A SCVA Investment Thesis. Congratulations! Barbara Gray and Brady Capital

Figure1-Performance-vs-Benchmarks-11-13

At various times on this blog and in the ebook I have thanked my MBA classmates and professors. Way back in 2007, they let my interests in social capital invade every conversation and assignment.

In one such case, in our Portfolio Management course, I persuaded my group to adopt a Social Capital Value Add investment thesis. We ended up being over weighted in banks because of the deep data that these companies have on the life cycle of consumers. But we did not have a lot of data to go on and it was a six week experiment. We were outperformed by at least half of our competitors.

Nevertheless, there is a difference between a weak thesis and poor execution. So I am pleased to share this update from Barbara Gray and Brady Capital.

On November 15th last year, we launched our Customer Value Index 200 (CVI 200), a research-based analysis, based on my social capital investment thesis, that provides investors with exposure to the top 10% of North American-listed companies with a market capitalization over $1 billion that score the highest in terms of competitive strength, social attributes, and authentic core values.

.. the CVI 200 (www.cvi200.com) came in with stellar performance in its first year – rising by 41.3% compared to the 32.1% gain in the S&P 500 over this period – an outperformance of 920 basis points. And as shown in Figure 1, the CVI 200 shone against the resource-laden Canadian S&P/TSX Index, which gained only a paltry 12.7%, outperforming it by 2,880 basis points.

To be clear CVI does not employ SCVA’s valuation method, but it is nevertheless, trying to focus on the same drivers and defenders of value.

See the full update here. Congratulations Barbara and Brady Capital!

A Different Road to Social Capital

This post originally appears on the Brady Capital Research blog, posted by Barbara Gray, CFA.

PREFACE: Here is the back story of how I arrived at the Social Capital Value Add thesis – by trying to make sense of my experiences as the CEO of social media network startup and then cobbling together an academic “bricolage”.

Barbara Gray, CFA – August 16, 2012 – Just over a month ago, I received the following tweet from an individual named Michael Cayley (@memeticbrand): “@barbcfa great post hope you visit socialcapitalvalueadd.com would like to talk to you”. As I don’t receive many direct tweets (I only started tweeting last Fall), I was intrigued and after checking out his website, I looked up Michael’s profile on LinkedIn and sent him the following message:

Hi Michael – thanks for reaching out to me on Twitter. Wow! It is amazing what a small world it is. I would love to talk with you about your Social Capital Value Add thesis – you were way ahead of the curve coming up with it back in 2007! I am an Equity Analyst and developed my social capital investment thesis back in 2010 after attending SXSW Interactive and #140 Conf in NY and realizing the impact social media would have on companies’ risk/growth profiles and thus valuation. I would be happy to share my Social Capital article (just published in Intellectual Asset Management magazine) with you. I look forward to discussing social capital with you. – Barbara

I think this really illustrates the thesis I presented in my recent research report on LinkedIn titled: “LinkedIn: Disrupting By the “Power of We””: how LinkedIn’s power to create both bonding and bridging capital for its members provides it with a distinct competitive advantage over leading social networking platforms such as Facebook and Twitter. As the nature of Facebook’s social network is based on bonding capital (i.e. formation of strong ties) with families and friends, it did not play any role in connecting Michael and I as we are not related and do not move in the same social circles. What is interesting is that Michael made the initial contact with me through Twitter, whose network is based on bridging capital (i.e. formation of weak ties) as it allows its members to “follow” anyone they want. However, Twitter’s platform does not facilitate trust, as it does not provide the means to access the competence or character of its members. For that, I turned to LinkedIn as it provided me with transparency into Michael’s credibility in terms of his:

1. Competence (a quick glance at his Professional Profile revealed that he is a fellow Canadian, worked for over a decade in various marketing and product development roles, achieved his MBA in Marketing/Finance In 2008, and is an entrepreneur as he founded Social Capital Value Add in 2007 and Cdling Capital Services in 2009).

2. Character (his 500 plus connections gives me comfort in the integrity of the information he disclosed in his Professional Profile and if I wanted to check his intent, I could call up one of my former investment banking colleagues from Toronto who is a mutual connection).

By contacting Michael via LinkedIn, as opposed to just email, I made it easy for him, in turn, to assess my credibility so he could decide if it was worth investing his time and effort to engage with me. He did – so we then exchanged email addresses, I sent him my Social Capital article, and we set up a time to talk via Skype. It’s interesting as at the end of the day, I think social media only gets you so far – to build a real relationship with someone you need to engage with them off-line – first email, then by phone, and then hopefully in person.

