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Introducing

Social Capital Value Add


Value Based Management
for the Networked Age
Proposed by:
Michael Cayley, BPR, APMCP, MBA

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Abstract
Within the field of social capital study, concerns have been expressed that deviations from a fundamen-
tal understanding that social capital is captured from embedded resources in social networks may reduce
the intellectual enterprise to a catch all fad (Lin, Cook, Burt, 1999).

This paper is an argument that sometime in 2004, when broadband internet connections became more
prevalent than those of less capacity, individuals became empowered as our most intense form of me-
dia. Scaled up effects of the Individual as Medium including:

• increased information flow,

• exertion of influence,

• expansion of social credentials and reinforcement of identity and recognition,

are consistent with a network theory of social capital. Corporations are exposed to new risks and oppor-
tunities due to these scaled up forms of social capital and they require new methods to manage them.

Social Capital Value Add is introduced as such a new method, designed to link the pioneering intellectual en-
terprises of social capital and social network analysis (SNA) to value based management and the priori-
ties of marketers. A plausible SCVA valuation method is proposed to demonstrate how these links may
be articulated in a way that is meaningful for investors and corporate managers.

Acknowledgements:
I would like to thank Olav Sorenson, the Jeffrey S. Skoll Chair in Technical Innovation and Entrepreneur-
ship at the Rotman School of Business at the University of Toronto. Olav provided the guidance and
encouragement required to persist with the SCVA argument and conducted the first thorough review of
the paper. In addition, I greatly appreciate the encouragement and accommodation of my MBA profes-
sors and classmates and my friends at Context Creative Inc. All indulged me with flexibility, input and the
latitude to let social capital invade every discussion and assignment during the formulation of SCVA.

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Stanford’s Matthew O. Jackson, Seth Godin, Al Ries, Matt Ingram, Eric Hoffer, Marla Cranston, Suzanne
Williams, Doug Ireland, DeNel Rehberg Sedo, Brent King and my wife Andrea Redway have all offered
ideas, insights or editorial suggestions, for which I am grateful. The online groups led by Seth Godin,
Paul Wilmott, Barry Wellman, Fabio Sabatini and John Maloney have each provided hours of lurking and
dozens of interactions that have been instrumental to the development of SCVA. I met Adam Helweh,
through Seth’s online “Triiibes” group. Thank you Adam for reworking the eBook and my blogs. The
story of how “Introducing Social Capital Value” has been delivered to you is a great little case study of
the ideas in the eBook at work.

Contact:
Michael Cayley, BRP, APMCP, MBA
Principal, Social Capital Practice
www.socialcapitalvalueadd.com
michael@socialcapitalvalueadd.com
mobile: 647-407-9598
office: 416-462-1859 ext.2
Skype ID: mgcayley

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CONTENTS
Summary • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 5

Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7

The Great Oz: The Use of Symbols • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7

Yellow Brick Road “On Ramps”: Social Capital , SNA & the Corporation • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 11

We’re Off to See Be the Wizard: The Rise of the Individual as Medium • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 15

Information Flow • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16

Exertion of Influence • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 18

Certifications of Social Credentials, Reinforcement of Identity and Recognition • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 26

“Pay no attention to that man behind the curtain.”: Brand and Social Capital • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 31

Over the Rainbow: The SCVA Valuation Method • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 40

1. Financial Analysis • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 43

2. SCx Factor (SCxF) • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 45

3. SCx Inventory (SCxI) • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 48

Follow the Yellow Brick Road: The Need for New Structural Management Methods • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 51

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Summary
Sometime in 2004 when broadband internet access in the United States became more prevalent than
connections with less capacity, there was a point of inflection that has changed how corporations may
create and preserve value. This paper presents an argument that new management methods are re-
quired to guide investors and corporate managers in their efforts to understand new risks due to these
changes, to identify corporations that are more or less qualified to deal with these risks and to track
specific performance in these areas relative to other companies, history and projections.

The argument is based upon the following points:

1. Broadband internet connections have empowered individuals, making them the most disruptive and intense
form of media (i.e., the Individual as Medium); there are implications throughout the corporate ecosystem.

2. This results in entirely new scales of social capital as evidenced by new scales of the intrinsic elements of
social capital: information flow, exertion of influence, certifications of social credentials and reinforcement of
identity and recognition. This new scale social capital is a critical corporate asset.

3. Corporations need to adopt theories and practices that are designed to help them maximize formation,
access and use of social networks and social capital. In response, a new theory of value based manage-
ment called Social Capital Value Add (SCVA) is introduced to link Nan Lin’s network theory of social capital
directly to corporate value.

4. Symbolic brand’s shortcomings in building corporate value in the era of the Individual as Medium and the
requirements of memetic branding further illustrate the need for new management methods.

5. A new method of SCVA corporate valuation is introduced. The plausibility of this method further
supports the argument.

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Metaphors from the Wizard of Oz help to illustrate the argument and achieve the paper’s aim, which is
to link social capital theory and social network analysis with value based management and the priorities
of marketers. Another stylistic feature of the paper is employed to achieve this aim. It contains over 200
hyperlinks or hot areas to enable the reader to quickly explore related, but typically isolated clusters of
knowledge that are drawn together in the paper. Academics, financial analysts, managers and market-
ers may each discover concepts here foreign to their typical bailiwick.

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Introduction
On August 9, 1995 Netscape, the company that introduced the first graphical internet browser, and was
founded by a twenty-something kid named Marc Andreessen, went public at $28 a share and closed that
day trading at $58.25.1 By November of 1998 the company managed a successful sale to America Online
Inc. at a valuation of $4.2-billion.2 On October 24, 2007 Microsoft bought a 1.6 per cent stake in Facebook
for $240-million, placing a $15-billion valuation on the online social network application company that
launched in a Harvard dorm room in 2004. Facebook had estimated annual revenues of around $100-
million.3 At age 23, Facebook’s founder and CEO Mark Zuckerberg has become the poster boy for the
next generation of continuous, fast-moving innovation in communications technology. Meanwhile, An-
dreessen is behind Ning, his own entry into the social network application market.

Many investors and managers have come to terms with the changes associated with the introduction of
the Internet browser in the mid-1990s. However, since 2004, when broadband Internet connections in
the United States became more prevalent than those with less capacity, new forces have emerged that
have changed how value is created and defended in business. As Internet access continues to acceler-
ate, goes mobile and becomes more ubiquitously distributed, corporations need to evolve.

The Great Oz: The Use of Symbols


As symbols, these two innovators exemplify extraordinary corporate value creation. Much like the term,
“Web 2.0”, coined by O’Reilly Media for a 2004 technology conference, they are de facto brands that have
emerged to represent very complex shifts in the business environment including technological innova-
tion, changes in communications and winning business practices. Recognizing symbols like these, taunt-
ing and teasing them for meaning, is a much-needed, massively popular remedial movement owing much to
popular journalism, agency campaigners and the echo chamber that is the blogosphere.

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2008 Market Factors

Mobile Communications Speed


• globalization/dropping trade barriers
• rapid product cycles
• commoditization
• cheap travel/shipping

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 Social Capital
• peer to peer

“Resources embedded
Corporate Value in social networks”
Inflection Point
Emerges as #1 factor
of value
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 Search


• reach & frequency = or > broadcast • Google
• “roles” vs. work • Digg, del.icio.us
• rate, review & refer • personal profiles (Facebook, MySpace, etc)
• demand for authentic exchange
• foundation of trust
• amateurs fill the void

Fig. 1

Focusing management on delivering results against meaningful performance measures in today’s busi-
ness environment (See Fig. 1) is not as trivial.

The question addressed in this paper is this: “Are new social network structural management methods
needed to demonstrate the value of social capital as an important — perhaps the most important —
corporate asset?”

Building upon existing literature and theoretical roots in several related but typically isolated disciplines
including social-economics, social network analysis (SNA), finance/value-based management,

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marketing and media, I will introduce a new theory: Social Capital Value Add (SCVA). This theory is in-
tended to provoke new insights and management practices that may be applied to a wide range of con-
fusing phenomena that challenge today’s corporations.

The method of building the SCVA manifesto begins by extracting relevant theories from existing litera-
tures and applying them to better understand trends in business value creation and defence. The work
elaborates the complexities of the market factors introduced in Fig.1, utilizing Marshall McLuhan’s vi-
sion of Understanding Media (1964) to assert what former Intel chairman Andy Grove would describe as
a “strategic inflection point”4 that is attributable to “a revolutionary rise of social capital.”5

The marketing/communications mix has forever changed. Broadcast’s monopoly on attention is dead. The
symbolic brand, which has been the fastest growing source of corporate value for the last quarter centu-
ry has reached its pinnacle. It is being absorbed and replaced by the memetic brand. Technologies have
evolved and mapped so tightly to the way humans transact, form relationships and create self-identity
that it is time for business management to adopt the thinking of leaders in social network theory, such as
the University of Chicago’s Ronald Burt.

The strategic shift to the Individual as Medium6 (I.A.M.) from broadcast paradigm, examined through Burt’s
Structural Holes theory of the social structure of competition, brings to light implications throughout
the corporate ecosystem. More importantly, examining how Structural Holes theory (1992) builds upon
the work of Mark Granovetter’s “Strength of Weak Ties” idea launched twenty years earlier, but “cap-
tures the causal agent directly and thus provides a stronger foundation for theory and clearer guide for
empirical research”7 is a blueprint for understanding the relationship between brand and social capital
(i.e., explicit content vs. network structural assets; The Oz vs. The Yellow Brick Road).

The paper culminates with a plausible first outline of SCVA’s corporate social capital valuation method.
The method is a derivative of value-based management that depends upon a theoretical equation be-
tween a company’s digital footprint and its economic profit. The attempt is to distinguish I.A.M. oriented
social capital within the traditional boundaries of corporate goodwill.

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What impact might a focus on social capital development have on strategic thinking and corporate di-
rection? In conclusion, the paper highlights the need to adopt state-of-the-art thinking about the char-
acteristics and formation of social networks like that of Stanford’s Matthew Jackson. Recently released
research (October 2007 version) conducted at Harvard suggesting the possibility that higher margins may
be sought through social networks and an associated new rationale for corporate social responsibility
also underscore the need for new social network structural management methods.

Fortunately pioneers have been labouring in the field of social capital since as early as 19808 (Bourdieu).
The lineage of social network analysis can be traced back to three main traditions (sociometric/graph
theorist, clique formation, structure of community relations) with roots in the 1930s, eventually brought
together again at Harvard in the 1960s and 1970s, when contemporary social network analysis was forged.9
The paper is not an attempt to review or even proclaim a command of the existing literature; it is designed
to build bridges between these knowledge clusters, value-based corporate management and the priori-
ties of marketers.

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Yellow Brick Road “on-ramps”:
Social Capital, SNA & the Corporation

A leader among the social capital pioneers, whose work began with research into social networks in the
mid-1960’s, is Duke University’s Professor Nan Lin.10 It is Lin’s careful “structuralist” definition of social
capital, “as a concept, rooted in social networks and social relations, and must be measured relative to
its root” (Lin, 1999, pp.35), that is adapted here. Lin notes, “The premise behind social capital is rather
simple and straightforward: investment in social relations with expected returns. This general defini-
tion is consistent with various renditions by all scholars who have contributed to the discussion (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’s disambiguation of social capital is critical to the mission of SCVA, which is to
empower investors and management with the framework to differentiate more valuable corporate as-
sets (i.e. social networks maximized for social capital) from less valuable ones, and, in so doing, enable
the establishment of measurable corporate goals and objectives (in addition to the campaign driven
goals and objectives that dominate contemporary discourse11, such as the budgetary term “ROI” that is
often used in a marketing campaign context).

Lin’s analysis (Lin, 1999, pp. 31-35) of the perspectives and controversies in social capital theory is re-
lied upon to arrive at the following assertions made by SCVA:

• Social capital is fundamentally an individual asset. (Note: a corporation is a form of individual.)

• The intrinsic elements of social capital that make it work enhance the outcomes of actions (i.e.,
both instrumental/gain and expressive /preservation/defense actions) are: flow of information, the
exertion of influence, certifications of individual social credentials and reinforcement of individual
identity and recognition.

• Aggregation of individual returns result in collective assets and properties such as trust, norms,
reputation, authority, sanctions, culture, network structure (open, closed, density, clustering,
diameter, average path lengths, degree distribution, bridges, weak ties, betweenness and other

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forms of centrality, etc.) and location (structural holes, structural constraints, etc.), which are ex-
trinsic variables that contribute to the formation, access and use of social capital.

“Therefore, social capital can be (more accurately) defined as resources embedded in a social structure
which are accessed and/or mobilized in purposive action” (Lin 1999, pp. 35). In the SCVA context, that
purpose is corporate value creation and preservation.

