Social capital as a decision aid in strategic decision‐making in service organizations

Abstract

Purpose This paper aims to examine the role of social capital as a strategic decision aid in small and medium sized enterprises (SMEs) in different service sectors. Design/methodology/approach Data on 434 strategic decisions in service SMEs was gathered through computer‐aided telephone interviews and analyzed using structural equation modeling to test the mediating role of level of risk acceptance and confidence in the relationship between the breadth of social capital and decision effectiveness. Findings Evaluative judgments (risk acceptance and confidence) explain the negative effects of social capital on decision effectiveness. Service delivery and dependency on tacit know‐how account for differences between SMEs in different service sectors and serve as explanations for different effects of social capital as a decision aid. Research limitations/implications The study sheds light on the psychological underpinnings of social capital effects in strategic decisions. Higher varieties of actors make decision makers more tolerant for risk and decrease their confidence, which in turn hampers decision effectiveness. Originality/value Previous work on social capital suggests that it is beneficial to outcomes. The literature and policy initiatives also stress the beneficial effects of social capital and networking. This research on strategic decision‐making shows that the positive effects of social capital are not as pronounced as expected for the service SMEs. This paper draws explicit attention to the negative effects for strategic decision‐making.