If you have any interest at all in social capital, I encourage you to read Michael’s absolutely brilliant ebook (and keep in mind, I have read over 75 business strategy business books the past two years so I don’t use that term loosely) titled “Follow the Yellow Brick Road: Introducing Social Capital Value Add”. What I find fascinating is how we developed very similar theses on social capital – yet at different points in time and in different ways. Michael researched and formulated his Social Capital Value Add thesis by taking an academic approach as he studied the research done by social capital pioneers as part of his MBA back in 2007 and 2008.

Ironically, I wasn’t even aware of the existence of the concept of social capital when I published my first paper “Social Media: An Exposing Disruptive Force – Look for Companies with “Heart” and “Soul” But Beware of “Empty Shells”” back in January 2011. It wasn’t until I read the fascinating book “Firms of Endearment” in the Spring of 2011 that I became aware of the concept of stakeholder equity. This made me realize how social media is leading to the creation of a new form of appreciating equity as Facebook, Twitter, and LinkedIn are global, dynamic, 24/7 social exchanges that I believe essentially convert a company’s stakeholder relationships into highly liquid assets and/or liabilities. At first, I thought of using the term “social equity” (equity = assets less liabilities) but that seemed too socialist. So I decided to use the term “social capital” instead and titled my November 2011 research report: “Social Capital: A New Strategic Play for Investors – Look for Companies with Heart and Soul”.

My basic investment thesis is that social media empowers individuals and is ushering in the Social Era, which will lead to a structural change in companies’ underlying risk and growth profiles and will accelerate their value creation/erosion process. This sentiment is echoed by Michael who states that “broadband internet connections have empowered individuals, making them the most disruptive and intense form of media (i.e. the Individual as Medium); there are implications throughout the corporate ecosystem”. I believe the companies that are best positioned in the Social Era are those with heart and soul as they will be able to use social media to capitalize on their strong and authentic stakeholder relationships to leverage the high level of enthusiasm and deep psychological attachment to the company’s brand and greater purpose. This is consistent with Michael’s thesis of how the symbolic brand is being replaced by the memetic brand (i.e. a company with “heart and soul” that stands for something) as companies can only “activate IAM (Individual as Medium) through social networks to achieve maximum reach and that activation is a function of social capital”. Like myself, he also predicts that the leading source of corporate value will shift from brand to social capital.

Michael’s book opened my eyes to a whole academic body of research that explores the concept of social networks and social capital… I just downloaded Ronald Burt’s book “Structural Holes: The Social Structure of Competition” – it was published in 1995 so it will be interesting to delve into it to see if it provides any further insights. And perhaps one day, the investment community will start to embrace our concept of social capital as the new driver of corporate value.

Disclosure: I have a LONG position in LinkedIn Corporation (LNKD-NYSE).

Mark Fidelman hits the nail on the head

I just came across this post by Mark Fidelman. It is the best illustration of Social Capital Value Add that I have ever seen.

It still focuses on the grand influencer – but it captures the value impact.  And Mark does point out that there are a number of factors that impact the increase in value, including I suggest the value of the whole community that Robert Scoble fosters.

Why Every Company Needs a Robert Scoble on Seek Omega

http://www.seekomega.com/2011/01/why-every-company-needs-a-robert-scoble-infographic/

3 Economies of Online Currency: money, reputation and attention

I think we are doing some ground breaking work with Cdling, coming up with our “seeds” monetary system.

I have been doing some related reading this evening.

When I read this post by Alistair Croll, it prompted me to get off my duff and actually post something here again, so I think that is a huge endorsement.

Check it out:

The Three Economies of Online Currency.

Collaborative Consumption by Rachel Botsman & Roo Rogers

Entertaining video here and their Booktracker campaign is an interesting memetic approach.

The Corporate Spark

Thank you to Social Capital Blog and @peterwmcmahon for bringing Frank Koller’s first book to our attention.  I am looking forward to giving a read.

Here is the Wall Street Journal’s review of Spark. How Old-Fashioned Values Drive a Twenty-First Century Corporation:Lessons from Lincoln Electric’s Unique Guaranteed Employment Program.

The Social Capital Blog and WSJ reviews focus on the issue of guaranteed employment because that is the tack that Koller has taken with the book.  But guaranteed employment is just one of James Lincoln’s four organizational pillars that remain in place to this day.