Towards this end, the body of social capital and social network research is still very much in develop-
ment. Most studies focus either on individual social capital in such contexts as how people find jobs or
societal segments such as factory co-workers, schools and communities/villages. SCVA relies upon a
theoretical premise that original motives for the conception of the corporation as individual give comfort
that the conclusions made in research regarding individuals can be applied to corporate social capital.
Research by Brian Uzzi from the Kellogg Graduate School of Management also provides some evidence
that there is a growing body of work that corroborates the presence and significance of corporate so-
cial capital, delivering a second source of confidence that conclusions made about “ego” and “alter” in
existing social capital and social network research may be generalized between individuals and corporate
individuals.

Since the corporation was originally designed to enable a group to take on the attributes of an individual
in social engagement including transactions, accountability (contracts), liabilities, property rights, etc., it
is logical to assume that effects found in the study of individual social capital and social networks may be
indicative of similar effects in corporate social capital and corporate social networks.

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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:

“There is a growing need to understand how social structure assists or impedes economic performance. In particular, the
success of organizations’ networks has spawned new conjectures about the competitive advantage of social forms of organiza-
tion relative to market-based exchange systems (Powell 1990; Inzerilli 1991; Perrow 1992). Central to these conjectures is
the “embeddedness” argument [defined as social capital in SCVA], which offers a potential link between sociological and
economic accounts of business behavior. Embeddedness refers to the process by which social relations shape economic
action in ways that some mainstream economic schemes overlook or misspecify [such as brand valuation?] when they as-
sume that social ties affect economic behavior only minimally.”12

Uzzi draws our attention to “Larson (1992) and Helper (1990) [who] reported that ‘thicker information’
on strategy, production know-how, and profit margins is transferred through embedded ties, thus pro-
moting learning and integrated production in ways that the exchange of only price data cannot.” (2000)

His findings that:

• “embedded ties perform unique functions and have three features: trust, fine-grained informa-
tion transfer and joint problem-solving arrangements... mutually reinforcing... counterparts to the
features of arm’s-length ties (see also Uzzi 1996),”

• “trust... facilitated the exchange of resources and information,” and,

• “embedded ties develop primarily from third-party referral networks and previous personal rela-
tions which (1) set expectations for trust between newly introduced actors and (2) equip the new
economic exchange with resources from preexisting embedded ties.”

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Along with the conclusions:

• that “embeddedness is a unique logic of exchange... particularly beneficial for reducing monitoring
costs, quickening decision making, and enhancing organizational learning and adaptation” and:

• “Consequently, knowledge of a firm’s embeddedness: Its position in a network, the quality of its
ties to network partners, and the structure of the network, provide the basis on which to make
predictions about organizational performance and capability, both positive and negative,”

not only suggest parallels between the corpus of corporate and individual social capital but also provide
a compelling case for the adoption of SCVA by investors and managers who are interested in “increases
(in) economic effectiveness along a number of dimensions which are crucial to competitiveness in a global
economy (including) organizational learning, risk-sharing, and speed-to-market” (Uzzi, 2000). “One of the
advantages of being in finance or business vs. academics is that speed. If there is a need... if something
works, if it makes sense - you use it to your advantage; you don’t wait for a mathematical proof.”13

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We’re Off to See BE the Wizard:
The Rise of the Individual as Medium

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

Marshall McLuhan
Understanding Media:
The Extensions of Man, 1964

Let us set aside for another treatise the scaling effects that amplified extrinsic social capital variables
must have on the access and use of social capital, not to mention the positive feedback loop that arises
with new scales of social capital leading to more such collective assets and so on. For the sake of brev-
ity we can rest our claim that corporations have hit a value inflection point directly upon an examination
of the intrinsic elements of social capital: information flow, exertion of influence, certifications of social
credentials and reinforcement of identity and recognition. While the recital of amazing facts documenting
bewildering technological change often fails to cut through our narcotic numbness15, perhaps the realization
that each underscores a corresponding amplification of an element of social capital will awaken us from
the trance.

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Information Flow
In mid-2007, 71% of American adults used the internet at least occasionally from any location; of these,
94% had an internet connection at home. Among adults with a home internet connection, 70% went
online using a high-speed connection, versus 23% who used dialup.16

Home Broadband & Dial-Up Penetration


(% of adult Americans)
Broadband Dial-Up

50%
45%
40%
35%
30%
25%
20%
15% Corporate Value
Inflection Point
10%
5%
0%
Jun - 00
Oct - 00

Jun - 01
Oct - 01

Jun - 02
Oct - 02

Jun - 03
Oct - 03

Jun - 04
Oct - 04

Jun - 05
Oct - 05

Jun - 06
Oct - 06
Feb - 01

Feb - 02

Feb - 03

Feb - 04

Feb - 05

Feb - 06

Feb - 07
Source: Pew Internet Project February - March 2007 survey of 2200 adults; 296 were home
broadband users
Fig. 2

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“The number of home broadband users in early 2007 is now roughly as large (on a percentage basis) as the
entire universe of internet users in... June 2000” (Pew June 2007). In most cases, households with higher
incomes are more attractive potential customers for businesses and they tend to exercise more influence.
More than 76% of these households, those with over $75,000 per annum in income, have broadband in-
ternet access. Broadband internet access correlates both to more frequent use and an expansion in the
ways that individuals obtain and distribute information flow. (See Fig.3) (Pew June 2007).

Percent of Internet Users Who Report Doing the


Following Activities Yesterday (from any location)

All Internet Users Home Dialup Home Broadband

Send or read email 56% 43% 65%

Get news 37% 24% 45%

Look for information about 29% 21% 34%


a hobby or interest

Do any type of research for 23% 15% 27%


your job

Read someone else’s 10% 5% 12%


online journal or blog

Look for information on 8% 9% 5%


Wikipedia

Look for religious or 6% 4% 7%


spiritual information

Create or work on your 5% 5% 5%


own online journal or blog

Take material you find 3% 3% 3%


online and remix it into
your own artistic creation

Make a phone call online 2% <1% 3%

Source: Pew Internet Project February - March 2007 survey of 2200 adults; 296 were home
broadband users

Fig. 3

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Refer again to Fig.1. Of the more than 25 market factors highlighted as contributing to a strategic point
of inflection, at least 18 are factors contributing to increasing information flows. Numb yet? Try to be aware
on a subliminal level that for each factor, we are describing exponential increases of information flow.
For example, typical broadband connection capacities are five to fifty times greater than 56k dial-up con-
nections. Most of this technology did not exist or did not matter in the decade when brand value began to
surpass book value for corporations. There are many more of these kinds of factors not accounted for in
this paper. For example, we have better maps than we used to. Consider the implications of the existence
of a map of the human genome for a moment.

Nevertheless, of all factors contributing to the expanding flow of information, the global expansion of
affordable consumer broadband internet access is the most important to the SCVA argument. It the
greatest factor contributing not just to the scale of information flow, but also to exertion of influence and
the other intrinsic variables of social capital.

Exertion of Influence
In 2002, John Horrigan and Lee Rainie at The Pew Internet & American Life Project used regression
analysis to determine what factors most accurately explain the intensity of a person’s Internet use and
found that the availability of a broadband connection is the largest single factor.17 Other factors such as
amount of experience with the Internet (which is on the rise) and demographics matter, but availability of
a broadband connection matters the most. As we have shown, access to broadband is scaling up and with
it, so is the influential online activity of Internet users.

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Broadband Penetration Growth Trends for G7 Countries

25 Canada
UK
20 France
Japan
15 USA
Germany
10 OECD
Italy
5

0
2001 2002 - 2002 2003 - 2003 2004 - 2004 2005 - 2005 2006 - 2006

Source: http://www.websiteoptimization.com
Fig. 4

Creating and posting content to the Internet is the...

“defining behavioral difference among home broadband users... [A few examples include]: having a blog [or vlog], making
online comments, [producing a podcast, posting a personal or professional profile on a social network], posting photos online,
or contributing to chat-rooms, [forums, social bookmarking, wikis or citizen journalism sites]. Back [in 2002] when just 12%
of adults had broadband at home, it was possible to imagine that the user-generated content phenomenon was mainly an ar-
tifact of early adopters. Some modest fraction of leading edge users would demand bandwidth to post content online and that
would be about it. User-generated content did not, however, stop with early adopters. As home broadband adoption grew,
posting and creating content for the internet became more widespread. The Pew Internet Project reported in a 2006 survey
that 44% of home broadband users had done at least one of the following activities that involve user-generated content:
having one’s own blog or webpage, working on group blogs or web pages, remixing digital content and re-posting it online, or
sharing something online created by the user (i.e., artwork, photos, stories, or videos). Although user generated content is
dominated by young people, 31% of those over age 50 with a broadband connection at home had engaged in at least one of
these activities.”18

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SCVA argues that the aggregation of these behaviors create social network-powered idea habitats19, where individu-
als exercise influence on previously unobtainable scales because each individual now has the content produc-
tion and distribution capabilities that have historically only been available through traditional mass media
channels (print, radio, television). Whereas traditional mass media content and channels are bought with finan-
cial capital or rented (with great flexibility) by advertisers, I.A.M. is a function of social capital.

The Pew Internet & American Life Project’s study “Buzz, Blogs and Beyond: The Internet and the National
Discourse in the Fall of 2004”20 provide some good illustrations of these concepts in action. Examining the Pew
study using Berger and Heath’s rigorously analyzed and empirically tested findings(their paper reports on seven
studies they did against their hypotheses) - that fluctuations and prevalence of idea habitats help determine how
successfully an idea spreads - sets out to achieve two objectives. First, we aim to further advance the cause for
SCVA by elevating the discussion of the spread of “Rathergate” versus other ideas during the 2004 Presidential
campaign from an anecdotal review of blogger influence, to an application of Berger and Heath’s framework that
provides evidence of greater scale structural assets in action.21 Second, Berger and Heath’s framework is a
great example of the kind of strategic thinking that SCVA aspires to encourage in the creation and defence of corpo-
rate value.

In their study of “Idea Habitats: How the Prevalence of Environmental Cues Influence the Success of Ideas,”
Berger and Heath “define an idea’s habitat as the set of environmental cues that prime people to think about
an idea and cause them to believe it may be relevant to pass along (Sperber & Wilson, 1986).” They found that
fluctuations22 and prevalence23 of the habitats in which ideas must thrive are factors that determine the survival
and spread of ideas (Berger & Heath, 2005).

The Pew study sets out to determine the distinctive influence of blogs in the course of the 2004 election cam-
paign by tracking “buzz”24. “If bloggers, or media, or presidential campaigns, were buzz makers plenipotentiary, that
is, heavyweight agenda-setters and issue-framers, then there would be a recurring pattern in which one channel
led and the others followed,” (Cornfield, Carson, Kalis and Simon, 2005). The study “developed a compara-
tive four-channel framework, such that on any day topics mentioned in blogs could be compared with those
in mainstream media, the presidential and national party campaign organs, and online citizen chat forums”
(Cornfield, Carson, Kalis and Simon, 2005). The study’s search for a smoking gun across a wide range of issues

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held by an individual or a collective of bloggers overshadows its two substantive conclusions that highlight
a point in history when there are “full-scale changes in the way business is conducted, so that simply
adopting new technology or fighting the competition as you used to may be insufficient” (Grove, 1996). “A
blog is a remarkably suitable place for buzz to form. A blogger can spark conversation with choice com-
ments on documents drawn from the internet, and the conversation can build through the tools which
make the blogosphere possible” (Cornfield, Carson, Kalis and Simon, 2005). The relative history and
financial capital backing the four channels studied are also remarkable:

Channel History 2004 Costs Investment Annual

Mainstream Media Hundreds of years Billions Billions

Presidential & Hundreds of years Greater than $500 million Greater than $100 million
National Campaign

Online Chat Less than 10 years Marginal Marginal

Blogs Less than 3 years Marginal Marginal

Fig. 5

A random check of the 40 blogs included in the Pew study found that most were established in 2002 or 2003,
12 to 24 months ahead of the study period, with virtually no capital investment. Two Pew surveys con-
ducted in early 2005 show that 16% of U.S. adults (32 million) [were] blog readers... the blogger audi-
ence... [was a respectable]... 20% of the newspaper audience and 40% of the talk radio audience. Mean-
while, 6% of the entire U.S. adult population had created a blog. That’s 11 million people, or one out of
every 17 American citizens (Cornfield, Carson, Kalis and Simon, 2005).

