By Matthew Simon and Tyler Norris

Half a dozen clinical lab technologists are crowded into a narrow conference room on the sixth floor of Brookdale Hospital. The wooden conference table is piled high with boxes of Jiffy corn muffin mix, cans of Bumble Bee tuna, and scores of other food items, all donated by Brookdale employees. The lab techs are piling the food into gift baskets to be delivered to needy residents of the Brooklyn, NY neighborhood served by the hospital. This is the work of one of Brookdale's so-called Workforce Engage teams-employee-led task forces dedicated to engaging employees in the quest for improved patient care, operating efficiency, and workforce satisfaction.

What do gift baskets have to do with hospital performance? "Initiatives like this one strengthen the sense of community at Brookdale," explains Theresa Barrett, Director of Staff Development. "The teams are building pride, commitment, and cooperative spirit, all of which lead to better care for our patients." In other words, Brookdale Hospital's Workforce Engage teams are building social capital.

Social What?

Social capital is the trust, mutual understanding, and shared values and behaviors that bind together members of an organization and make cooperative action possible¹. Without social capital, organizations would not function. Human capital is ultimately the property of the individual - it is what an employee can do. Social capital accrues the organization. It determines what a group of employees can-and will--accomplish together.

Social capital is about relationships. As leading social capital researchers Dan Cohen and Laurence Prusak point out, the increasing complexity of tasks and organizations in the new economy make it impossible for any one person to have all the knowledge and information he needs to do his job. Relationships, therefore, are becoming ever more important, and with them, social capital².

Trust Me

Where there are good relationships there must be trust, a commodity that is central to social capital. Without trust, conducting business is hopelessly inefficient. Every arrangement must be accompanied by elaborate contracts and extensive documentation, negotiations are complex and time consuming, conflicts and litigation are frequent.

Trust also attracts and retains customers. Consider the case of Vanguard Investments, founded in 1975 with a single small mutual fund and now the nation's second-largest mutual fund company, with 550 Billion in assets and an annual growth rate of 30%. Vanguard has no salesmen and its advertising budget is miniscule. According to CEO John Brennan, "Trust is our number one asset… As customers learn to trust us, they generate a surprising amount of growth."³

Culture Club

The other key element of social capital is organizational culture: shared values, understandings, and behaviors that enable people to work together efficiently and effectively toward common ends. For his book, Good to Great, Jim Collins and his research team studied companies that had made the leap from good to great and compared them with a selected set of comparison companies that had not. One of the key findings was that good-to-great companies created a particular type of culture, one that prized and encouraged discipline and entrepreneurship. This tended to obviate the need for excess controls and a hierarchical bureaucracy, and thus unleashed employees' creative potential.⁴

According to Cohen and Prusak, the experiences of firms like UPS, Bristol-Myers Squibb, and Xerox show that "community membership and commitment to a shared aim are more reliable weapons in the war for talent-especially the war to retain talent-then (cash or stock options)."⁵ In healthcare, developing a "shared leadership" culture and improving communications in Pittsburgh's Suburban General Hospital resulted in a decline in employee turnover from 25% to 15% in a single year and increased patient satisfaction scores to the 80th percentile nationally.⁶

The Buck Starts Here

What do you get from your social capital? First and of greatest importance, it impacts your employees. Modern, knowledge-based businesses are not like assembly lines. An individual worker's specific tasks vary widely from moment to moment and are not possible to micromanage. Therefore, as Cohen and Prusak point out, today's most economically productive work is largely voluntary, and productivity depends on voluntary effort. A productive firm must be "a social organism of people willingly engaged in a joint enterprise."⁷

The Social Capital Value Creation Cycle

Employee satisfaction and engagement, of course, have a direct impact on customers. To quote management guru Ann Svendsen, "when employees are treated well, they are more apt to treat customers well and to put the long term interests of the corporation ahead of their own self interests."⁸ She cites a study by First Tennessee Bank which found that units run by managers who ranked highest in the "work and family" category, as measured by employee surveys, had a 7 percent higher customer retention rate than other units.⁹ In healthcare, researchers have made similar findings. Patient satisfaction survey firm Press Ganey compared the customer satisfaction and employee satisfaction scores of 18 hospitals in their database. The correlation between the scores was .89-close to a perfect correlation of 1.0.¹⁰

Researchers Mark Huselid and Brian Becker had similar findings. In their study, a five percent increase in employee satisfaction led to a 1.8 percent increase in customer satisfaction and a .5% increase in financial results. Likewise, GTE found that a one-percent increase in their employee engagement index (based on an in-house survey) led to a .5 percent increase in customer satisfaction.¹¹ "Customer loyalty hinges, as always, on committed teams of high-caliber employees…" If employees are ambivalent about their employers, on the other hand, "how [they] treat customers in their daily interactions will almost certainly convey their misgivings."¹²

Social capital can improve business performance through:

• Lower turnover rates, which reduce severance costs and expenses for hiring and training

• Improved knowledge sharing resulting from established trust relationships, common frames of reference, and shared goals

• Lower transaction costs (both among employees and between the company and other entities such as vendors) resulting from high levels of trust and a cooperative spirit

• Greater coherence of action resulting from shared understanding

• Greater customer satisfaction resulting from positive interactions with an engaged workforce

How much is social capital worth to an organization? For starters, consider the value of improved employee retention. Many studies have estimated the cost of employee turnover at 50% of annual income for a wage-earning worker, and 100-150% for a salaried worker. (That is, each time a $20-per-hour employee leaves and must be replaced, it costs a firm $20,000; each time a $50,000-per-year salaried employee leaves, it costs a firm $75,000.) SAS Institute, the world's largest privately held software company, has a turnover rate of less than 4%, compared to an industry average of 20%. SAS has achieved this by building social capital: fostering a culture of trust and respect and recognizing the importance of employees' personal lives. According to the company, their superior retention rate saves them $70 million a year. It also contributes to their astonishing 98% customer retention rate, because employees and customers are able to develop long-term relationships.¹³

The bottom-line effect of employee retention on customer retention is potentially even larger than the savings from reduced turnover. Research by corporate strategy consulting firm Bain and Company showed that a 5 percent increase in employee retention could yield increases in profits of 25%-95%.¹⁴

It's not uncommon to see firms in the same industry with similar incomes and balance sheets and vastly different price/earnings ratios. Intangible assets account for the difference. "In today's knowledge-based economy…over 60% of a company's value is tied up in intangibles such as employee know-how, reputation, and trusting relationships with suppliers."¹⁵ Likewise, Dave Ulrich and Norm Smallwood, in their research for Why the Bottom Line Isn't, found that "investor confidence in leadership, employees, and the firm's culture increased stock price as much as or more than financial performance."¹⁶

So say management gurus Edward Giniat and Barry Libert in their book, Value Rx. "Abandon the idea that intangible assets and relationships are neither measurable nor manageable. It's time to measure and manage all your sources of value, despite how they are labeled…"¹⁷ Fred Reicheld, author of The Loyalty Effect, agrees with this principle. "Unless management teams measure and analyze organizational loyalty, they are operating in the dark."¹⁸

Workforce Engage, LLC of Boulder Colorado has developed an assessment process called Workforce Engage™ that focuses on social capital. The foundation of the Workforce Engage process is an employee survey that measures performance on seven critical organizational practices. Research has shown that these practices are key drivers of employee engagement:

• Establish an Open Learning Environment
Organizations that emphasize and support learning are more creative and more adaptive. Healthcare professionals, in particular, place a premium on personal growth and development.
• Nourish Teams and Networks
Healthcare is challenged to work effectively across many boundaries, disciplines and units. Mastering the organizational competence to form teams rapidly and create cohesion has become a key to top performance.
• Generate a Sense of Community
Research has shown that organizations which achieve a greater sense of community-caring relationships and a web of shared meaning and purpose-are more resilient to challenges and have more committed employees.
• Arrange Work to Minimize Stress & Maximize Balance
A growing body of evidence shows that personal balance and emotional well-being have profound impacts on decision-making effectiveness, time use, and productivity.
• Grow Exceptional Managers and Supervisors
Studies across all industries suggests that an employee's relationship with his/her supervisor is a primary driver of retention, and a significant contributive factor to performance.
• Embrace Personal Strengths
Finding ways to build on employees' individual strengths and assets has proven to be significantly more productive than trying to fix their weaknesses. People want to use their gifts and to feel they have made a difference.
• Develop the Capacity For Dialogue
Dialogue creates an environment that builds trust and achieves a deeper level of understanding-making collective action possible.

To measure performance on these seven practices, the Workforce Engage web-based survey uses five-point Likert-scale questions, some multi-tiered, along with open-ended questions with comment boxes that enable respondents to express themselves in their own words. Assessment is not limited to the survey. "A questionnaire, no matter how good, is not enough," says Monte Roulier, lead developer of Workforce Engage™. "To understand the results and establish context, you have to follow up by conducting dialogues with the employees."

The purpose of the dialogues goes beyond interpretation of survey results. According to Roulier, "A successful assessment process should build social capital as well as measure it. Before the survey is administered, we get a commitment to the process from senior leadership and we work to obtain organization-wide buy-in. After the survey, employees are involved in the selection of areas for improvement, and the identification and implementation of solutions. Our goal is to enlist employees as a force for change, deepening their level of engagement even as workforce challenges are identified and addressed." The overall result, Roulier says, is greater cohesion among leadership, managers, and employees; and ultimately, better performance.

When asked what advice he has for managers, Roulier says, "Social capital is created or destroyed, often unwittingly, by every decision an organization makes. Leaders have to ask themselves: will this action help create connections between people or will it isolate them? Will it foster dialogue or interfere with it? Will it include people, or exclude them? Will it build trust or inspire cynicism? An organization's culture flows down from the top. The executive team must always keep that in mind. Social capital as a key competitive advantage, waiting for you to exploit it--or squander it."

Five floors beneath the philanthropic lab techs and their gift baskets, the waiting room of the Brookdale Hospital emergency department is filled to capacity. A Carlos Santana guitar solo is playing on the PA system. A stout Latina woman with short black hair is swaying to the music, eyes closed. Suddenly she goes rigid and begins hacking convulsively into the sleeve of her sweatshirt. The coughing fit subsides and she resumes her swaying. Two seats away, a 300-pound man with dreadlocks doesn't even flinch. He's giving me a mad-dog stare that could freeze Prestone II. I'm not taking it personally, though, because he was doing when I arrived, half an hour ago. Behind him is the room's most hapless occupant: a man with a bandaged head lying on a gurney. He's handcuffed and guarded by two policemen. 120,000 such patients pass through the Brookdale emergency room each year, every one of them expecting and deserving excellent medical care. Brookdale hospital-and every hospital--needs all the social capital it can build.