaofthecognitivelyorientedmarketingpositioning.Memeticbrandasaunifiedtheoryofbrandthatmaybeappliedconsistentlytosocialnetworkandcognitivemarketingcommunicationsisapossibilityworthyoffurtherstudyandpopularsupportinmyview.
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42“Spin outreferstoatypeofspinoffwhereacompany“splitsoff”sectionsofit-selfasaseparatebusiness.Thecommondefinitionofspinoutiswhenadivisionofacompanyororganizationbecomesanindependentbusiness.The“spinout”companytakesassets,intellectualproperty,technology,and/orexistingprod-uctsfromtheparentorganization.Manytimesthemanagementteamofthenewcompanyarefromthesameparentorganization.Often,aspin-outofferstheopportunityforadivisiontobebackedbythecompanybutnotbeaffectedbytheparentcompany’simageorhistory,givingpotentialtogrowexistingideasthathadbeenlanguishinginanoldenvironmentandhelpthemgrowinanewenvironment.”www.wikipedia.org,February8,2008,<http://en.wikipedia.org/wiki/Spin_out>43“Findabilityreferstothequalityofbeinglocatableornavigable.Attheitemlevel,wecanevaluatetowhatdegreeaparticularobjectiseasytodiscoverorlocate.Atthesystemlevel,wecananalyzehowwellaphysicalordigitalenvironmentsupportsnavigationandretrieval.FindabilityisnotlimitedtotheWorldWideWeb.Theconceptoffindabilityisuniversalandtimeless.However,withadistributed,heterogeneouscollectionofseveralbillionitems,theWebdoespresentuniqueandimportantfindabilitychallenges.Findabilityisnotasynonymforinformationarchitecture(IA).Informationarchitectureisadisci-plineconcernedwiththestructuralandsemanticdesignofsharedinformationspaces.FindabilityisagoalofIA,alongwithusability,desirability,credibility,andaccessibility.Manypeoplecontributetothefindabilityofwebsitesandin-tranets,includingwriters,designers,anddevelopers.”www.wikipedia.org,Feb.1,2008,<http://en.wikipedia.org/wiki/Findability>44“Inphysics,resonanceisthetendencyofasystemtooscillateatmaximumamplitudeatcertainfrequencies,knownasthesystem’sresonancefrequencies(orresonantfrequencies).Atthesefrequencies,evensmallperiodicdrivingforcescanproducelargeamplitudevibrations,becausethesystemstoresvibrationalenergy.”www.wikipedia.org,February5,2008,<http://en.wikipedia.org/wiki/Resonance>45www.wikipedia.org,February5,2008,<http://en.wikipedia.org/wiki/Don’t_be_evil>46Rainie,Lee,DirectorofPewInternetProject,“HOMOCONNECTUS:Theimpactoftechnologyonpeople’severydaylives”presentationtoUniversityofNorthFlorida,November5,2007,p.40,February7,2008,<http://www.pewin-ternet.org/ppt/2007%20-%2011.5.07%20-%20Univ%20North%20Florida%20-%20final.ppt>47“EdlemanTrustBarameter2007”,p.6,February7,2008,<http://www.edel-man.co.uk/insights/trust/Edelman%20Trust%20Barometer%202007.pdf >
48Krebs,Valdis,“ConnectedCustomers”NetworkWeavingblogentry,Febru-ary6,2008,February7,2008,<http://www.thenetworkthinker.com/2008/06/connected-customers.html>
(Note:blogentryissupportedbyauthor’swhitepaper“PowerinNetworks”),2004,<http://www.orgnet.com/PowerInNetworks.pdf>49Burt,RonaldS.,StructuralHoles:TheSocialStructureofCompetition,(Har-vardUniversityPress;Cambridge,Massachusetts,1992)pp.46,February11,2008,<http://books.google.ca/books?id=E6v0cVy8hVIC&printsec=frontcover&dq=structural+holes&sig=jM8oaZ-VseMVbUM-t9gGMmusteA#PPA46,M1>