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The finding that, “the political blogosphere seems less an entity unto itself than a well integrated part of
the national discourse” (Cornfield, Carson, Kalis and Simon, 2005) is evidence of a new form of influence
that is scaling up in exertive force. It is self-referencing, permanent and growing exponentially. However,
more interesting still is the way the Pew study design lends itself to Berger and Heath’s framework. In ad-
dition to the four channels introduced above, the Pew study data sets were broken into liberal, conserva-
tive and general for the Blog and Citizen Chatter channels. The Campaign Releases channel was delin-
eated by the Kerry and Bush divisions and the Media Coverage channel was apparently granted status
as “objective,” or at least indiscriminate since the set was not delineated (despite the presence of Fox
News!). Consider this mashup25 of the Pew “Rathergate” and Berger and Heath 26 frames, an attempt to
illustrate an information cascade.27

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Information Cascade:
Structural assets, i.e. environmental cues about the media and the
absence of neutralizing cues & opinion, destroy “Dan Rather” brand.

Pew Framework Idea Habitats Disposition or “Charge” Outcomes

Mainstream Media Mainstream Media Mainstream Media Mainstream Media


• objective Mainstream media • inert state is neutral,
(including CBS News) but if other Habitats or Attacks Rather and
self interest catalyze can CBS News
• Primarily broadcast.
multichannel. Embedded be polarized quickly
with a relative balance of • competitive
Presidential & Campaigns
liberal, conservative and
National Campaigns topical environmental cues Stays out of it
Bush - Conservative that encourage people to
Kerry - Liberal recall and transmit ideas
• indiscriminate
• rich with media cues

Online Chat Liberal Liberal Liberal


• liberal • mulitchannel, interactive • collaborative Abandons Rather &
• conservative • rich with anti-media cues • multi-channel CBS News
• neutral

Blogs Conservative Conservative Conservative


• liberal • multichannel, interactive • collaborative Attacks Rather &
• conservative • rich with anti-media cues • multi-channel CBS News
• neutral

CBS News CBS News Monolithic CBS News


• objective • single broadcast channel • competitive Abandons Rather
• content neutral

Dan Rather Dan Rather Isolated Dan Rather brand


• Dan Rather • single voice • competitive irrevocably destroyed
• nearly content neutral

Fig. 6

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The Pew study offers a fascinating blow by blow account of “Rathergate.” Yet its chronological, player by
player, content piece by content piece review is frustrated in the search for the smoking gun. Without the
benefit of Berger & Heath, the Pew team intuit that the structural sources of influence have “something
to do with location within the mediascape (the general idea behind our blog-positioning hypothesis), and
something to do with narrative fit as perceived by voices in all four channels, and as enacted by the players
cast in the crucial roles (the general idea behind the notion of the incriminating meme in Rathergate)”
(Cornfield, Carson, Kalis and Simon, 2005). Using Berger and Heath’s framework, we can speculate
that Dan Rather, one of the strongest brands in news, invested in by CBS for decades, not to mention his
personal record of dedication and relative innocence in this affair, suffered the effects of what Columbia’s
Duncan Watts might call a global cascade28 that in part, “can be explained in terms of the connectivity of
the network by which influence is transmitted between individuals” (Watts, 2002). In broadcast speak, Dan
Rather ratings were down. Unlike the other seven ideas tested in the Pew study, Rather did not have the
social capital required in the era of I.A.M. to cast environmental cues that would neutralize the spread of
the idea causing him damage and preserve his brand value.

SCVA postulates that the implicit content repository and transmission infrastructure of idea habitats
has been described in social network literature as small-worlds, local level clustering (Johnson and
Gilles 2000, Caroyol and Roux 2003, Galeotti, Goyal and Kamphorst 2004, Hojman and Szeidl 2004b and
Jackson and Rogers 2005) cliques (Warner and Lunt, 1941: 32), the islands model (Jackson and Rogers,
2005) and separate but related concepts are explored in “The Strength of Weak Ties” (Granovetter 1972)
and “Structural Holes” (Burt 1992). While all describe structural assets, SCVA adopts the notion of idea
habitats in this context to try to more accurately describe the implicit content assets that impact the
exertion of influence. Technology has charged “small worlds” with greater scales of implicit content. The
charge can range in disposition towards corporate goals from positive through neutral to negative, and
this charge can impact earnings. Warlords, gangsters, kings and politicians have long understood the
network effects of patronage and largess in the accumulation and maintenance of power; religions have
their “Mardi Gras,” the military “softens” the battlefield.

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Putting Your Marketing Plan in Perspective

TV/Print Ads Begin


8000 $5/Day Lease
Model X Sales
Incentives
Pricing Announced Model X Buzz
7000 In Dealerships
Positive Sentiment
6000 Negative Sentiment
# of Messages

Auto Show Debut Neither Sentiment


5000
Mixed Sentiment
4000
Recall
3000
Magazine Award
2000
1000
0
Jan 04 Feb 04 Mar 04 Apr 04 May 04 Jun 04 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04

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

Corporations who invest in similar strategies (see Fig. 7 for a generic example29) that are designed to
track and prime the potential of I.A.M. phenomena give themselves the opportunity to emerge more
valuable. Which asset has more long term residual value? Is it the implicit carnival at MacWorld or the
explicit Steve Jobs address? While the “don’t walk by, give it a try” brand spectacle is the overwhelming
subject of envious management deliberation, SCVA is the reminder that the carrier wave for the Carny’s
call, the more elaborately produced midway, indicates far more about a company’s ability to create and
preserve value.

“All the editorial content that has been generated within the last year about how the consumer is now in
charge and that the marketer is merely along for the ride becomes more understandable given that one
in three Internet users has had a purchase decision influenced by content generated by another Internet
user.”30

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Certifications of Social Credentials,
Reinforcement of Identity and Recognition
Once again the need for new structural management methods are highlighted as we consider these remain-
ing complex and inter-related intrinsic elements of social capital. Fortunately, our requisite here is not to
determine if the massive new scale of certifications of social credentials, reinforcement of identity and
recognition is positive31 or negative (particularly when it comes to effects during adolescence and issues
of gender) or even to recommend which analysis models should be the most talked about topics in market-
ing today. A worthwhile review of the literature at the intersection of internet usage and the development
of self-identity can be found in China Media Research, 3(1), 2007, Long & Chen, Impact of Internet on
Adolescent Self-Identity Development. There are debates, different schools of thought and many different
frameworks to consider. There is no debate that the internet, especially games and recent forms of social
networking software services, provide entirely new and exponentially greater scales of interaction with
these elements of social capital.

People have always maintained different personas: professional, personal, private, public, social, family,
etc. The simple fact that each of these personas comes with its own social credentials and forms of rec-
ognition and is now often developed dialogically, in public and as part of an iteratively published, poten-
tially permanent record in text, photos, audio and video confirms greater scale. However, to reinforce the
point, let us briefly highlight the common features of online social network services that incorporate social
credentials and recognition in the development of identity and then offer a snapshot of their startling adop-
tion.

Fig 8: Evidence of greater scale of three intrinsic elements of social capital: identity, social credentials and
individual recognition. Illustrated by analysis of typical social network service features.

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Legend: Identity x 16 Social Credentials x 16 Recognition x 17

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
‘97

’98

LiveJournal
AsianAvenue
‘99 BlackPlanet

LunarStorm (SNS relaunch)

’00
MiGente
Six Degrees closes

‘01 Cyworld
Ryze

Fotolog Friendster
’02

Skyblog
Couchsurfing
Linkedin MySpace
‘03 Last FM
Tribe.net, Open BC/Xing
HI5
Orkut, Dogster
Multiply, aSmallWorld Flickr, Picza, Mixi, Facebook (Harvard only)
Corporate Value
’04 Dodgeball, Care2 (SNS relaunch) Inflection Point
Catster
Hyves

Youtube, Xanga (SNS relaunch)


Yahoo! 360
Bebo (SNS relaunch)
Cyworld (China) ‘05
Facebook (Highschool Networks
Ning AsianAvenue, BlackPlanet (relaunch)
QQ (relaunch)
Facebook (corporate networks)
Windows Live Spaces ’06 Cyworld (U.S.)
Twitter
MyChurch, Facebook (everyone)

Fig. 9

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On January 21, 2007 at 4:30 p.m. EST, this list of online social network sites, which launched with 12
items at www.wikipedia.org on October 10, 2005 at 2:36 p.m., is now edited around a dozen times a day by
unpaid contributors and has 100 “notable” sites with over one billion members. Once again, the drama of
an authentic point of inflection for business becomes apparent about mid-way through the first decade
of the 21st century when, for the first time more internet users are using broadband than dial-up con-
nections.

I am in the position of Louis Pasteur telling doctors that their greatest enemy was quite invisible, and quite unrecognized by
them. Our conventional response to all media, namely that it is how they are used that counts, is the numb stance of the
technological idiot. For the ‘content’ of a medium is like the juicy piece of meat carried by the burglar to distract the watch-
dog of the mind. The effect of the medium is made strong and intense just because it is given another medium as ‘content’.
The content of a movie is a novel or a play or an opera. The effect of the movie form is not related to its program content.
The ‘content’ of writing or print is speech, but the reader is almost entirely unaware either of print or speech.33

We have arrived at a point in history where the effect of I.A.M. has been made the strongest and most in-
tense34 form of media we experience because it has been given all other media as its content. The movie,
the play, the opera, the newspaper, the television, the radio, commercial music, print and photographs,
even the brand, have all been given over to the Individual to be reincarnated as the YouTube video, the
prosumer indie, the blog, the blog comment, the forum, the Tweet35, the IM chat, rating & review, the
Flickr album, the podcast, the viral email and the mashup.

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SCVA argues that this effect is a new scale of social capital that marks a point of inflection for business and
it is this new scaled-up version of social capital (abbreviated herein to SCx) for which SCVA is determined
to highlight the value.

Scaled Up Social Capital = SCx

Does it not seem natural? Project and scale up the power of the individual, and that value of human
connection of which we are all so instinctively aware, emerges in amplified forms as well. In addition to
the new scales of intrinsic social capital elements detailed above, SCVA urges corporations to examine the
extrinsic variables of social capital such as trust, and most importantly network structure, for similar
evidence of new scale to understand further social capital formation, access and use.

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“Pay no attention to that man
behind the curtain”:
Brand and Social Capital
Before this point, brand was the fastest growing indicator of corporate value. SCVA predicts that from
this point on, social capital is corporate value’s leading source. Over centuries brand evolved as an
integral part of business, gaining weight in relation to other factors such as talent, fixed assets, distribu-
tion and capital. It broke out as the leading indicator of sustainable corporate value added performance
because it was particularly suited to guide investors, managers, employees and consumers in an era
when broadcast media – radio, television and print – were the most disruptive technologies and domi-
nant forms of media. In time, brand has come to be understood as the perception that emanates from all
activities of the company. Just as production, human resources management and finance have remained
critical to business success throughout the brand era; brand will continue to play a starring role as I.A.M.,
driven by social capital, emerges as the dominant media form transmitting brand. SCVA is not a challenge
to brand; it is merely a reflection of broadcast’s eroding command of human attention (see Fig. 10). “There
has been a clear falloff in the use of traditional newspaper and broadcast media and a rise in use of the inter-
net...”.36

A new focus on social capital will bring about an improved understanding of brand. The symbolic brand
evolved from the practice of literally burning a symbol into the side of a barrel or beast to identify the
commodity by its owner or manufacturer.37 It was conceived to relate a lot of information with the least
amount of time and space. Both are precious within the broadcast paradigm. Whether you are coping
with the constraints presented by a red hot iron and a moving side of beef or the 30-second television
spot, a brand is a sublimination of a product or company’s values, slogan, pricing, stories, personality,
tastes, smells, sounds, appearances and emotional and physical benefits.

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Fragmented Media Environment
(% of all Americans who “regularly” go to news source: PRC People/Press)

70 Local TV
60 National TV News
Cable News
50 Newspapers
40 Radio
Online News
30
20
10
0
1994 1996 1998 2000 2002 2004

Source: http://www.artsmarketing.org

Fig. 10

Consistency, conformity and continuity – these brand mantras may persist in the era of I.A.M. but broad-
cast’s monolithic brand identities and the methods that built them (symbolic brand) are being replaced,
absorbed by porous, malleable imitations with narrowcast mutations over millions of channels (i.e.
Individuals), each with unique frequency38 but in aggregate beyond the reach39 of any advertisement
(memetic40 brand41).

SCVA is a spin-out42 of brand management. It is designed to bring talent and resources to the relatively
unexplored structural value drivers of social network throughout the corporate ecosystem. In the past
brand’s most important role was sublimination, mostly because communications were expensive and
space was precious. Now brand’s most important role is rooted in the more structurally oriented idea of
findability43. On this point it is helpful to make a distinction between the notions of market positioning and
information retrieval.

