The network effect: Why companies should care about employees' LinkedIn connections

Companies in the information, manufacturing, and finance/insurance industries are the most highly connected of the 19 sectors evaluated, while the manufacturing industry sits closest to the network’s center. Image: Shutterstock


In today’s high-tech economy, it’s not just quant skills and R&D know-how that confer competitive advantage. Relationships still matter—maybe more than ever, as social media turbocharges old-fashioned networking.

A new study mapped LinkedIn connections among firms woven out of 2 billion individual employee relationships at 7,715 public US companies representing 19 industries. The researchers found that companies whose real-world employee connections put them at the center of their professional communities performed better than peer companies whose workforces were less well-connected and, as a result, on the periphery of the same community.   

The study reinforces the value of human capital and knowledge-sharing and highlights a surprising conclusion—professional social networks “may have potential benefits to companies, and not only to the individual,” says Frank Nagle, an assistant professor at Harvard Business School. “What we’re trying to say is there are many more jobs than you might imagine where having the right connections can be helpful to your company.”

The study’s findings also underscore the growing possibility of mining “nuanced and granular” social media data to understand how and why employee networks form and what advantages they provide to their larger organization. Nagle coauthored the study with Shelley Li, an assistant professor at the University of Southern California, and Aner Zhou, an assistant professor at San Diego State University.

Mapping employee connections through LinkedIn

The team obtained data with the cooperation of LinkedIn and analyzed links among more than 9 million employees between 2004 and 2018. In total, the study extracted and analyzed more than 2 billion professional connections—the “most comprehensive collection of employee-level connections in the world,” the paper says.

Based on the analysis, the study found that companies in the information, manufacturing, and finance/insurance industries are the most highly connected of the 19 sectors evaluated, while the manufacturing industry sits closest to the network’s center. Unsurprisingly, the study found that companies such as Microsoft, Alphabet, IBM, Oracle, Honeywell, General Motors, Target, Pfizer, AT&T, Texas Instruments, and Apple were among the most highly connected and at the center of their professional communities.

While this makes sense, Nagle says, the study also uncovered that there are “big companies that are not well connected, and there are small companies that are well connected and central to the network.” He adds, “So it’s interesting to look at some of the cases where there are surprises.”

Why connections matter

To highlight the importance of employee networks to the success of firms, Nagle and co-authors sought to determine if there is a relationship between the connectivity of firms and the value they produce.

The researchers correlated the network data to measures of success in innovation, such as investments in research and development and the number of awarded patents and their impact.

The study found that companies that are more central in their relevant communities tend to produce more patented innovations, and those innovations are typically more scientifically and economically valuable.
   
According to the analysis, companies that become more central to the network by one decile group (for example, from the thirtieth percentile to the fortieth percentile) increase their research and development spending by 5 percent and their patent output from 3.5 percent to 5.8 percent.

“On both those dimensions, we found that companies that are more central are having a bigger impact—the innovation they produce is more successful in the marketplace,” Nagle says. Patents from those firms also tend to be more frequently cited by other patents.

Also read: There are 100 million Indians on LinkedIn. Here's how the Microsoft-owned platform cracked the India growth story

Implications for managers

The authors emphasize that their study is more about the value of forming tangible real-world connections than it is a clarion call for employees to flock to professional online network sites. It’s just that data from social media offer unique opportunities to measure and study how networks form and to look for lessons that managers may find helpful in their organizations.

At their broadest level, however, the findings in the study reinforce the importance of robust personal and professional networking as a consideration in hiring decisions. In that sense, LinkedIn connections become a proxy for real-world connections, and potentially a tool for differentiating the potential contributions of job candidates.

“Managers, when they hire somebody, know to look for many different qualities. How well-educated are you? How much job experience do you have?” Nagle says. “Today, in some jobs, such as sales or higher-level management, managers may think about how well-connected you are, but our work shows that might be a consideration for a broader set of jobs.”

Future questions to answer

The study, Nagle says, lays the groundwork for other types of inquiries using the data that may provide managers with deeper insights into the power of professional networking in driving a company’s performance and competitive success.

One of the more surprising findings was that middle- and lower-level employees, more than senior executives, provide the backbone for the importance of a company’s connectedness.

“What types of connections matter most?”

This suggests connectivity plays a role in driving value even in decisions outside the C-suite, Nagle says. Researchers can use that data to identify more precisely where this influence matters.

“We’re interested in digging deeper to understand when this matters more,” Nagle says. “What types of connections matter most? Are these connections more important if you are somebody in sales versus someone in research?”

[This article was provided with permission from Harvard Business School Working Knowledge.]