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When Layoffs Happen, Businesses Lose Social Capital

Written by: Bill Sherman on Friday, 18 July 2008, 7:13 AM

A business can be viewed as a community. As we’ve seen in the past few posts, every community contains social capital within it. What happens when the economy hits a downturn and a company lays-off good people?

The company must balance three types of capital:

  • Financial capital–cashflow to pay employees, vendors, etc.;
  • Human capital–experience and expertise; and
  • Social capital–networks and connections.

When layoffs happen, the company preserves financial capital and sacrifices its access to both human capital and social capital. The loss of human capital is obvious. You have fewer hands to get work done. However, the loss of social capital can be even more critical.

The people let-go during layoffs may possess crucial cross-departmental connections and knowledge (people who serve as internal bridges). More importantly, the company also loses the social capital embedded within these connections with clients, vendors, suppliers, channel partners, etc.

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