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Market positioning is a cognitive goal, a theory now thoroughly adopted by marketing professionals
that was introduced in 1969 by Jack Trout and Al Ries. Since humans cope with overwhelming technol-
ogy, change and information flow (including brand noise, the proliferation of thousands of brands) by
subliminating almost everything we encounter upon reception; we have come to understand brand’s
role as beacon. Brand signals that “ah-ha!” moment when a consumer remembers a product’s name or
previous messages that have been associated with it. Traditional brand management is still critical where
space is tight. Broadcast media as yet, dominate the market communications mix. Packaging and product
design are key in store and on shelf.

However in a networked world, the symbolic brand’s mission of distillation is contrary to the ambition of
findability. The ultimate goal of the memetic brand is network omnipresence. Within the I.A.M. paradigm,
spreading your corporate presence as positively and widely as possible is a key objective. Understand-
ing the environmental cues within as many idea habitats (i.e. context) as possible and their supporting
network infrastructure are the methods of achieving this. Syndication of your corporate and product
presence can be instigated by corporations and their agencies, but they must activate I.A.M. through
social networks to achieve maximum reach and that activation is a function of social capital. On the
World Wide Web we are describing a large digital footprint embedded with favourable references and
links. Unlike brand content distributed over a broadcast network, brand content on the web has greater
residual effects. It is permanently stored for retrieval and when generated by I.A.M. it has an associated
geography, thus eliminating the distance between the so called “virtual” and real worlds. A corporation’s
real world social network positioning and the disposition of idea habitats are just as important as tradi-
tional marketing positioning.

In fact for new companies, products and services, which are the most exciting opportunities for growth in
corporate value, these structural concerns are even more important to their early success consider-
ing the time, cost and waning impact of traditional media. Whereas the achievement of symbolic brand
is about arriving at a point of differentiation in the consumer’s mind, the achievement of memetic brand
is about aligning your business behind a maxim that may resonate44 across many diverse, existing idea

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habitats. Think here of claims like The Body Shop’s “Against Animal Testing” or Google’s unofficial
motto, “Don’t be Evil”45 that perhaps rail against an entrenched establishment’s worldview, but are blatant
attempts to conform to consumer sensibilities about what ideas are worth passing on to others.

Upon the moment of retrieval, since communications are cheap and space is unlimited, the need is to
fully satisfy the search. Time and attention are today’s rare commodities, but priority trumps both. When
consumers retrieve a brand, they provide permission to use their time and attention to satisfy their search.
Their search mode or vigilance for information changes from truncated (continuous partial attention) to
elongated (deep dives by amateur experts)46. Again, the symbolic brand is at odds with corporate value
creation at this point. The need is for elaboration of a product or company’s values, slogan, pricing,
stories, personality, tastes, smells, sounds, appearances, emotional and physical benefits, not sublimi-
nation. The canned message cannot satisfy these needs. Corporations simply do not have the internal
resources to anticipate the contingencies of all searches or to articulate how they relate to the search
accounting for the subtle complexities of unique language and cultural sensitivities.

The case of Encyclopedia Britannica provides an extreme illustration of the dynamics facing all corpora-
tions to some degree. One of history’s most relied-upon brands in reference since the 1700s employs fewer
than 100 people. How can this force compete with a platform like www.wikipedia.org, powered by more than
28,000 volunteer contributors... all with nearly the same technical capabilities as the traditional compa-
ny? In any event, most consumers seek and trust the references of other consumers more than the corpo-
ration’s brand claims47. Most importantly, any consumer may now have broadcast capabilities that can
surpass ABC or CNN or NBC under the right conditions, so it is more risky to leave satisfying each to
the symbolic brand. The corporation needs people involved or it will be overwhelmed by the coordinated
action of “connected customers”48.

SCVA contends that the narcotic numbness (see footnote 14) described by McLuhan explains why the vast
majority of corporations insist on using the same old hammer of traditional brand management when new
tools and management methods focused on maximizing social capital must be fervently developed and
employed.

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The transition required is no less abrupt than that moment when the search of Dorothy, the Tin Man,
Scarecrow and Lion reaches confrontation with the Great Oz façade and the curtain is pulled back to reveal
a mere mortal. The corporation is at risk of being the “humbug” caught shouting into the loudspeakers and
pulling at the mechanistic levers of the past.

If SCVA is brought into vogue as a compass, the brand establishment need not fear. They are “clever
enough wizards” to quickly transform from Great Oz into leadership of great courage, heart and brains.
Playing a role in personal identity formation by recognizing their social network connections with certi-
fications (the Scarecrow’s diploma), testimonials (the Tin Man’s ticking heart) and medals of honour (the
Lion’s courage) will be familiar aspects of their strategies.

Nevertheless, SCVA management is not a metaphoric exercise. For example, homophily or bonding and
heterophily or bridging are concepts, well developed in social capital theory, that may add great value
to corporate symbolic and memetic branding efforts in the age of I.A.M.. Even a quick flip through the
following remedial slide show demonstrates how powerful, existing work like Burt’s Structural Holes
theory, is useful in understanding today’s business environment:

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Broadcast
Paradigm To
The Individual CLICK TO WATCH
SLIDESHOW

As Medium
Understanding the Shift Through
Burt’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”

Social network structural analysis (Burt is just one example) can take business management and value
creation strategy far beyond such simple illustrations. Beginning with the premise that social capital is
a competitive “factor as routinely critical as financial or human capital”, “all the more true when financial
and human capital are abundant – which in essence reduces the investment term in the production
equation to an unproblematic constant” (Burt, 1992) (i.e. the forces behind rapid commoditization high-
lighted in Fig.1), Structural Hole theory elaborates the kinds of advantages, substance of advantages and the
social structural condition responsible for advantages, providing a framework that may guide actions intended
to maximize social networks for better returns on investment. (See Fig. 1649)

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Competitive Advantage of Structural Holes

A Question of Opportunity
}
Profit = Investment + Rate of Return

A Question of Production
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 Holes


network trust, size & diversity cohesion
& structural equivalence
efficient-effective networks
structural holes & weak ties

Structural Autonomy
holes & entrepreneurial opportunity
primary holes & constraint
secondary holes & constraint
hole 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.

Fig. 16

For example, through Burt’s vision, business management may come to see how the age of I.A.M.
marks the end of broadcast’s “tertius gaudens50” position between the corporation and its customers,
question to whom broadcast’s eroding control and profits will accrue and bring to the fore investments,
plans and actions that are focused on achieving the power in networks51. Developing expertise in such
new structural management methods requires understanding that traditional brand management was
developed for the broadcast paradigm and so is inexorably focused on broadcast-driven strategy.

Why introduce SCVA when brand valuation and other schools of value-based management such as Eco-
nomic Value Added52 (generically known as economic profit) are already well known and do not require
delving into entirely new areas of theory and complexity?

The first answer to this question is, as described earlier in this paper, and more directly in my preliminary
investigation of this topic, “Is There Motive for Corporate Social Capital Valuation” (2007), clearly business
has reached a value creation point of inflection. Companies like Google and Amazon have brand valuations
among the 100 most valuable in the world, overtaking decades-old brands with a fraction of the time and
money invested. By any existing definition, the premium valuations paid for Facebook, MySpace, YouTube

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and many other companies including eBay’s US$2.6 billion acquisition of Skype (since written down by
US$900-million, an interesting move worth further study), are not attributable to brand. On a product
level, the expectations of consumers that hold a brand accountable for quality, price and other market-
ing factors and enable a corporation to charge a higher margin for branded products are scaled up in the
I.A.M. era to new levels of influence. Brand related value added earnings are subjected to new risks. In
short, delving into entirely new areas of theory and complexity is exactly what is needed for corporations
to survive and maybe even thrive in the new competitive environment.

Like SCVA coming after brand, Structural Holes was introduced twenty years after the simpler and well
known “Strength of Weak Ties” argument introduced by Mark Granovetter. “Weak ties and structural holes
seem to describe the same phenomenon” (Burt, 1992), just as Interbrand has measured Google’s success
right alongside of traditional brand stories like Coca-Cola and Honda.

Let us avert elaboration here of the Strength of Weak Ties argument, although it should be a useful
model for understanding memetic brand within a networked paradigm (i.e. the era of I.A.M.) and touch
only upon Burt’s reasons for persisting with the Structural Holes argument. Firstly, he argues that tie
weakness is a correlate, not a cause. Example: Google becomes one of the most valuable companies on
the planet and therefore appears as number 20 on the list of the world’s most valuable brands (Interbrand,
2007), yet Google’s value has not been created by brand.

Secondly, “by shifting attention away from the structural hole responsible for the information benefits, to the
strength of the tie providing them, the weak tie argument obscures the control benefits of structural
holes” (p. 28, Burt, 1992). Bingo!

There are many inspiring examples of companies taking a structural approach to strategy, including the
work of Wendi Backler at Boston Consulting Group and the clients of Valdis Krebs and John Maloney.
The International Network for Social Network Analysis, founded in 1978 by Barry Wellman, brings to-
gether about 1000 members, primarily academics, many of whom consult with corporations. Popular
book and blog author Seth Godin has observed a class of a few million “Digerati” who are dedicated to

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“using the learning tools built into the Net to get smarter, faster” (Godin, 2005) and he himself evangelizes
marketing methods aligned with SCVA. However Godin also notes the minority status of these examples.
He describes a new digital divide separating such early adopters from the rest of business’ investors
and managers.

SCVA is an attempt to appeal to the sensibilities of the early majority, shift attention away from brand in
business circles and bring attention and investment to radically new methods of value creation. There
is not much here that will impress the Digerati. Thomas Friedman has attempted to drive bottom-up adop-
tion with a gigantic metaphor and educational effort targeted at individuals in The World is Flat. Malcolm
Gladwell picks up on associated tactical marketing communications dynamics in The Tipping Point and
Duncan Watts is provocative at the level of product/idea positioning and design. SCVA would like to facilitate
this crossing of the chasm by placing the typically unseen structural sources of corporate control in the
networked age directly on the boardroom table using the carrot of increases in corporate value and the
stick of performance metrics (along with a Wizard of Oz metaphor to keep the marketing folks awake!).

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Over the Rainbow:
The SCVA valuation method

SCVA is based on the premise that social capital is primal to human interaction. It therefore concerns
every individual, every social connection and is then applicable to every corporation. The method is likely to
be tested early by its usefulness in evaluating online social network-oriented companies like Facebook
and MySpace which derive all or most of their revenues from social capital. In the era of I.A.M., all compa-
nies are already directly impacted by the effects of new scales of social capital or they have the opportunity
to take advantage of it. Concurrent with this individual empowerment or perhaps consistent with it, is our
arrival at a time of awareness related to our collective impact on universal quality of life and our environ-
ment, along with an accompanying sense of accountability. Social capital matters to every business, big
or small, local or global, B2C or B2B. It is predictable then that the method may also be valuable when
applied to any corporation in such diverse industries as the mind can imagine, including retail, fast-mov-
ing consumer products, oil & gas, transportation, entertainment, hospitality and health care, to name a
few. Social capital means far more to Coca-Cola than Coca-Cola means to social capital.

The goal of the SCVA valuation method is to place a dollar value on a company’s most promising social
capital, calculated as net present value (NPV), or today’s value of earnings that a company’s SCx is account-
able for in the future. This number will become the best top line measure of how SCx is driving a company’s
economic performance. As with all valuation methods SCVA is a snapshot, based on context at a point in
time, of the overall worth of a company’s SCx that enables investors and managers to compare the com-
pany to its competitors, its history and to track its actual performance against projections.

The overarching principles of the method are transparency, simplicity and above all consistency.

While the method itself is easily understood, can be executed with available or cheaply developed tech-
nologies and is based upon accepted accounting and financial management practices, the major impedi-
ment to adoption of SCVA is that it can not be derived without the co-operation of the company being valu-
ated. Social capital is a product of social connections. To obtain an accurate snapshot of a company’s

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social capital, we must have an accurate report detailing with whom the company (either corporately or
via its agents and employees) is engaged in meaningful interaction (i.e. interaction involving the intrinsic
and extrinsic elements of social capital). Future work on SCVA will focus on the development of:

• a technology solution designed to ease the valuation process by removing barriers to data ex-
change while addressing the privacy, security and competitive concerns of the participating corpo-
rations and individuals involved, and:

• a consistent approach to determining with whom the company is connected based upon publicly
available sources, and then augments this with a model to estimate the unknowns, perhaps
providing an accompanying accuracy notation that is familiar along with most sample-based
survey research.

These may seem like discouraging hurdles. However reflection upon the adoption of the brand valuation
techniques advanced by Interbrand provides perspective on the context in which they may be overcome.

