How Much Time Should You Spend Networking?
William Baker, marketing professor at San Diego State University, shares research findings on networking, particularly its relation to innovation
He spoke recently to Smart Answers columnist Karen E. Klein about his findings. Edited excerpts of their conversation follow.
Last year, you studied 1,600 business executives from a cross-section of U.S. firms, half of them small and midsize companies and half large companies. What questions were you hoping to answer?
I wanted to see how what I call "external social capital" affected company performance. So I controlled for the effects of other business variables I’ve studied in the past and added networking to the mix.
And what was the bottom line—did networking make a significant difference?
I found it had a strong main effect on performance measures relating to innovation, most notably the ability of firms to develop new products.
Were entrepreneurs who do a lot of networking more successful in terms of profit or market share?
I didn’t see a direct impact on those things, but those who do a lot of networking were more likely to be innovative and to have a large percentage of new products.
How did you define and measure networking?
External social capital means the extent to which firms go outside of their walls to talk to people—inside or outside of their industry—who they think have a valuable opinion. So entrepreneurs with high external social capital do a number of things, from business round table groups to industry associations, to talking to their competitors and suppliers, and even going out beyond their industry and talking to opinion leaders in other areas.
I think there’s a trend where firms are doing this more and more as they recognize you can’t depend on the group-think mentality inside your company. After all, entrepreneurs tend to hire people who think the same way they do and have the same perspective.
That might be particularly true in small companies, where there are fewer employees, perhaps less variety of expertise, and a smaller universe of ideas.
And it’s a very dangerous thing in this world to not share information. People are paranoid about giving out information, and you don’t want to be stupid, but you have to think that competitors can also be colleagues. The old business models are changing and you’re putting yourself at a positional disadvantage if you’re just relying on internal information now.
What was the correlation between networking and how risk-averse the company is?
Not all small firms are aggressive innovators, but among those that are, increased networking seemed to slow down their market responsiveness time, while improving their results at the same time. On the other hand, in small firms that are not very aggressive, networking speeds up their ability to respond quickly to marketplace events and influences the success of their innovation ability—more so than with large firms.
So either way, networking led to positive outcomes. But it would seem counterintuitive to have improved results with slower market response time. How did that work?
If you run a really aggressive company, you are adept at being open-minded in terms of learning. But you can also be a reckless innovator who’s more concerned with developing new ideas than understanding if there are markets out there for them. What the study found is that if you have a weak social network, you might just be a bull in a china shop. But if you get a diversity of ideas about your company and products, that might slow you down a little bit, in a good way.
And how about those more cautious small companies?
The opposite was true for the more conservative companies. If they’re out doing a lot of networking, they’re likely to spot trends they might have missed and they’re likely to realize that they have to react more quickly than they normally would. That way, by the time they catch up with trends they won’t be too late to get market share.
So external social capital has the ability to slow down the too-reckless companies and open up a wider horizon for more conservative companies. Either way it is positive.
What practical advice would you give entrepreneurs based on your study?
You’ve got to broaden your lens. Go out into your own industry and even look at other industries for innovation. When consumers make decisions, they don’t just base them on the best practices in a given industry. If they see great customer response and service in one industry, they’ll expect the same in other industries. And if you pick up on the good things all sorts of companies are doing, and bring them over into your company, there’s the breeding ground for competitive advantage. It’s something new you can do rather than copy your competitors.
Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.