The others were a management advisory board made up of employee representatives; wages based on piecework, so that the quality and quantity of individual workers’ output can be monitored; and annual performance-based bonuses.

Here is the quote from Lincoln that inspired Koller to explore this story:

“The only way we’ll have any kind of widespread job security in today’s business environment is if we change our thinking as to what makes good management.

Instead of praising corporations that downsize, we need to look at their actions as admissions of failure.

We don’t need layoffs – we need creativity.”

It is easy enough to see why Koller has headed in the direction of job security and guaranteed employment, but I wonder if he zeros in on the wrong point.

It seems to me that Lincoln took his strategy to develop trust with workers.  The most important elements of the quote in my opinion are not the reference to job security but the call for a “change in thinking” and recognition that trust is a critical prerequisite to the organizational creativity needed to maintain sustainable competitive success.

In other words …

We must manage to optimize our enterprises for social capital to thrive in

the new economic model.

I am not interested in reading Koller out of nostalgia for “Old Fashion Values”.  I find it easier to relate to James Lincoln as a visionary, ahead of his time … which explains why so few have followed his example.

My interest in reading Koller’s Spark comes from the opportunity to learn more about experiments in maximizing corporate social capital.

On the other hand, if we need to look at Lincoln as a throw back to mystic better times to sell entrenched aging management, I am all in.

Crowd Building: 2020 Media Future @ OCAD

Thanks to Walter Derzko for inviting me to join yesterday’s 2020 Media Futures Workshop at the s-Lab (Strategic Innovation Lab) at OCADSuzanne Stein and Greg Van Alstyne did a great job of moderating and facilitating a fairly free wheeling group of thinkers.

It looks like I was the only one using twitter during the workshop or maybe I had the wrong tag? Here are a few thoughts that emerged that could each be turned into a blog post:

  • We think about discontinuity as a threat but the new global success stories will have discontinuity at the heart of a new approach.  Are the incremental gains achieved through “baby steps” and the “go slow”, “fast follower” practices of Canadian business enough to maintain Canada’s position in the world moving forward?  At the moment many are quick to heap praise on the stability of our financial sector.  I remember a few observers noting that growth in Nova Scotia was not effected by the global downturn.  Hmmm. When achieving global success requires embracing discontinuity, what design approaches should we advocate and adopt?
  • How do digital connections qualify/disqualify people for precious face to face time?  Many of us have now experienced the little thrill of having connected with someone online via twitter or a blog exchange and then met them in real life.  As we become more connected, how will the productivity of our face to face time be impacted.  Is it a sign of disrespect if you have not bothered to “google” someone before attending a scheduled meeting with them?
  • Does copyright transform into “identity right”?  Copyright was established to protect the investment and intellectual property of creators for a reasonable time period.  Online is “busting through to reality” (pick up Jesse Schell’s talk on the Future of Gaming at the 10:56mark).  Is the final produced piece of art or software code the point where we need these protections?  When our life stream is “sensed” and iterative design is key to progress, do we need an entirely different set of rights to ensure that individuals have the ability to profit from the digital footprints that they cast off or in other words, how they direct their lives?
  • We must integrate consumers into design & production.  This generalizes to “crowd sourcing” or making sure that we make corporate decisions, not based upon the smartest person sitting at the table at that moment, but based upon having the smartest thinking anywhere available at the table for the moment of the decision.  It is the kind of motive behind the idea for a Seedling Prediction Market that initially drew me into MDes’ (i.e. Masters of Design in Strategic Foresight and Innovation) orbit. This is not really a question for 2020.  I think it is a question that we need to be answering right now to maintain Ontario/Canada’s position in the world.
  • So some “Crowd Building” related design thinking …
  • MIT Tech TV

Attention-Art-Social Capital: Understanding Value

Yvette Dubel has made a permanent disciple out of me with this amazing video about the shift in value that I describe as Social Capital Value Add.  Take 4:20 and watch this video.  Then share it.  It could be the most valuable 4:20 minutes of business advice that you will ever give to someone.

Yvette does not hammer on the relationship between shared perception, social capital and margins in my crass way and there is more of a media focus in the video than underscoring the social network as a primary factor of production.  But the video is spot on highlighting the connection between attention, social values and sustainable profits.

Yvette will invade your thinking with this video that has a wisp of everything that I have tried to relate at this blog, in the ebook and over at www.memeticbrand.com.

Wow Yvette!  I love it!