In 1988, London’s Interbrand conducted the world’s first brand valuation for RHM Group in the UK53, a food
company fighting off a hostile takeover bid. A year later Interbrand was hired by Grand Met to conduct a
valuation of the Pillsbury brand portfolio as part of a $5.2 billion takeover bid. “It was the wave of brand
acquisitions in the late 1980s that exposed the hidden value in highly branded companies and brought
brand valuation to the fore.”54 In the context of Microsoft’s $45-billion hostile takeover bid for Yahoo!,
the time and money that will be required to solve the problems outlined above do not look so daunting.
Using the SCVA argument, Yahoo’s board may present a plan to refocus its business on the assets that
originally made it a leader and outline how a merger with Microsoft would dilute the quality of its future
earnings and perhaps encumber any structural assets it has to compete with Google, i.e. social networks
that are maximized for social capital. Microsoft, on the other hand, may be able to justify a higher bid. As
the volume of transactions like the acquisition of YouTube, the write down of Skype, the investment in Face-
book and many lower profile deals increases, opportunities exist. If SCVA has merit, it may emerge.

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In addition, working from the insight that “knowledge diffusion associated with science-based innova-
tion stems from the norm of openness and incentives for publication”55, SCVA will pursue an open and
publication-focused strategy. Publication has been a key factor contributing to the diffusion of Stern Stew-
art & Co’s formula of Economic Value Added and Interbrand’s brand valuation method. In 1988, Stern
Stewart launched The Journal of Applied Corporate Finance and its principals have released a number
of books and articles to advance their concepts. Through seven years of publishing their Best Global
Brands study, most of them in collaboration with BusinessWeek magazine, Interbrand’s work has risen
to be regarded as the third most sought-after benchmark among the top 500 CEOs and CFOs in the US
according to a study by PRWeek (Interbrand, 2006). Given the dramatic changes in publication dynamics
that are detailed in this paper, if SCVA has merit, it is possible its basic ideas will spread and be effec-
tively developed very quickly. Can you Digg56 it? Can you help me ChangeThis?

SCVA’s valuation approach is a derivative of brand valuation technique championed by Interbrand and
economic profit advanced by Stern Stewart & Co.’s trademarked formula of Economic Value Added, both of
which are derivatives of the overall practice of value based management57. The three components of the
SCVA formula are Financial Analysis, SCx Factor and the SCx Inventory.

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1. Financial Analysis
Human capital is the primary source of competitive intangible earnings for today’s corporations. So a major
challenge for SCVA is to propose a consistent approach that highlights only the portion of human activity
behind SCx, a new driver of corporate growth and value that deserves particular management attention.

After all, a telephone call is a form of social media (albeit synchronic and only rarely published58) and most em-
ployee activity is taken up by a plethora of essential preoccupations (learning, meetings, planning, selling,
reporting, routine correspondence, checking Facebook, talking to someone about the weekend!, etc.) Coor-
dinating manufacturing involves human interaction. Brand evolves out of the connections between owners,
managers, employees, agencies and customers of the corporation. Social capital is involved in all of these
activities and therefore all revenues of the company.

Recognizing the social capital involved in all of these age-old operations of the company, SCVA main-
tains that most of this activity is already measured by traditional accounting methods, and performance
along these metrics is best measured and tracked by accounting profit. Burt might describe these aspects of
the business as investment terms in the production equation that are an unproblematic constant.

For example, the tangible assets of corporations are increasingly subjected to global forces of commod-
itization. Competitive advantages attributable to associated lower costs may erode quickly. Particularly in
developed economies such as the United States, management of fixed assets is critical as freer trade and
cheap transportation and logistics has brought incredible competitive pressures to bear. In this context,
fixed assets are typically not viewed as the most promising source of growth in corporate value.

Getting at SCx begins by calculating a company’s economic profit (EP)59, which is a well-known process widely
accepted by finance experts and firmly rooted in corporate finance theory. Economic profit’s major contri-
bution is to account for the costs of capital required to fund the earnings and growth of the company. In
addition, economic profit is the “big bucket” that catches all of the cash flowing from the “value added”

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performance of the company (i.e. performance that provides returns over and above the cost of capi-
tal). Parts of this stream are attributable to tangible assets such as equipment, materials and land and
the management needed to operate them effectively (superb supply chains, speedy distribution methods
and thrifty operations). Other parts of the stream flow from the talented human capital required to market
(brand is included here), develop and direct the company towards the delivery of exceptional performance.

SCVA sets out to distinguish a particular stream of cash flowing into the EP bucket, so the starting point for
calculating SCVA is a six-year projection60 of economic profit based upon a consensus view from a suf-
ficient sample of qualified analysts.

As we shall see in the following sections, SCVA asserts that in the age of I.A.M., one of the most important
segments of earnings that corporations must come to understand, develop and track are those subjected
to fluctuation due to forms of scaled-up social capital (SCx) like the memetic brand. Ideally, SCx will be
the fastest growing segment of earnings, its unique role in B2B businesses will require unique man-
agement and it is essential to the efforts of all companies defending brands established during the
broadcast era (like ‘Dan Rather’ or ‘Dell,’ (see “Dell Hell”) or launching relatively new brands (like Agent
Provocateur who, when counted in July of 2007 for a Times Online article, had received 360 million views
over five years since releasing this Kyle Minogue video). SCVA leaves all of the other earnings generated
by the corporation in the EP “bucket”, including those attributable to the “real world” and broadcast
marketing techniques like the symbolic brand, which are maturing business activities even though they
are likely to be the largest portion of earnings, particularly in established consumer facing companies.

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2. SCx Factor (SCxF)
The objective of SCxF is to bring into focus the portion of earnings that are not attributable to the fungible
resources of the business.

Economic profit is also the starting point for brand valuation (BV), which then outlines a series of ad-
justments that are subjectively arrived at through consultation with analysts and survey work. The first
adjustments BV makes are to account for cash flows that are attributable to certain legal intangible
assets such as copyrights, patents and trademarks. Next, brand valuation technique relies on the devel-
opment of a proprietary “role of brand” factor to determine what percentage of intangible earnings are
generated by the brand, based upon survey work studying the brands and the categories examined. The
survey work is an estimate of the minds’ of buyers as they reflect upon their decision made at the time of
purchase. For example, if 60% report brand was a factor, BV attributes 60% of intangible earnings to brand
and the remainder of intangible earnings is typically attributed to management expertise.

SCVA, on the other hand, relies on a series of audits and ratios to make its determinations.

Digital Footprint Audit – This is a customized search of the entire internet to identify every piece of
content that contains a reference to the corporation being valuated. A September 13, 2006 report en-
titled, “The Forrester WaveTM: Brand Monitoring, Q3 2006” evaluates seven leading vendors who are
capable of performing this audit including Biz360, Brandimensions, Cymfony, Factiva, MotiveQuest,
Nielsen BuzzMetrics, and Umbria. The outcome of the DF Audit is the Total Digital Footprint (TDF).

Social Identity Audit – This is an analysis of the Digital Footprint results to distinguish all of the con-
tent that is attributed to an individual identity and create a list of all associated identities. The SI factor.

Social Engagement Audit – This is a collection and analysis of the recorded correspondence that the cor-
poration has with individual identities. This includes email, on the Web and through subscriptions,
billing, warranty registrations, administration and all customer lists. The SE factor.

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Social Capital Opportunity – Identities discovered during the Social Identity Audit are then searched
for matching identities from the Social Engagement Audit. These matches provide the sum Social
Capital Opportunity (SCO).

SCO/TDF = SCxF

SCxF (EP) = earnings subjected or exposed to SCx.

SCxF does not delve into the qualities of the social capital or the associated earnings that it is identifying
(SCx Inventory does). It relies on two basic assumptions:

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, this assumption needs further research and modeling. It is not valid, as at June 2007 when
broadband penetration rates, even in OECD countries, stand at roughly 19 per 100 inhabitants61. It is less
true of a company that deals in the trade of commodities such as sugar or sugary drinks, than companies
born in the wake of the internet browser and whose fortunes are more clearly linked to broadband.
SCVA will benefit from a method to make adjustments to more closely align TDF and its proportion-
ate share of economic profit. It is important to keep in mind that EP is fundamentally a measure of a
company’s ability to produce stable, value added performance and this kind of performance often requires
managers to make decisions in anticipation of future trends. The usefulness of this assumption is depen-
dent upon how it contributes to SCVA’s mission. Trends are converging in the right direction. This assump-
tion contains a bias that is good for corporations. It is true that many companies like Google and Amazon,
which have recently shown the most remarkable stories of growth in corporate value, trend in the direc-
tion of TDF = EP. It is true that the segment of business represented by TDF, given its correlation to attrac-
tive and influential consumers, is a very important - perhaps the most important - segment to track. It
is true that all companies are exposed to the same dynamics and need to learn to cope with these trends.

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A company’s presence in the “real world” and its presence on the Internet are beginning to become one.
SCVA projects that we are moving towards the convergence of TDF = EP as broadband penetration contin-
ues to proliferate, I.A.M. continues to emerge and corporations become increasingly connected through
concurrent and related technology trends (for example, through geotagging62 and inventory controls
enabled by radio-frequency identification tags on every item at Wal-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.

This assumption is subject to the same forces as described above, except it zeroes in on the portion of digi-
tal footprint that is a product of SCx. Unlike approximations based upon survey work, a direct link to sales
can be established in the case of SCxF, since SE factor is developed from customer lists (which could be
tracked as a subset within the SE Audit). It may be useful to breakout the portion of SCxF that is directly
linked to sales for management purposes, but SCVA argues that whole SCxF, as detailed here, is the best
for arriving at the top measure we are seeking because it encompasses almost all the influences of SCx
and therefore addresses almost all earnings that are exposed to fluctuations due to SCx.

Whether portions of SCx are positively applied to develop earnings or are a negative drag on earnings is not
determined by SCxF. For example, a Google search for “Wal-Mart” returns more than 55 million web
pages. A Google search for “Agent Provocateur” returns less than 2.5 million web pages. For the most
part, Wal-Mart is a business that was built prior to the inflection point in value that we have described
above. Wal-Mart’s value added earnings may prove to be highly exposed to SCxF and, in the absence of
strategies to focus on this exposure, may experience growing risks as the era of I.A.M. emerges. Agent
Provocateur has adopted methods and tactics designed to leverage SCx. Its business may also be highly
exposed to SCxF. However, this exposure could be a stable source of high margin, rapid growth. SCxF
simply illustrates the relative exposure that any company has to SCx in a way that is consistent, mean-
ingful over time and powerful for investors and executive management.

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3. SCx Inventory (SCxI)
The objective of SCxI is to bring into focus the risks to earnings that are attributable to SCx, i.e., a spe-
cific, new asset discount rate that is not otherwise accounted for in corporate management.

Using the Wal-Mart/Agent Provocateur example cited above we have noted that SCxF demonstrates that
both companies, indeed all companies will have a portion of their value added earnings exposed to the
effects of SCx as the age of I.A.M. emerges (along with other technological advancements that lead to
TDF = EP). The question that SCxI addresses is the relative risk of these SCx exposed earnings materializing
over the projection period. In deriving net present value of forecasted earnings, the standard practice, ac-
cepted by finance professionals and rooted in financial theory, is the development of a discount rate that
represents the relative risk profile of earnings, in this case value added earnings that are exposed to
SCx. Of course, the discount rate must take into consideration the time value of money. The calculation
of economic profit required as a starting point for SCVA, presupposes the calculation of Weighted Aver-
age Cost of Capital (WACC)63. Consulting with analysts and making adjustments to arrive at a company-
specific projected WACC that covers the projection period is a common practice and prerequisite to arriv-
ing at a meaningful factor here.

The more challenging requirement is to develop a method of SCx quantification with concrete terms. Final
development of this method and these terms is beyond the scope of this paper; however, it is important
to establish both the theoretical and practical possibilities that support the SCVA argument.

“The measurement of social capital with a focus on individuals’ ‘access’ to social capital, considering a
diversity of measured resources, and including resource availability indicators, has... been pursued follow-
ing two methodological paths. The oldest method is the “name generator/interpreter’ approach (McCal-
lister and Fischer, 1978)”64. “A second measurement instrument that has been used to collect access-type
social capital data is the ‘position generator’ (Lin and Dumin, 1986; Lin et al, 2001)” (p.6, Snijders, Van
Der Gaag, 2004). Both methods have relative strengths and weakness. “To overcome these disadvantages

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Snijders (1999) proposed to combine the positive aspects of the position generator (economy, internal valid-
ity) and the name generator/interpreter (detail resource information) by more clear referral to specific
resources, and omitting name identification from name generator questions. The resulting instrument,
the ‘Resource Generator’, asks about access to a fixed list of resources, each representing a vivid, con-
crete sub collection of social capital, together covering several domains of life” (p.7, Snijders, Van Der
Gaag, 2004).