50Thetertiusgaudensis“thethirdwhobenefits”(Simmel,1923:154,232).ThephrasesurvivesinanItalianproverb,FarIduelitiganti,ilterzogode(Betweentwofighters,thethirdbenefits),and,tothenorth,inamorejovialDutchword-ing,delachendederde(thelaughingthird).Tertius,terzoorderde,thephrasedescribesanindividualwhoprofitsfromthedisunionofothers.51Krebs,Valdis,“PowerinNetworks”,2004,February11,2008,<http://www.orgnet.com/PowerInNetworks.pdf>
YoushouldreadPowerinNetworksandkeeptheexampleofGoogleovertakingYahoointhebackofyourmind.52TheformulaforcalculatingEVAisasfollows:EVA=NetOperatingProfitAfterTaxes(NOPAT)-(Capital*CostofCapital),February11,2008,<http://www.investopedia.com/terms/e/eva.asp>
53InterbrandCorporationHistory:1980s.<http://www.interbrand.com/history_1980.asp>54Yates,Jane,”BrandValuationanditsApplications”Spring,1999,July10,2007,< http://www.poolonline.com/archive/iss6fea5.html>55Sorenson,OlavandSingh,Jasjit,“Science,SocialNetworksandSpillovers”(December26,2006).December15,2007,<http://ssrn.com/abstract=953731>56“Diggisacommunity-basednewsarticlepopularitywebsite.Itcombinessocialbookmarking,blogging,andsyndicationwithaformofnon-hierarchical,democraticeditorialcontrol.Newsstoriesandwebsitesaresubmittedbyusers,andthenpromotedtothefrontpagethroughauser-basedrankingsystem.Thisdiffersfromthehierarchicaleditorialsystemthatmanyothernewssitesemploy.”www.wikipedia.org,February14,2008,<http://en.wikipedia.org/wiki/Digg>WhenastoryhitsthefrontpageofDigg,itachievesasocialcredential.Thestoryquicklycirculatestohundredsofthousandsofusers,whointurnpub-lishblogsandforwardthestorybyemail,distributingitveryquicklytohighlytargetedreaders,whointurn,mayforwardthestoryundertherightconditions,andsoon.SomeestimatethatDigghasabout2.7millionusersinJanuary,2008andisgrowingatrateofabout110,000userseverymonth.Graham-Cum-ming,“HowmanyusersdoesDigghave?”,January28,2008,February14,2008,<http://www.jgc.org/blog/2008/01/how-many-users-does-digg-have.html>57“Valuebasedmanagementisthemanagementapproachthatensuresthatcorporationsarerunconsistentlyonvalue.(normally:maximizingshareholdervalue),February13,2008,<http://www.valuebasedmanagement.net/faq_what_is_value_based_management.html>58PodcastsofCorporateEarningsareagrowingexampleofhowthisischang-ingthough.59ForatutorialoncalculatingEVAsee<http://www.investopedia.com/univer-sity/EVA>60ThesixyearprojectionperiodisselectedtoconformtoInterbrand’sbrandvaluationprojectionperiodsothatthesefiguresmaybetrackedsidebyside.61June2007,February19,2008,<http://www.oecd.org/dataoecd/21/35/39574709.xls>
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62“Geotagging,sometimesreferredtoasGeocoding,istheprocessofaddinggeographicalidentificationmetadatatovariousmediasuchaswebsites,RSSfeeds,orimagesandisaformofgeospatialmetadata.”www.wikipedia.org,February19,2008,<http://en.wikipedia.org/wiki/Geotagging>63“Theweightedaveragecostofcapital(WACC)isusedinfinancetomea-sureafirm’scostofcapital.”www.wikipedia.org,February20,2008,<http://en.wikipedia.org/wiki/Weighted_average_cost_of_capital >