Introducing Dr. Dima Dimitrova

In February, Dr. Barry Wellman introduced me to a colleague from his Netlab at the University of Toronto.

Dr. Dimitrina (Dima) Dimitrova has extensive research experience, which includes evaluation research and project management engagements.

Her areas of expertise are social networks, workplace and technology. She was the Principal investigator of the NetMap consulting project, which examined the social network and collaboration practices of researchers and partners of the Canadian Water Network. Here is one of her presentations on this work:

Her doctoral research “The Telework Mosaic (University of Toronto, 2002)” focused on the social implications of new technologies for social networks and new forms of workplace arrangements.  As well, she has conducted research in the areas of diversity, health care, and industrial relations.

She is active at scholarly conferences, presenting and organizing several sessions, peer review work, and in community research. Her latest publication is a co-authored chapter on Virtual Communities of Practice. Other research findings have been published, as co-author or independently written work, in the US, Austria, Britain, Norway, Italy, Russia, and Bulgaria.

Dima is currently teaching at York University and working on a paper on the use of social capital in collaborative research. She is a member of NetLab, a social network group at the University of Toronto led by Barry, who is a leading authority in social network research and theory and a founder of the International Network of Social Network Analysts.

In the weeks since meeting, Dima and I have met several times.  At the second meeting she showed up with a printed copy of my ebook that had so many highlighter marks and post it notes attached to it, I needed to pull out a copy myself just to remember how to answer all of her diligent, expert questions.

While the ebook has been viewed well over 10,000 times now, downloaded more than 1,500 times, featured by Scribd, marked as a favourite by about 60 Scribd users, “liked” by about 30 more and Olav Sorenson has given it a thorough read … I am quite confident at this point that there is no one who has given Social Capital Value Add more thorough, qualified consideration than Dima.

We have crafted a proposal to test the Social Capital Value Add approach in a precedent set of Fortune 100 companies.  If your company would like participate in this research & development program or financially support the design phase of the program please contact me.

This will be an initiative that will help define corporate management methods designed for the network era on a scale equal to similar work by MIT and IBM.


IBM MIT Virtuous Cycle IBM MIT Virtuous Cycle Michael Cayley IBM is working with MIT to define management methods designed for the network era. In the past we have not been able to see how these kinds of efforts have a direct impact investor’s perception.

SCVA research & development program is a similar opportunity for 3 to 5 companies.

Memo to the CEO: Why we need an annual report for technology

This lead into an article in The McKinsey Quarterly caught my attention:

“Memo to the CEO: Why we need an annual report for technology

Although most companies realize that business units and the technology organization must be much more integrated, many don’t know how to make this happen. Business leaders sometimes have only a vague sense of technology’s value, while technology executives often fail to address issues in terms that businesspeople find meaningful. In a hypothetical memo to a CEO, a chief technology officer proposes a solution: an annual report for technology, analogous to the annual report for investors and the broader market.”

The article goes on to succinctly capture a point that I think is true for IT and, as I have been trying to point out, even more of an issue for those evangelizing the adoption of social media and other manifestations of the broadband networked era we are moving into …

“The basic problem is a lack of shared understanding. Our business unit leaders … just see bits and pieces and don’t seem to grasp the interdependencies. It’s understandable that they get upset when things go wrong, but it’s less understandable that they hesitate to invest time and energy to sponsor solutions. Our technology leaders, for their part, often fail to address issues in ways that businesspeople find meaningful and therefore lack credibility … “

Well, the idea of an “annual report” is dead.  We would be looking for something that can be updated frequently or reported in real time.  And, despite a good effort to tackle a major problem, McKinsey’s language still highlights the chasm in thinking.  Taking a org chart and process approach to management instead of a network view leads to compartmentalization instead of integration.  Increasingly, the “value the technology organization delivers” is not somehow distinct from the value that the entire organization is delivering.

In any event, their point is spot on.  There is a need for tighter integration between day to day business and the technology that is already available.

As we have completed the Design Phase proposal of a research and development program that will test Social Capital Value Add in three to five Fortune 100 companies, I have had a chance to talk in depth with others for the first time about some of the far reaching implications of the method.

Social Capital Value Add does not try to measure all of the social capital of a company.  It zeros in on this new form of scaled up social capital that is attributable to broadband empowered individuals.  In this way, it is a leading indicator of how corporations are integrating broadband and the associated applications into their operations to postion themselves to maintain stable earnings and achieve breakthroughs in productivity and innovation.