Once again the existing work in the study of social capital will provide fertile ground for the development
of SCVA. A reliable, consistent SCxI will be built on the experiences of the name generator/interpreter,
position generator and resource generator approaches. A preliminary review suggests that designing
such a SCxI is feasible:

• Goal attainment is clear and common across corporations, i.e. the development and preservation
of corporate value;

• common “domains” of business activities such as product development, human resources man-
agement, marketing & sales, etc. may assist in developing the “fixed list” of social capital resources
that a resource generator-like approach would require;

• the narrow scope, i.e. developing a fixed list that is specifically designed to measure SCx, will also
assist the assessment design;

• employment of online survey technology can greatly reduce the cost and time required to generate
the “fixed list” of resources, to measure and maintain it65;

• ideally the assessment can be conducted through analysis of SCO (i.e. the results of the audits noted
above), however, even if a survey is required to complete the assessment, again, time and costs should
be greatly reduced by readily available technology.

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In very practical terms, SCxI can be envisioned as a vertical specialization or extension of the talent man-
agement practiced by many leading firms such as GE, EDS and many banks and consulting companies.66
SAP already integrates talent inventory management and “visualization capabilities to enhance and ex-
tend the SAP(R) ERP Human Capital Management (SAP ERP HCM) application”.67 The difference is that
SCxI will specifically track SCx resources available through connections among both employees and assets
outside the traditional boundaries of the corporation (vendors, consumers, resellers, analysts, etc).

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Follow the Yellow Brick Road:
The need for new structural management methods

“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.

Quotes from the October 18th, 2007 issue of The Economist.

How should a global investor or senior business executive evaluate this information?

The above outline of the SCVA valuation method is a first draft. The plausibility of this first draft is intended
to support a demonstration of the need for new social network structural management methods. The
point here is that the vast majority of corporations do not understand how to tap into the extraordinary
value creation dynamics represented by MySpace and Google. Nor do they understand how the business
factors lifting MySpace and Google are exposing their sacred cash cows to new risks. This paper is a call
for investment in understanding.

In Issue 12.10 - October 2004 of Wired Magazine, Chris Anderson wrote a 5,200-word article called “The
Long Tail”. This article commercialized power law. Powerful concepts were illustrated with contempo-
rary examples so that the “rest of us” could start to put them to work in our business plans.

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As one reviews Matthew Jackson’s 2005 paper “The Economics of Social Networks,” the thought oc-
curs that there is an urgent need to lock Chris Anderson and Matt Jackson in a room together. Here is a
quote from Jackson:

“Another application of obvious importance in understanding how network structure impacts behavior, is to understand how
information propagates through a network, and in particular how people in a social network learn from each other. Taking
a Bayesian perspective is a standard approach in economic modeling, and an obvious starting point. The model of Bala-
Goyal (1998) builds from this perspective (see also Allen (1982) and Ellison and Fudenberg (1993, 1995)).

Bala and Goyal (1998) make a very simple but important point. Consider a series of agents connected in a social network
who all face the same stationary, but random, environment. The network is fixed and time progresses in discrete dates
where agents each choose one of a finite set of actions at each date. The payoffs to the actions are random and their distri-
bution depends on an unknown state of nature. The agents are all faced with the same set of possible actions and the same
unknown state of nature. They all have identical tastes and face the same uncertainty about the actions. Over time, each agent
observes his or her neighbors choices and outcomes.

The main conclusion is that eventually the agents will converge to choosing the same action, based on the observation that over
time players who observe each others actions and payoffs should eventually come to choose the same action. The intuition
is as follows. We need only reason that any two neighbors earn the same long run utility, as this implies the same must
be true network-wide. If one neighbor is doing better than another, then the neighbor with the poorer payoff will learn from
observing the other agent, and eventually change behavior to obtain a similar payoff. Note that the fact that all agents end
up with the same long run utility does not mean that all agents converge to choosing the right action. However, Bala and
Goyal show that if the network is large enough, and there are enough agents who are optimistic about each possible action
spread throughout the network, then the probability that the society will converge to the best overall action can be made ar-
bitrarily close to 1. The idea is that there will be sufficiently many experiments by the optimistic agents so that the true payoff
of each action will be learned and then the society will converge to the right action.”

That is how a network economist explains hope. I think.

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All readers are asked to save the quote above so that they may easily cut and paste it into the comments
section of any blog rant about the dangers of bringing greater corporate attention to that great bastion of
freedom of expression, democracy and anonymity – the Internet. That should just about shut “the conversa-
tion” down (in more ways than one!).

Jackson is one of academia’s best communicators on the state-of-the-art of the science of social
networks, yet his work needs further translation for business people, more so the work of many of his
contemporaries69. “The many regularities in network structure across applications makes a scientific
study of social networks a possibility. The deep and pervasive impact that networks have on behavior
makes such a study a necessity.”70

For example, a recent study conducted at Harvard University may provide alternative insight into how to
compete with Apple, a company that is able to maintain high margins in consumer electronics, an industry
symptomatic of rapid product cycles and commoditization. Strength of brand and design are typically
given most of the credit in Apple’s case.

The study “How Much is a Friend Worth? Directed Altruism and Enforced Reciprocity in Social Networks”
(originally titled “Social Capital in Social Networks”) finds that “decision-makers... pass at least 50 percent
more surplus to friends as opposed to strangers when decision-making is anonymous. Under non-
anonymity, transfers to friends increase by an extra 24 percent relative to strangers, but only in games
where transfers increase social surplus. This effect increases with the density of the social network struc-
ture between both players.”71

Can corporations be friends with individuals? They can certainly take great steps, particularly in the age of
I.A.M., to reduce the level of anonymity and social distance between them and their customers. Perhaps
an investment in a strategy to reduce anonymity and increase the density of social network structure
will cost less and lead to higher margins than a brand campaign or the addition of 4G of memory to an
mp3 player.

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Perhaps most compelling to our argument that new social network structural management methods, like
SCVA, are needed is the methodology employed in this study. All of the
experiments were entirely web-based and for part of the study, information on social networks was col-
lected through an online trivia game at www.facebook.com. More than 90 percent of Harvard under-
graduates are members of the service (Leider, Mobius, Rosenblat, Do, 2007). Facebook is a service that
enables users to post their online profiles, broadcast updates of their actions and interests and post
biographical information, as well as connect with friends. It has all of the characteristics enabling new
scales of social credentials, social recognition and identity that we highlighted as evidence of new scales
of social capital early in the paper. Facebook use is not limited to the students at Harvard. It is now the
most popular website in the U.S. for 17 to 25 year olds.72 Demographically, the trends of new scales in
social capital and I.A.M. are growing. Two out of every three Canadians are active on social media sites.73

Should the introductory argument here pass the tests of reviewers, many next steps in the research
agenda are suggested. As noted above, much work would be required to make the formula for SCVA
valuation credible and workable. In addition, a complete examination of new scales of the extrinsic ele-
ments of social capital, in particular trust and social network structure, would be useful for marketing
professionals regardless of the acceptance of SCVA. It is however, more interesting to end off with some
hope for future study of the “transfers that increase social surplus” (Leider, Mobius, Rosenblat, Do, 2007).

“Economic theory suggests at least three mechanisms which induce the decision-maker to treat the
partner more generously when there is a prospect of future interaction. First, the decision-maker can grant
favors because she expects the partner to repay these in the future (enforced reciprocity)... Second, the
possibility of future interaction gives incentives for the decision-maker to signal her altruistic type to the
partner (Benabou and Tirole 2006). Third, psychological game theory has modeled preference-based
reciprocity where decision-makers behave generously because they expect the partner to behave kindly
towards them in some future interaction, and because they derive utility from rewarding kind behavior
(Rabin 1993, Dufwenberg and Kirchsteiger 2004)” (Leider, Mobius,
Rosenblat, Do, 2007).

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The definition of social surplus that most “iPod killer” strategies employ is greater “utility.” They seek to
beat iPod by building a better mousetrap with better product features and better design. Rebate strate-
gies and typical loyalty programs (earning points for rewards) are also widely tried methods.

It is a social surplus defined as greater signal of altruistic type that may be the most interesting to study
further if a link between social capital and corporate earnings comes to be accepted. There is some evi-
dence that social causes are the kind of maxim behind which business may align their activities as they
develop memetic brands. For example just the top 5 causes on the Causes application on Facebook reach
about 7.5 million people.74

It brings with it the possibility of new motives for corporate social responsibility. Not only will the cor-
poration be asked to be more accountable for its actions, perhaps the corporation can be encouraged to
invest in ways for its social connections – consumers, suppliers, employees, investors, owners, analysts
and value added resellers – to move beyond feel-good CSR tactics towards a relationship in which the oppor-
tunity is seized by each forging identities based upon greater social contribution.

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Associated Press, “Microsoft Invests $240 million in Facebook”, www.msnbc.com 24 Oct. 2007, Dec.
2007, < http://www.msnbc.msn.com/id/21458486/ >

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the Success of Ideas”, 2005, Cognitive Science, 29, pp.195-221

Blackshaw, Pete and Nazzaro, Mike, “Consumer-Generated Media (CGM) 101: Word-of-Mouth in the
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< http://www.artsmarketing.org/marketingresources/files/Consumer-Generated%20Media.pdf >

Boyd, d. m., & Ellison, N. B. (2007). Social network sites: Definition, history, and scholarship. Journal of
Computer-Mediated Communication, 13(1), article 11. Jan.21, 2007
< http://jcmc.indiana.edu/vol13/issue1/boyd.ellison.html >

Burt, Ronald S., Structural Holes: The Social Structure of Competition, (Harvard University Press; Cam-
bridge, Massachusetts, 1992) pp.27-28

Burt, Ronald S., Structural Holes: The Social Structure of Competition, (Harvard University Press; Cam-
bridge, Massachusetts, 1992) pp.46, February 11, 2008
< http://books.google.ca/books?id=E6v0cVy8hVIC&printsec=frontcover&dq=structural+holes&sig=jM8o
aZ-VseMVbUM-t9gGMmusteA#PPA46,M1 >

Catone, Josh, “Facebook Graduates: Now Do Something For the World”, ReadRightWeb blog, February
5, 2008, February 29, 2008, < http://www.readwriteweb.com/archives/facebook_social_change.php >

Cornfield, Michael, Carson, Jonathon, Kalis, Alison and Simon Emily, “Buzz, Blogs and Beyond: The
Internet and the National Discourse in the Fall of 2004”, Pew Internet & American Life Project, May 2005

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 56 >
“Edleman Trust Barameter 2007”, p.6, February 7, 2008
< http://www.edelman.co.uk/insights/trust/Edelman%20Trust%20Barometer%202007.pdf >

EVA = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital), February 11, 2008
< http://www.investopedia.com/terms/e/eva.asp >

“Facebook Extends Lead as Fave Young Adult Site”, www.emarketer.com, March 2, 2007, February 24,
2008, < http://www.emarketer.com/Article.aspx?id=1004636 >

Festa, Paul, “Key Dates in Browser History”, CNET News.com 13 Oct. 2004, Dec. 2007
< http://www.news.com/Netscape-Bowed%2C-but-not-broken/2100-1032_3-5406682.html?tag=st.nl >

Graham-Cumming, “How many users does Digg have?”, January 28, 2008, February 14, 2008
< http://www.jgc.org/blog/2008/01/how-many-users-does-digg-have.html >

Grove, Andy S., Only the Paranoid Survive, Preface, 1996, Dec. 2007
< http://www.intel.com/pressroom/kits/bios/grove/paranoid.htm >

“Home Broadband Adoption 2007”, Pew Internet & America Life Project, Survey of 2,200 adult Ameri-
cans, February and March 2007, released June 2007
< http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf >

Horrigan, John, “Broadband: What is all the Fuss About?”, The Pew Internet & American Life Project,
October, 18, 2007, pp. 1

Horrigan, John and Rainie, Lee, “The Broadband Difference: How online Americans’ behavior changes with
high-speed Internet connections at home”, Pew Internet & American Life Project, June 23, 2002, pp.
13-14

“Interbrand Corporation History: 1980s.” < http://www.interbrand.com/history_1980.asp >

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 57 >
International Conference on the Formation of Social Networks, June 28 & 29, Paris, France
< http://www.adislab.org >

“Internet Companies: Social Graph-iti”, The Economist print edition, October 18, 2007, October 18, 2007
< http://www.economist.com/business/displaystory.cfm?story_id=9990635&CFID=6893160&CFTOKEN=
7dc5b488dd50cdc8-3ABCAAF3-B27C-BB00-0143C0C3EB961394 >

