08/29/2014 01:22 pm ET Updated Dec 06, 2017

Your Network is Your Net Worth: Designing Social Capital for Breakthrough Innovation


One's network of family, friends, colleagues and acquaintances largely dictates attitude, values, beliefs and how one behaves. Yet, few will challenge their established network and most will leave its growth and development to chance throughout their lifetime. Yet, if one does not take deliberate and proactive action, one might easily become trapped, from cradle to grave, without ever realizing it.

In the pursuit of happiness, the three main assets we may all have inherited from our parents are: financial capital, human capital and social capital. Today financial capital is abundant and cheap and, with global connectivity, human capital has become easily accessible and inexpensive as well. What still remains as the hidden frontier, is social capital.

Social capital can be defined by the structure of contacts in a network and the resources held by each of these contacts. The term "social" describes how one reaches and "capital" describes whom one reaches.

Most of us have been told that it is just as important whom one knows as what one knows. However, this paradigm fails to capture the inherent value of the type of network one inhabits. It is not only important whom one knows, it is also critical how these contacts are connected to each other and who they do not know. Since we are all the center of our universe, the type of universe we inhabit is crucial to the opportunities to be discovered, explored and exploited.

One's individual bandwidth sets a natural limitation to how many people one can engage with and what level of relationship one can maintain. And, what is even more important to consider when managing one's attention, is the extent of structural holes, or lack of redundancies in one's network.

As an example, Mr. A has lived in Scandinavia his entire life, where he was educated as a designer and has built a successful consultancy. His personal network displays a significant overlap between groups. Most people know each other, which means his network has a lot of redundancies. Whatever Mr. A knows, mostly about product development, his friends and colleagues are likely to know as well, - thus the creation of innovative ideas is less likely.

Mr. B was also educated as a designer and grew up in Scandinavia. He has worked and studied in five cities in Europe, three cities in North America and worked in three cities in Asia. He also started a consulting firm. Mr. B's network stretches further, is wider and has numerous and large structural holes or fewer redundancies, as compared with Mr. A. Many of Mr. B's friends and colleagues do not know each other and so there are massive opportunities for connecting knowledge and ideas from a wide range of disconnected domains. Breakthrough innovation is thus more likely to happen in Mr. B's network.

The benefits of having a network with many structural holes are information and control. One has access to information that flows faster and is vetted by referrals. One's network acts as an opportunity scouting and weeding mechanism that hinges on interpersonal debt. "If I assist you, will you assist me?"

Entrepreneurship and breakthrough innovation is at its essence about arbitrage, the ability to create and capture value from disconnects in knowledge and markets. The bigger the 'disconnect', the higher rate of return one can command. So, deliberately designing one's network for disconnected domains just makes really good business sense.