Social Capital: A Moderating Variable to Innovation

Social Capital: A Moderating Variable to Innovation

Haytham Abduljawad (Knowledge to Power Consulting, USA)
DOI: 10.4018/978-1-5225-9012-5.ch001
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Social capital is the foundation of innovative capabilities. There's no denying the fact that innovation is nothing but a collaborative effort of different actors in partnerships formed between universities, industries, and governments, and social capital plays an integral role in all the stages of the innovation process, from developing creative ideas to commercialization of those ideas. It is due to social capital that communication, dispersal of information, and sharing knowledge is done effortlessly. Thus, investing in the development and management of social capital is the most crucial thing for developing a collection of innovative capabilities and gaining the potential to use those capabilities in order to achieve competitive advantage in the market.
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The century we’re living in is full of examples pertaining to driving innovation. A number of new technologies, products, and services have surfaced due to successful innovation. In fact, whole new industries have emerged because of it. But still the need for innovation in businesses is quite intense, especially in developing countries, and more so in the Gulf Corporation Council (GCC) region.

The need exists because developing countries are still seeking economic growth and diversification. In the GCC countries, diversification is rather more needed than growth. Statistics show that GCC countries experience impressive growth. However, they lack diversification to sustain their growth and quality of life, especially when their current growth depends largely on global and regional geopolitical environment.

Innovation paves the way for economic growth and diversification. Innovation is the process that gathers information from the maturing industries and transforms them into new processes, products, and services to meet the ever-evolving market needs (Lalkaka, 2002). Sure, innovation gives an organization a competitive advantage, which is indeed conducive to business growth, but there’s another reason why developing countries crave innovation. Developing countries need to innovate because innovation leads to the development of human capital. That is perhaps the least cited reason why developing countries must innovate. However, there’s an obstacle that prevents developing countries from driving innovation.

The knowledge composed by a diverse workforce employed in an organization tends to accelerate the innovation process (Omerzel and Rune, 2011). The mere communication carried out between the individuals creates knowledge that is vital for the development of quantifiable innovations. This seemingly easy and natural process poses a challenge of enormous proportions for the nations with developing economies because developing nations, such as those in the GCC region, rely heavily on foreign workforces. Thus, all the strategies pertaining to knowledge management fail to anticipate the knowledge walkout syndrome – a pattern that is commonly observed in the GCC region and is the basic reason why developing countries to this date remain incapable of creating tacit knowledge, which cannot be quantified easily, but it’s the most important prerequisite for innovation.

In the GCC region, a major chunk of tacit knowledge exists in the minds of expatriates who are working for various Multinational Corporations (MNCs) instead of within the national workforce of the region that is hardly ever going to transfer its business operations overseas. The problem arises when the semi-permanent or short-term employment contracts of these expatriates expire and they take the tacit knowledge capable of driving innovation with them when they leave the region. This phenomenon is known as knowledge walkout, and it’s a huge challenge that comes in the way of developing nations in the GCC region trying to cultivate innovation. However, I argue that the real problem lies within the corporate culture that does not incentivize the sharing and conversion of tacit knowledge amongst their employees. That problem is compounded by the fact that most GCC corporations are a mix of ethnic cultures that have different interpretation of knowledge sharing. When cultural and ethnic norms overpower an organization’s culture and norms, both tacit knowledge and the innovation process are negatively impacted.

Tacit knowledge is not the only prerequisite required for driving innovation successfully. Other than tacit knowledge, there are two essential prerequisites for innovation – the first is absorptive capacity, and the second is innovative capacity. Absorptive capacity is best described as an organization’s potential to learn, understand, and use external knowledge (Cohen and Levinthal, 1989). Innovative capacity is the ability to innovate (Saviotti, 1998). It is the sum of all individual and organizational capabilities, policies, and infrastructure that support the innovation process by facilitating knowledge production.

In order to initiate the innovation process, it’s essential for the governments of developing countries in the GCC region to support the concerned institutions and collaborate with them to formulate strategies that help build knowledge stocks continuously by capturing, transferring, and disseminating knowledge for national growth and development. These knowledge stocks are intellectual capital that is the most important asset of an organization and the key driver of innovation.

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