“iProspect Social Networking User Behavior Study”, April 2007, based upon survey conducted by JuniperRe-
search in January 2007, January 18, 2008
< http://www.iprospect.com/premiumPDFs/researchstudy_2007_socialnetworkingbehavior.pdf >

Jackson, Matthew, O., “The Economics of Social Networks”, p. 1, Revised: December 13, 2005

Krebs, Valdis, “Connected Customers” Network Weaving blog entry, February 6, 2008, February 7, 2008
< http://www.networkweaving.com/blog/2008/02/connected-customers.html >

Krebs, Valdis, “Power in Networks”, 2004, February 11, 2008


< http://www.orgnet.com/PowerInNetworks.pdf >

Leider, Stephen, Mobius, Markus, Rosenblat, Tanya and Do, Quoc-Anh, “How Much is a Friend Worth?
Directed Altruism and Enforced Reciprocity in Social Networks” p.1, October 2007

Lin, Nan, “Building a Network Theory of Social Capital” ©1999 INSA, Connections 22(1): pp.28-51

Lohr, Steve and Markoff, John, “Deal is Concluded On Netscape Sale to America Online”, The New York
Times, 25 September 1998, Dec. 2007
< http://query.nytimes.com/gst/fullpage.html?res=9E03EEDA1739F936A15752C1A96E958260&sec=&sp
on=&pagewanted >

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Madsen, Dr. Hunter, Marketing Director, Yahoo! Canada, keynote address at Online Revealed Canada, May
28, 2007, February 24, 2008, < http://falkow.blogsite.com/public/item/170445 >

McLuhan, Marshall, Understanding Media: The Extensions of Man, (First MIT Press edition, 1994, ©
1964, 1994 Corine McLuhan) pp.7, 46-47,

“medium”, www.dictionary.com, < http://dictionary.reference.com/browse/medium >, February 26, 2008

“OECD broadband subscribers per 100 inhabitants” June 2007, February 19, 2008
< http://www.oecd.org/dataoecd/21/35/39574709.xls >

Podcasts of Corporate Earnings, example, Feb. 2008


< http://investor.kelloggs.com/eventsType.cfm?ShowNotify=51170 >

Rainie, Lee, Director, Pew Internet & American Life Project, “HOMO CONNECTUS: The impact of tech-
nology on people’s everyday lives” presentation to University of North Florida, November 5, 2007, p. 40,
February 7, 2008
< http://www.pewinternet.org/ppt/2007%20-%2011.5.07%20-%20Univ%20North%20Florida%20-%20
final.ppt >

Rainie, Lee, Director, Pew Internet & American Life Project, 6.7.06, “How the Internet is Changing Con-
sumer Behavior and Expectations”, Speech to ThinkTank06, Seton Hall University, January 23, 2008
< http://www.pewinternet.org/ppt/2006%20-%206.7.06%20ThinkTank%20Seton%20Hall.pdf >

“SAP to Resell Nakisa’s Talent Visualization Software”, www.sap.sys-con.com, Dec.11, 2007, March 3,
2008, < http://sap.sys-con.com/read/473098.htm >

Scott, John, Social Network Analysis, A Handbook, Second Edition, (Sage Publications Ltd, London,
2000) pp.7-37

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 59 >
Snijder, Tom, A.B and Van Der Gaag, Martin, “The Resource Generator: Social capital quantification with
concreteitems”, part of the Research program “Creation of and returns to social capital; Social Capital in
education and labor markets” (SCALE), a combined project of the universities of Utrecht, Groningen and
Amersterdam, funded by the Dutch Organization for Scientific Research. October 21, 2004, p. 5

Sorenson, Olav and Singh, Jasjit, “Science, Social Networks and Spillovers” (December 26, 2006). De-
cember 15, 2007, < http://ssrn.com/abstract=953731 >

“Talent on Demand: Applying Supply Chain Management to People”, Knowledge@Wharton, Human Re-
sources, February 20, 2008, March 3, 2008
< http://knowledge.wharton.upenn.edu/article.cfm?articleid=1899 >

“Tutorial on calculating EVA”, Feb. 2008, < http://www.investopedia.com/university/EVA >

Uzzi, Brian, “The Sources and Consequences of Embeddedness for the Economic Performance of Orga-
nizations: The Network Effect”, American Sociological Review, Ms. #94-289, pp. 1

“Value based management”, www.valuebasedmanagement.net, February 13, 2008


< http://www.valuebasedmanagement.net/faq_what_is_value_based_management.html >

Watts, Duncan J., “A Simple Model of Global Cascades on Random Networks” Proceedings of the Nation-
al Academy of Sciences of the United States of America, Vol. 99, No. 9 (Apr. 30, 2002), pp. 5766, January
30, 2008, < http://www.sociology.columbia.edu/pdf-files/Watts06.pdf >

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www.wikipedia.org:

brand – etymology: http://en.wikipedia.org/wiki/Brand#Etymology

Digg - http://en.wikipedia.org/wiki/Digg, Feb. 14, 2008

Don’t Be Evil - http://en.wikipedia.org/wiki/Don’t_be_evil, Feb. 5, 2008

findability - http://en.wikipedia.org/wiki/Findability, Feb. 1, 2008

frequency - http://en.wikipedia.org/wiki/Frequency, Jan. 23, 2008

geotagging - http://en.wikipedia.org/wiki/Geotagging, Feb. 19, 2008

mashup - http://en.wikipedia.org/wiki/Mashup_%28music%29, Jan. 17, 2008

meme - http://en.wikipedia.org/wiki/Meme, Feb. 4, 2008

micro-blog - http://en.wikipedia.org/wiki/Micro-blogging, Jan., 2008

reach - http://en.wikipedia.org/wiki/Reach_%28advertising%29, Jan. 23, 2008

resonance - http://en.wikipedia.org/wiki/Resonance, Feb. 5, 2008

spin out - http://en.wikipedia.org/wiki/Spin_out, Feb. 8, 2008

Weighted average cost of capital - http://en.wikipedia.org/wiki/Weighted_average_cost_of_capi-


tal, Feb. 20, 2008

Yates, Jane,”Brand Valuation and its Applications” Spring, 1999, July 10, 2007
< http://www.poolonline.com/archive/iss6fea5.html >

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Footnotes
1
Paul Festa, “Key Dates in Browser History”, CNET News.com 13 Oct. 13
Olav Sorenson, Jeffrey S. Skoll Chair in Technical Innovation and Entrepre-
2004, Dec. 2007, < http://www.news.com/Netscape-Bowed%2C-but-not- neurship, Rotman School of Management, Toronto during early stage discus-
broken/2100-1032_3-5406682.html?tag=st.nl > sions of SCVA with the author.
2
Steve Lohr and John Markoff, “Deal is Concluded On Netscape Sale to America 14
McLuhan, Marshall, Understanding Media: The Extensions of Man, (First MIT
Online”, The New York Times 25 September 1998, Dec. 2007, Press edition, 1994, © 1964, 1994
< http://query.nytimes.com/gst/fullpage.html?res=9E03EEDA1739F936A15752C Corine McLuhan) pp.7
1A96E958260&sec=&spon=&pagewanted > 15
“It is this continuous embrace of our own technology in daily use that puts
3
Associated Press, “Microsoft Invests $240 million in Facebook”, www.msnbc. us in the Narcissus role of subliminal awareness and numbness ... We have to
com 24 Oct. 2007, Dec. 2007, < http://www.msnbc.msn.com/id/21458486/ > numb our central nervous system when it is extended and exposed, or we will
die. Thus the age of anxiety and of electric media is also the age of the uncon-
4
“a time in the life of a business when its fundamentals are about to change.
scious and of apathy. But it is strikingly the age of consciousness of the un-
That change can mean an opportunity to rise to new heights. But it may just as
conscious, in addition. With our central nervous system strategically numbed,
likely signal the beginning of the end.” Grove, Andy S., Only the Paranoid Survive,
the tasks of conscious awareness and order are transferred ... the electric age
Preface, 1996, Dec. 2007, < http://www.intel.com/pressroom/kits/bios/grove/
gave us the means of instant, total field-awareness. With such awareness, the
paranoid.htm >
subliminal life, private and social, has been hoicked (sic) up into full view, with
5
Lin, Nan, “Building a Network Theory of Social Capital” ©1999 INSA, Connec- the result that we have ‘social consciousness’ presented to us as a cause ...”
tions 22(1): pp.45 (McLuhan 1964, pp. 46-47)
6
Medium is a term rich in meaning. For definitions see < http://dictionary.refer- 16
“Home Broadband Adoption 2007”, Pew Internet & America Life Project, Sur-
ence.com/browse/medium >, February 26, 2008 vey of 2,200 adult Americans, February and March 2007, released June 2007,
< http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf >
7
Burt, Ronald S., Structural Holes: The Social Structure of Competition, (Har-
vard University Press; Cambridge, Massachusetts, 1992) pp.27-28 Horrigan, John and Rainie, Lee, “The Broadband Difference: How online
17

Americans’ behavior changes with high-speed Internet connections at home”,


8
Lin, Nan, “Building a Network Theory of Social Capital” ©1999 INSA, Connec- Pew Internet & American Life Project, June 23, 2002, pp. 13-14
tions 22(1):28-51, see pp.28-31 for compact history of social capital.
18
Horrigan, John, “Broadband: What is all the Fuss About?”, The Pew Internet
9
Scott, John, Social Network Analysis, A Handbook, Second Edition, (Sage & American Life Project, October, 18, 2007, pp. 1
Publications Ltd, London, 2000) pp.7. See Chapter 2, pp.7-37 for history of
development of Social Network Analysis. 19
Berger, Jonah and Heath, Chip, “Idea Habitats: How the Prevalence of Envi-
ronmental Cues Influences the Success of Ideas”, 2005, Cognitive Science, 29,
10
Lin’s research spans Asian and Western cultures and is of personal interest. pp.195-221
My own early interests in the application of social networks in marketing began
with my study (1994) of the cultural and economic success factors of network 20
Cornfield, Michael, Carson, Jonathon, Kalis, Alison and Simon Emily, “Buzz,
marketing companies (such as Avon, AMWAY and Mary Kay) in Asia completed Blogs and Beyond: The Internet and the National Discourse in the Fall of 2004”,
before living and working in China from 1995 to 2000. Pew Internet & American Life Project, May 2005
11
“Although one might have predicted that this rumor (or that social media 21
i.e., “Studying the structure of the environment (that ideas propagate within,
campaign or another viral video contest!) succeeded largely because of its inher- i.e. the idea habitat) is a distinguished, but somewhat rare, approach within the
ent cleverness (something that should stay constant over time) or the greed of cognitive sciences (Anderson & Schooler, 1991; Brunswik, 1944; Gigerenzer,
Internet citizens (something that should stay constant or perhaps increase), such Todd & the ABC Research Group, 1999). However, understanding the environ-
explanations provide little insight into why this rumor fluctuates.” Berger, Jonah ment seems fundamental for assessing the likely success of cultural ideas
and Heath, Chip, “Idea Habitats: How the Prevalence of Environmental Cues (brands, product messages, etc); an idea may be recalled quite readily, but if it
Influences the Success of Ideas”, 2005, Cognitive Science, 29, pp.195-221 is cued only rarely by the environment, it may remain quite rare.” (Berger and
Heath, 2005).
12
Uzzi, Brian, “The Sources and Consequences of Embeddedness for the Eco-
nomic Performance of Organizations: The Network Effect”, American Sociologi-
cal Review, Ms. #94-289, pp. 1

