The Role of Social Capital and ICTs in Inter-Organizational Collaboration in a Developing Economy: An Empirical Study of the Finance Industry in Sri Lanka

Abstract

In the contemporary world of business, organizations cannot rely solely on their internal strengths to survive. Forming inter-organizational partnerships is becoming one of the most popular strategies available to an organization to share risks, resources and other capabilities with partners. Collaborative business strategies are especially beneficial in the emerging economies where organizations are constrained with lack of resources, technology, skills and infrastructure. Accordingly, explaining why and how some organizations do better in inter-organizational relationships (IORs) than others is a dominant challenge in the study of IORs. Social capital (SC) is an influential concept in understanding why and how some organizations do better in inter-organizational relationships. It is recognized as an important factor in developing relationships of trust, forming the foundation for greater collaboration and successful collective action. Social capital is a multi-dimensional, relational concept that turns into a powerful tool when combined with the network analysis approach and tools to study inter-organizational relationships such as alliances and joint ventures or collaborations of any form. While social capital has been found to support different firm-level value creations, such as creation of intellectual capital, resource exchange, innovation, knowledge sharing and performance, it has significance as the basis for the development of stakeholder relationships, which are essential to Corporate Social Responsibility (CSR). CSR is touted as a key enabler of both organizational performance and of sustainable development, which are also essential for developing economies. Information Systems (IS) researchers have increasingly become interested in exploring social capital in relation to Information and Communications Technologies (ICT). It is evident that social capital and ICT are mutually complementary in the interorganizational-level. While the role of social capital in the development or acceptance of ICTs and the role of ICTs in the formation of Social Capital is widely explored, the combined effect of SC and ICT on the IOR in developing contexts remains unexplored. Very little is known about the effect of ICT enabled Social Capital in the inter-bank context.

The aim of this empirical research is to develop a model of how ICT-enabled social capital affects inter-bank strategic collaboration in a developing context, Sri Lanka. The purpose of this study is to investigate how the multiple dimensions of social capital influence the strategic collaboration in the Sri Lankan banking context, and the enabling role of ICTs. In order to accomplish this objective, the researcher uses quantitative techniques, the structural modelling approach combined with network measurements. Data is gathered through a survey of high-level management of banks and from public sources such as annual reports and web sites. The network analysis tools (e.g. ORA) and the statistical analysis methods (PLS-SEM) and tools (e.g. SmartPLS) have been used to derive results. The results of this study suggest that structural, relational dimensions of social capital have a positive influence towards the degree of strategic collaboration of banks. It is also evident that higher ICT capabilities at the firm-level strengthen the effect of cognitive social capital on collaboration. The results of the other moderation tests indicate that firm-size, age, gender-ratio of directors, ownership, geographic spread, culture, organization structure and previous experience strengthen the effect of social capital on strategic collaboration. The results of further analysis indicate that the structural social capital is influential for the corporate social responsibility of banking organizations. Both the inter-organizational collaboration and the corporate social responsibility yield higher financial performance at the firm-level. The study also provides evidence that the use of network measurements as the indicators of social capital provides better predictability in comparison to regular indicators. These findings provide a valuable contribution to the theory of social capital, literature on ICT for development and and network theory, contributing to a more holistic perspective that incorporates social, technical and organizational aspects and provides insights useful for building effective strategies in similar developing contexts.