By Paul Samrah,Kingston Smith

“Generating Social Capital” is the title of a new report for SMEs published by Kingston Smith LLP, chartered accountants and leading advisers to entrepreneurial businesses.

Whereas human capital is a quality of individuals, social capital is a quality created between people through both offline activities such as networking events, and online activities, which include social media. Two benefits that are relevant to SMEs flow from social capital: information and influence.

This study, undertaken by the Universities of Surrey and Greenwich, builds upon our earlier 2012 survey Success in challenging times: Key lessons for UK SMEs, drawing on extensive secondary data analysis of government reports, case studies and input from focus groups.

Creating and maintaining valuable contacts is paramount to enable SMEs to support and strengthen their business development objectives. Yet many feel they do not know how to go about it; surprisingly, research shows that SMEs typically invest less time in creating these networks than larger organisations.

SMEs are of course aware of the vast potential benefits of having strong networks; indeed, 94% of them consider direct referrals important to their continuing success, and 67% consider search engine optimisation important. It is not only surveys that show this, but it is self-evident that the more quality networks one has, the greater the number of approaches or referrals one receives.

The research confirmed that offline and online networking activities are not mutually exclusive alternatives for SMEs. Successful SMEs network with a number of different communities, integrating a combination of both offline and online methods. SMEs’ websites are crucial and need to be optimised to improve search engine positioning. Social media sites, such as Facebook and LinkedIn, are widely used to both showcase the business and build relationships with customers, but are not considered a substitute for face-to-face (offline) networking.

The most popular reason for SMEs using social media is to develop their business image or to market products. The fast, easy and low cost access to people and businesses provided by Web 2.0 and social media helps them do this better. Online networking can enable SMEs to overcome the drawbacks of traditional face-to-face contact, such as limited numbers and diversity, and the associated high costs. SMEs that proactively engage with social media can systematically raise their profiles to successfully compete with larger organisations.

However few SMEs claim to be experts in social media use. IT and social media are regarded as necessary evils and SMEs consider that there is no choice but to engage very proactively in these areas.

One of the key findings in the research affirmed that SMEs should have a clear strategy towards social capital included in their overall business plan. This is important, not least because of the need to avoid a disproportionate amount of resource being dedicated to this area.

Face-to-face (offline) networking events remain the most important form of all types of SME networking, with roughly two thirds of SMEs devoting one to six hours per week to this activity. In general, locally oriented SMEs without a scalable business offering prefer face-to-face networking events, whereas globally oriented non-scalable SMEs additionally put significant effort into social media. Networks included customers, associates and former employees who had moved on to become independent contractors. Networking is about making contacts outside the SME who can offer feedback, or advice, or be used to outsource work. These networks are regarded as a ‘community of people’ who might join in with a new business proposal or be used to provide external expertise.

The research concludes that SMEs should have a policy for, and monitor, online and offline social capital based activities. Furthermore, SMEs should seek to achieve a realistic return on their investment.

The methods SMEs use to increase social capital must be fit for purpose and appropriate to their business model. Social media are complementary to, rather than a substitute for, traditional networking and events.

The challenge facing SMEs is how best to integrate their online and offline activities to complement their business and generate social capital.

Copies of the report are available at www.ks.co.uk/smesocialcapital