Having just reviewed Scott Page’s “The Difference”, I wanted to also call attention to an important book published a little over one year ago – “Brokerage and Closure: An Introduction to Social Capital” by Ronald Burt, one of the leading academics on social capital and social networks. In many respects, these books are great complements to each other.
Page’s book makes a compelling case that cognitive diversity contributes to superior problem solving and predictive tasks. He analyzes the nature of cognitive diversity and the specific ways that this diversity can contribute to superior problem solving and predictions. Yet, he spends very little time exploring the relationships across diverse individuals and how these relationships contribute to superior performance of the individuals.
This is where Burt’s book starts. Burt doesn’t spend a lot of time analyzing categories of diversity in or across the nodes – he is far more interested in the structure of relationships that connect the nodes. This is another important part of the puzzle. Page assumes that the diverse participants are connected and engaged in collaborative problem-solving or prediction tasks. Burt reminds us that a lot of the value is in creating new connections and that not all connections are created equal. Relationships can amplify the power of diversity and diversity can amplify the power of relationships.
A warning for my business readers – although Burt writes in a compelling style, he still is very much writing in the academic genre, so the book is dense and far from a light read. Yet, the insights he conveys make the reading effort richly rewarding.
For those not familiar with Burt, he is Professor of Sociology and Strategy (I love this – talk about crossing important boundaries!) at the Graduate School of Business at the University of Chicago. Fifteen years ago, he wrote a seminal book on “Structural Holes: The Social Structure of Competition.” That book argued that “structural holes” defined by gaps in connections among complementary resources in the competitive arena provide significant opportunities for entrepreneurial initiative. As he succinctly put it, “competitive advantage is a matter of access to holes.”
Structural holes still form the centerpiece of Burt’s analysis but, in his new book, he focuses on two sets of activities required to generate value from structural holes – brokerage and closure.
- Brokerage is the function performed by people whose relationships bridge across structural holes in social networks – they help to connect non-redundant flows of information.
- Closure on the other hand helps to build alignment among diverse individuals by creating rich connections with third parties that establish powerful reputation mechanisms. As Burt makes clear, closure is typically not the direct result of efforts by individuals but instead is a by-product of interactions that naturally arise when dense networks of relationships form.
Burt’s book explores the complex relationship between these two activities, especially the paradox of tension and interdependence. On the one hand, brokerage is about reaching out and embracing new flows of knowledge while closure is about focusing inward and enforcing conformity, rejecting that which does not fit. At this level, brokerage and closure are deeply at odds. On the other hand, brokerage cannot function effectively without the trust that closure creates.
Part of the paradox hinges on the Janus-like nature of closure. Closure at one level is enormously beneficial – it helps to build the trust that is essential for collaborative activity and rich information flows. On another level, though, closure tends to amplify existing opinion and reinforce group identities at the expense of openness to new participants or perspectives.
Resolving the brokerage/closure paradox is made even more difficult by the “closed networks of scholars that have sprung up devoted to brokerage or closure but not both.” In this respect, Burt himself is performing the role of a broker, helping to bridge two very distinct academic communities that tend not to interact a lot with each other. Burt’s offers this resolution of the tension between brokerage and closure:
Brokerage is about coordinating people between whom it would be valuable, but risky, to trust. Closure is about making it safe to trust. The key to creating value is to put the two together. Bridging a structural hole can create value, but delivering the value requires the closed network of a cohesive team around the bridge.
This is perhaps easier to state than to put into practice. Burt acknowledges that the inertial effects of closure tend to predominate over time, even though in times of rapid change the value of brokerage increases relative to the value of closure. Getting the balance right is challenging under the best of circumstances.
Burt’s book is a rigorous exploration of social capital and the activities required to build social capital. He expresses concern that
Clear-thinking observers can be frustrated with the vagaries of social capital left as a metaphor. Social capital is the Wild West of academic work. There are no skill or intellectual barriers to entry. Contributions vary from rigorous research to devotional opinion, from carefully considered to bromide blather. Research and theory in economics, political science, and sociology are distributed across loosely related perspectives and specialties, each a group of connected experts purporting to have a productive view across groups. The variety is as interesting and exciting as it is corrosive to cumulative work.
Burt’s book is tightly organized around four “stylized facts”:
- Brokers perform better than others in social networks – they typically “receive a premium in compensation, recognition and responsibility.”
- This superior performance results from the improved vision that brokerage offers in terms of detecting and developing new ideas.
- Appropriately balanced, brokerage and closure can work together to amplify performance
- Closure’s reputation mechanism is a powerful inertial force and, left unchecked, reinforces the status quo
As I have already hinted, one of the frustrations in reading Burt’s excellent book is that he doesn’t delve deeply enough into the management practices required to effectively balance brokerage and closure. He makes a compelling case that these two reinforce each other and he also highlights the continuing risk that closure will prevail at the expense of brokerage. So there’s a lot of incentive to get the balance right, but how precisely does one do that?
At the end of the day, Burt’s perspective is also largely a structural and static view of social networks and the advantages created by brokerage positions in networks. In his final chapter he offers some tantalizing, but ultimately unsatisfying, hints about the need for a perspective on network dynamics, something that he suggests will be forthcoming from his own research program. In particular, he draws some intriguing contrasts between the equilibrium views of conventional economics and the more dynamic, process views of Austrian economics, suggesting that the latter offers a much richer foundation for understanding network dynamics.
This is a powerful intuition. A more dynamic perspective may ultimately be key to overcoming the tension between brokerage and closure. If we move from static diversity to dynamic specialization, we create opportunities to build trust that are simply not available in the more challenging zero sum world of equilibrium economics. We would then complete a powerful triad – diversity, relationship and dynamics – to offer a much more robust view of the opportunities to create strategic advantage.
So, what should executives take away from all of this? First of all, an increased awareness that our firms are much more optimized for closure than brokerage, yet enhanced performance, especially in times of great change, hinges upon shifting the balance more in favor of brokerage activity.
Second, network analysis provides an opportunity to be much more insightful about the structural holes that provide opportunities for improved performance.
I would add a third observation – that all structural holes are not created equal. The structural holes on the edges of economic activity – whether it is the edges of firms, industries, economies or demographic segments – are particularly rich with opportunity for performance improvement.
Finally, if all of this is true, executives who want to strengthen brokerage activities across the most promising structural holes need to master the management techniques associated with outsourcing, loose coupling and productive friction.