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 62 >
22
“The success of cultural ideas will vary with fluctuations in their habitat 32
Boyd, d. m., & Ellison, N. B. (2007). Social network sites: Definition, history,
(fluctuation hypothesis). Whenever an idea’s habitat becomes more common, and scholarship. Journal of Computer-Mediated Communication, 13(1), article
it will be used more frequently, and when its habitat becomes less common, it 11. Jan.21, 2007, < http://jcmc.indiana.edu/vol13/issue1/boyd.ellison.html >
will be used less; usage of ‘April showers bring May flowers’ should vary with 33
McLuhan, 1964, pp. 18
the number of discussions of weather in April or flowers in May.” (Berger and
Heath, 2005) 34
Intense – “having or showing great strength, strong feeling, or tension, as
a person, the face or language; susceptible to strong emotion; emotional: an
23
“Habitat prevalence may help determine which ideas succeed in competition
intense person.” March 12, 2008, < http://dictionary.reference.com/browse/
(competition hypothesis). Although habitats may fluctuate over time, certain
intense >
cultural representations may consistently have more cues, and thus more
prevalent habitats, than others. Holding other factors constant, ideas with 35
A ‘tweet’ is a form of micro-blog entry.
larger habitats should be more successful.” (Berger & Heath, 2005) 36
Lee Rainie, Director, Pew Internet & American Life Project, 6.7.06, “How the
24
Buzz is the sound heard in public when a lot of people are talking about the Internet is Changing Consumer Behavior and Expectations”, Speech to Think-
same thing at the same time. Some buzz forms around trivial topics, as the Tank06, Seton Hall University, January 23, 2008, < http://www.pewinternet.org/
Yahoo! “Buzz Index” illustrates in abundance. But buzz can alter social behavior ppt/2006%20-%206.7.06%20ThinkTank%20Seton%20Hall.pdf >
and perceptions. It can embolden or embarrass its subjects. It can affect sales,
donations, and campaign coffers. It can move issues up, down, and across insti-
37
January 23, 2008, < http://en.wikipedia.org/wiki/Brand#Etymology >
tutional agendas (across being issue re-conceptualization or re-framing). When 38
“Frequency is a measure of the number of occurrences of a repeating event per
these changes occur, buzz can shift the balance of forces arrayed in a political unit time.” www.wikipedia.org, January 23, 2008,
struggle, and so affect its outcome (Cornfield, Carson, Kalis and Simon, 2005).
< http://en.wikipedia.org/wiki/Frequency >
25
Mashup - Jan. 17, 2008,
< http://en.wikipedia.org/wiki/Mashup_%28music%29 >
39
“reach is defined as the size of the audience who listen to, read, view or oth-
erwise access a particular work in a given period. Reach may be stated either
26
Throughout September and October of 2004 “bloggers sparked a public out- as an absolute number, or as a fraction of a given population (for instance ‘TV
cry against the authenticity of memos cited in a CBS News report about George households’, ‘men’ or ‘those aged 25-35’).” www.wikipedia.org, January 23,
W. Bush’s service in the National Guard, a buzz which culminated in an apology 2008, < http://en.wikipedia.org/wiki/Reach_%28advertising%29 >
from the media giant and the early retirement of its most prominent figure, Dan
Rather.” (Cornfield, Carson, Kalis and Simon, 2005)
40
“A meme, as defined by memetic theory, constitutes a theoretical unit of
cultural information, the building block of culture or cultural evolution which
27
“Phenomena... during which individuals in a population exhibit herd-like spreads through diffusion propagating from one mind to another analogously
behavior because they are making decisions based on the actions of other to the way in which a gene propagates from one organism to another as a unit
individuals rather than relying on their own information about the problem.” of genetic information and of biological evolution.[1] Multiple memes may
Watts, Duncan J., “A Simple Model of Global Cascades on Random Networks” propagate as cooperative groups called memeplexes (meme complexes). Biolo-
Proceedings of the National Academy of Sciences of the United States of gist and evolutionary theorist Richard Dawkins coined the term meme in 1976.
America, Vol. 99, No. 9 (Apr. 30, 2002), pp. 5766, January 30, 2008, < http://www. [2] He gave as examples tunes, catch-phrases, beliefs, clothing fashions, ways
sociology.columbia.edu/pdf-files/Watts06.pdf > of making pots, and the technology of building arches. Meme-theorists contend
28
i.e. very large information cascades (Watts 2002) that memes evolve by natural selection (similarly to Darwinian biological evolu-
tion) through the processes of variation, mutation, competition, and inheritance
29
Blackshaw, Pete and Nazzaro, Mike, “Consumer-Generated Media (CGM) 101: influencing an individual entity’s reproductive success. So with memes, some
Word-of-Mouth in the Age of the Web-Fortied Consumer” A Nielsen BuzzMet- ideas will propagate less successfully and become extinct, while others will
rics White Paper, Second Edition, Spring 2006, January 18, 2008, < http://www. survive, spread, and, for better or for worse, mutate.” www.wikipedia.org ,
artsmarketing.org/marketingresources/files/Consumer-Generated%20Media. February 4, 2008, < http://en.wikipedia.org/wiki/Meme >
pdf > 41
This seems to be a relatively original use of the term. It is externally oriented
30
“iProspect Social Networking User Behavior Study”, April 2007, based upon as described in this paper. It is interesting that others have used the term as
survey conducted by JuniperResearch in January 2007, January 18, 2008, an elaboration of the established idea of the cognitively oriented marketing
< http://www.iprospect.com/premiumPDFs/researchstudy_2007_socialnet- positioning. Memetic brand as a unified theory of brand that may be applied
workingbehavior.pdf > consistently to social network and cognitive marketing communications is a
possibility worthy of further study and popular support in my view.
31
I personally believe these trends are far more positive
than negative.

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42
“Spin out refers to a type of spin off where a company “splits off” sections of it- 50
The tertius gaudens is “the third who benefits” (Simmel, 1923:154, 232). The
self as a separate business. The common definition of spin out is when a division phrase survives in an Italian proverb, Far I due litiganti, il terzo gode (Between
of a company or organization becomes an independent business. The “spin out” two fighters, the third benefits), and, to the north, in a more jovial Dutch word-
company takes assets, intellectual property, technology, and/or existing prod- ing, de lachende derde (the laughing third). Tertius, terzo or derde, the phrase
ucts from the parent organization. Many times the management team of the describes an individual who profits from the disunion of others.
new company are from the same parent organization. Often, a spin-out offers 51
Krebs, Valdis, “Power in Networks”, 2004, February 11, 2008, < http://www.
the opportunity for a division to be backed by the company but not be affected
orgnet.com/PowerInNetworks.pdf >
by the parent company’s image or history, giving potential to grow existing ideas
that had been languishing in an old environment and help them grow in a new You should read Power in Networks and keep the example of Google overtaking
environment.” www.wikipedia.org, February 8, 2008, < http://en.wikipedia.org/ Yahoo in the back of your mind.
wiki/Spin_out > 52
The formula for calculating EVA is as follows: EVA = Net Operating Profit After
43
“Findability refers to the quality of being locatable or navigable. At the item Taxes (NOPAT) - (Capital * Cost of Capital), February 11, 2008, < http://www.
level, we can evaluate to what degree a particular object is easy to discover investopedia.com/terms/e/eva.asp >
or locate. At the system level, we can analyze how well a physical or digital
environment supports navigation and retrieval. Findability is not limited to the
53
Interbrand Corporation History: 1980s. < http://www.interbrand.com/
World Wide Web. The concept of findability is universal and timeless. However, history_1980.asp >
with a distributed, heterogeneous collection of several billion items, the Web 54
Yates, Jane,”Brand Valuation and its Applications” Spring, 1999, July 10, 2007,
does present unique and important findability challenges. Findability is not a < http://www.poolonline.com/archive/iss6fea5.html >
synonym for information architecture (IA). Information architecture is a disci-
pline concerned with the structural and semantic design of shared information
55
Sorenson, Olav and Singh, Jasjit, “Science, Social Networks and Spillovers”
spaces. Findability is a goal of IA, along with usability, desirability, credibility, (December 26, 2006). December 15, 2007, < http://ssrn.com/abstract=953731 >
and accessibility. Many people contribute to the findability of websites and in- 56
“Digg is a community-based news article popularity website. It combines
tranets, including writers, designers, and developers.” www.wikipedia.org, Feb. social bookmarking, blogging, and syndication with a form of non-hierarchical,
1, 2008, < http://en.wikipedia.org/wiki/Findability > democratic editorial control. News stories and websites are submitted by users,
44
“In physics, resonance is the tendency of a system to oscillate at maximum and then promoted to the front page through a user-based ranking system.
amplitude at certain frequencies, known as the system’s resonance frequencies This differs from the hierarchical editorial system that many other news sites
(or resonant frequencies). At these frequencies, even small periodic driving employ.” www.wikipedia.org, February 14, 2008, < http://en.wikipedia.org/wiki/
forces can produce large amplitude vibrations, because the system stores Digg > When a story hits the front page of Digg, it achieves a social credential.
vibrational energy.” www.wikipedia.org, February 5, 2008, < http://en.wikipedia. The story quickly circulates to hundreds of thousands of users, who in turn pub-
org/wiki/Resonance > lish blogs and forward the story by email, distributing it very quickly to highly
targeted readers, who in turn, may forward the story under the right conditions,
45
www.wikipedia.org, February 5, 2008, < http://en.wikipedia.org/wiki/Don’t_ and so on. Some estimate that Digg has about 2.7 million users in January,
be_evil > 2008 and is growing at rate of about 110,000 users every month. Graham-Cum-
46
Rainie, Lee, Director of Pew Internet Project, “HOMO CONNECTUS: The ming, “How many users does Digg have?”, January 28, 2008, February 14, 2008,
impact of technology on people’s everyday lives” presentation to University of < http://www.jgc.org/blog/2008/01/how-many-users-does-digg-have.html >
North Florida, November 5, 2007, p. 40, February 7, 2008, < http://www.pewin- 57
“Value based management is the management approach that ensures that
ternet.org/ppt/2007%20-%2011.5.07%20-%20Univ%20North%20Florida%20 corporations are run consistently on value. (normally: maximizing shareholder
-%20final.ppt > value), February 13, 2008, < http://www.valuebasedmanagement.net/faq_what_
47
“Edleman Trust Barameter 2007”, p.6, February 7, 2008, < http://www.edel- is_value_based_management.html >
man.co.uk/insights/trust/Edelman%20Trust%20Barometer%202007.pdf > 58
Podcasts of Corporate Earnings are a growing example of how this is chang-
48
Krebs, Valdis, “Connected Customers” Network Weaving blog entry, Febru- ing though.
ary 6, 2008, February 7, 2008, < http://www.thenetworkthinker.com/2008/06/ 59
For a tutorial on calculating EVA see < http://www.investopedia.com/univer-
connected-customers.html> sity/EVA >
(Note: blog entry is supported by author’s white paper “Power in Networks”), 60
The six year projection period is selected to conform to Interbrand’s brand
2004, < http://www.orgnet.com/PowerInNetworks.pdf > valuation projection period so that these figures may be tracked side by side.
49
Burt, Ronald S., Structural Holes: The Social Structure of Competition, (Har- 61
June 2007, February 19, 2008, < http://www.oecd.org/
vard University Press; Cambridge, Massachusetts, 1992) pp.46, February 11, dataoecd/21/35/39574709.xls >
2008, < http://books.google.ca/books?id=E6v0cVy8hVIC&printsec=frontcover&d
q=structural+holes&sig=jM8oaZ-VseMVbUM-t9gGMmusteA#PPA46,M1 >

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 64 >
62
“Geotagging, sometimes referred to as Geocoding, is the process of adding
geographical identification metadata to various media such as websites, RSS
feeds, or images and is a form of geospatial metadata.” www.wikipedia.org,
February 19, 2008, < http://en.wikipedia.org/wiki/Geotagging >
63
“The weighted average cost of capital (WACC) is used in finance to mea-
sure a firm’s cost of capital.” www.wikipedia.org, February 20, 2008, < http://
en.wikipedia.org/wiki/Weighted_average_cost_of_capital >

64
Snijder, Tom, A.B and Van Der Gaag, Martin, “The Resource Generator: Social
capital quantification with concrete items”, part of the Research program
“Creation of and returns to social capital; Social Capital in education and labor
markets” (SCALE), a combined project of the universities of Utrecht, Groningen
and Amersterdam, funded by the Dutch Organization for Scientific Research.
October 21, 2004, p. 5
65
I was a VP at ClickIQ.com, one of many companies that provide platforms with
these capabilities.
66
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Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 65 >
How did this dog get in my boardroom?
Here is an excerpt from the blog post:

… “At some point along the way, the momentum has changed. I started out trying to take this idea as
far as I could. Now I am trying to keep up with it for as long as I can.

My search has changed how information flows around me. After months of trying to find informa-
tion, information finds me through connections far and wide. Four people on three different continents
alerted me to Mike Arrington’s related post. I have wandered or been invited into online groups like
Seth’s “Triiibes” where Adam Helweh and dozens of others have instantly offered their help just as quick
as I can ask.

Paul Wilmott has invited me to write something to introduce SCVA in his small but influential maga-
zine that serves the quantitative finance community and I have connected with the right folks at Dell &
Procter & Gamble about reporting on how the principals in SCVA are showing up in their businesses. …”

Michael Cayley, BRP, APMCP, MBA


Principal, Social Capital Practice
www.socialcapitalvalueadd.com
michael@socialcapitalvalueadd.com
mobile: 647-407-9598
office: 416-462-1859 ext.2
Skype ID: mgcayley

Copyright © 2008
Thank you to Context Creative Inc.
for original graphics.

Share This The Blog Follow The Yellow Brick Road Introducing Social Capital Value Add < 66

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