64Snijder,Tom,A.BandVanDerGaag,Martin,“TheResourceGenerator:Socialcapitalquantificationwithconcreteitems”,partoftheResearchprogram“Creationofandreturnstosocialcapital;SocialCapitalineducationandlabormarkets”(SCALE),acombinedprojectoftheuniversitiesofUtrecht,GroningenandAmersterdam,fundedbytheDutchOrganizationforScientificResearch.October21,2004,p.565IwasaVPatClickIQ.com,oneofmanycompaniesthatprovideplatformswiththesecapabilities.66“TalentonDemand:ApplyingSupplyChainManagementtoPeople”,Knowl-edge@Wharton,HumanResources,February20,2008,March3,2008,< http://knowledge.wharton.upenn.edu/article.cfm?articleid=1899>67“SAPtoResellNakisa’sTalentVisualizationSoftware”,www.sap.sys-con.com,Dec.11,2007,March3,2008,<http://sap.sys-con.com/read/473098.htm>68“InternetCompanies:SocialGraph-iti”,TheEconomistprintedition,October18,2007,October18,2007,<http://www.economist.com/business/displaystory.cfm?story_id=9990635&CFID=6893160&CFTOKEN=7dc5b488dd50cdc8-3-ABCAAF3-B27C-BB00-0143C0C3EB961394>69InternationalConferenceontheFormationofSocialNetworksaimed“tobringtogethersomeofthebestscholarsworkingonnetworksformation”.70Jackson,Matthew,O.,“TheEconomicsofSocialNetworks”,p.1,Revised:December13,200571Leider,Stephen,Mobius,Markus,Rosenblat,TanyaandDo,Quoc-Anh,“HowMuchisaFriendWorth?DirectedAltruismandEnforcedReciprocityinSocialNetworks”p.1,October200772“FacebookExtendsLeadasFaveYoungAdultSite”,www.emarketer.com,March2,2007,February24,2008,<http://www.emarketer.com/Article.aspx?id=1004636>73DrHunterMadsen,MarketingDirector,Yahoo!Canada,keynoteaddressatOnlineRevealedCanada,May28,2007,February24,2008,<http://falkow.blogsite.com/public/item/170445>74Catone,Josh,“FacebookGraduates:NowDoSomethingFortheWorld”,ReadRi-ghtWebblog,February5,2008,February29,2008,<http://www.readwriteweb.com/archives/facebook_social_change.php >
< Follow The Yellow Brick Road Introducing Social Capital Value Add 66Share This The Blog
…“Atsomepointalongtheway,themomentumhaschanged.IstartedouttryingtotakethisideaasfarasIcould.NowIamtryingtokeepupwithitforaslongasIcan.
Mysearchhaschangedhowinformationflowsaroundme.Aftermonthsoftryingtofindinforma-tion,informationfindsmethroughconnectionsfarandwide.FourpeopleonthreedifferentcontinentsalertedmetoMikeArrington’srelatedpost.IhavewanderedorbeeninvitedintoonlinegroupslikeSeth’s“Triiibes”whereAdamHelwehanddozensofothershaveinstantlyofferedtheirhelpjustasquickasIcanask.
PaulWilmotthasinvitedmetowritesomethingtointroduceSCVAinhissmallbutinfluentialmaga-zinethatservesthequantitativefinancecommunityandIhaveconnectedwiththerightfolksatDell&Procter&GambleaboutreportingonhowtheprincipalsinSCVAareshowingupintheirbusinesses.…”
Michael Cayley, BRP, APMCP, MBA
Principal, Social Capital Practice
www.socialcapitalvalueadd.commichael@socialcapitalvalueadd.commobile:647-407-9598office:416-462-1859ext.2SkypeID:mgcayley
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ThankyoutoContextCreativeInc.fororiginalgraphics.
How did this dog get in my boardroom?Hereisanexcerptfromtheblogpost:
