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Tim Rowley thinks "social capital" can make or break business

In 1992, Tim Rowley was a young entrepreneur with a B.A. in Economics and a one-person research firm. Charged with helping a courier company to understand dwindling shipments to South Africa, Rowley was fascinated by the possibilities. Why had companies that regularly sent shipments to South Africa suddenly developed a conscience about apartheid? Why now?

These were the kinds of questions about management that intrigued Rowley, and he decided that an academic career was the best way to explore them. "As a faculty researcher at U of T," says Rowley, "I can address entire business problems rather than just putting out fires, which is a big limitation for managers today. This freedom allows me to focus on new and exciting issues."

A scholar of "social network" theory, which is largely derived from sociology, Rowley developed an interest in applying this unique concept to "stakeholder research" in order to solve management problems.

"Examining individual business relationships doesn‚t tell the whole story," contends Rowley. "Every business has a variety of stakeholders: shareholders, suppliers, customers, taxpayers, community groups, environmental activists, and so on. The amount of influence these groups have on its business practices can vary widely. How an organization interacts with these groups can determine its success or failure just as much as its financial and human capabilities."

The key, says Rowley, is "social capital" which, he argues, is equally if not more important than financial capital. "Toyota, for example, has a real competitive edge over the larger North American car manufacturers because it deals with its suppliers in a unique way," claims Rowley. "Toyota invites all of its suppliers to meet and talk with one another in order to improve efficiency and pass the cost savings on to Toyota. While the company gives up power by letting its suppliers interact like this, it has developed a social network that will have a positive impact on its profitability.

"Canadian firms," argues Rowley, "can be more competitive even if they‚re not the biggest, simply by building and leveraging their connections to the right firms, banks, government organizations, lobby groups, and so forth. We can actually have a competitive advantage based on social capital."

Rowley‚s research represents the first time social network theories have been applied to stakeholder research, and it highlights the importance of relationships in a business‚s success or failure. He believes this work could open a new window on management theories, and may suggest innovative solutions to contemporary problems.

In time, Rowley‚s research may offer Canadian businesses a new method for developing strategic alliances, for creating valuable partnerships, and for leveraging their social capital. Breaking the boundaries established by theories of financial management, Rowley‚s work could be applied to the one-person shop as easily as the multi-national corporation Ų holding great promise for the strength of Canada's economy.

- Althea Blackburn-Evans

University of Toronto Office of the Vice-President, Research and Associate Provost